Realty Check

Govt. Loan Mods Beat the Deadline


Today the Treasury Department releases its monthly status report on its launched last Spring.

This is the one that gives the number of trial mods offered and then lists all the servicers and shows what they are and, more importantly, are not doing for troubled borrowers. The report goes through Sept. 30th, but the Administration didn't want to let an important milestone go by, so they had a short conference call this morning with reporters.

Treasury Secretary Timothy Geithner began: "We are announcing today that half a million families are now participating in loan modifications that are substantially reducing their mortgage costs and therefore increasing the amount of money they get to keep." That was the figure officials targeted several months ago to get to by the end of October, and here we are only at October 8th, so a little back-slapping going on there. "It means that we're now reaching almost half or roughly 40% of the people currently eligible for this program," Geithner added.

What's more important than that milestone, Secretary Geithner aptly points out, is that "the number of people participating in trial modifications is now, for the first time, increasing at a rate faster than new families are becoming eligible for this program, that is, facing the risk of foreclosure."

The statement left me wondering how long that would actually hold true? First of all, we have to be clear that he said those "currently eligible for the program." Now as one reporter on the call pointed out smartly, if the Treasury Secretary says half a million are taking part, and that's roughly 40 percent of the people eligible, that would mean about 1.2 million are eligible, and at the start of the program, the administration said 3-4 million would be eligible.

So a "Senior Administration Official" was left to do the math.

First of all, that 3-4 million is extrapolated out through next year and the year after, because as we all know the foreclosure crisis isn't getting much better. But then you have to remove all the folks that are not eligible, which is a long list: First there are those with FHA or VA loans, who are being modified separately, then those above the jumbo-conforming loan limit, then those non-owner-occupied types (investors), then those who ditched the home and are long gone, and then those who already have an "affordable" loan but just choose not to pay it. Take those out and you get to 1.2 million.

But back to my initial premise, which is can the mods stay ahead of the number of eligible borrowers? Even Secretary Geithner added, after his headline, "We're still living with some risk that housing is going to be a source of weakness for the broader economy and that we still face unacceptably large number of families across the country still at risk of losing a home they can afford to stay in."

We know that banks have been holding onto a large number of delinquent loans, waiting to get them into the system to see if they are eligible. We also know that unemployment continues to rise, which will put more borrowers into the delinquent pool. We also know that the current "stabilization" in home prices (and I call it that because I don't see home price gains, I just see their year over year drops improving) may in fact be temporary due to the expiration of the first time home buyer tax credit and increased inventories of foreclosed properties finally getting to the market.

If home prices do take a double dip, that could put more borrowers at risk, especially those who have Pay Option Arms, those lovely loans where you get to choose what you feel like paying each month, until the grim reaper comes a calling, which he's doing now.

Don't get me wrong, I'm not throwing icy cold reporter water all over the modification program's accomplishments. They've been pretty up front about improving things that aren't working, streamlining the process more every month, and, my fave, publishing the servicer numbers every month just to embarrass the big banks (it's kind of 4th grade, but it probably works).

Oh, and I asked about that pesky first time home buyer tax credit expiration. Unfortunately Geithner and Donovan weren't taking questions, so the "Senior Administration Official" was stuck with me. "There are a lot of ideas out there for what to do with the extension of the home buyer credit, and other credits, and those issues are not yet finalized from our perspective internally." In other words, he punted it.

Questions?  Comments?