So here we go with another bank pledging to save us all from the foreclosure crisis. CitiMortgage now jumps on the bandwagon with JP Morganand Bank of America (as part of a Countrywide settlement, since it bought Countrywide), saying that it will modify loans and save thousands of homeowners from foreclosure.
Of course, it's only doing this for loans it owns, not loans that have been securitized and sold into the broader markets.
I’m all about the help, but I have some issues (I always have some issues). Citiis targeting borrowers who are not yet delinquent but who could become delinquent due to any number of issues, like loan resets, loss of jobs or home price depreciation. So I have to ask about yet another moral hazard, like a whole bunch of borrowers who might not really need to stop paying their bills each month suddenly trying to jam onto the modification train.
Yes, there will be some vetting process, one would hope, but, as Fox, Pitt, Kelton’s Howard Shapiro told me this morning, “I think there will be a lot of people on the borderline and this could encourage them to become delinquent in hopes of a better deal.”
My next issue is why now? Borrowers have been swirling around the housing toilet for more than a year now, and only in the last few weeks have the big banks suddenly said, “Okeedoke, let’s have a looksee at that loan.” Could it be all that TARP money being used to pay for these modifications? I thought that TARP money was supposed to help banks to go forward in lending, not pay for past abuses.
Now Fannieand Freddieare jumping on the bandwagon, handily enough the day before a big hearing in the House Financial Services committee, entitled, “Private Sector Cooperation with Mortgage Modifications—Ensuring That Investors, Servicers and Lenders Provide Real Help for Troubled Homeowners.” Please define, “Real Help” Mr. and Ms. Member of Congress!
I just have to wonder, with all these programs to help the borrowers, all these banks pledging to save the homeowners, a) given the sheer number, how are they going to have the manpower to process all these individuals and b) since many of these plans are only temporary modifications, aren’t we just pushing the problem out a few years??
CitiMortgage’s announcement that it could lower the interest rate on loans to 1-2 percent temporarily is essentially offering the same temporary teaser rate that the subprime lenders offered at the height of the housing boom. “It’s sad when the only way to ‘save’ housing and get borrowers out of default is keep them terribly leveraged by cutting their rates to 1-2 percent,” says Mark Hanson, aka Mr. Mortgage. “Exotic loans with teaser rates is what got us here in the first place,” he adds.