Obama On Track To Help Four Million Homeowners

In a recent article from CNN Money, the Obama administration said that it was on track to help Four Million Homeowners. The initiative was announced in February and the first institutions to join began accepting applications in April. Also in the article, it says that only 9% of those in need are actually getting help right now. Coming into August gives us a full six months of the current program, which means in theory we'd be 18% by March of next year, and on to 54% within 3 years. I'm confused on how 54% in three years is said to be "on track". In any kind of test, especially academics, 54% is an F. If my company only had a 54% success rate in a three year period, we would have been shut down within 6 months. Furthermore, we sure wouldn't be getting MORE money for our failing efforts. So who's fault is it that the program is failing? The administration? The lenders, who?

I would venture to say that it's primarily the lenders fault. They've been given the funds, given the program guidelines, and they are just not performing. However, the fact that the administration hasn't held these lenders more accountable has certainly not helped things. To their credit, they've recently started using Servicers Progress Reports to hold institutions responsible for their performance. The monthly reports will allow the public to see which institutions are lagging in implementing the plan. However, if you're a homeowner it's irrelevant as to whether there are some banks that are doing good and some that are doing bad, because either way they have no way of changing their lenders. "It is what it is" as there's nothing the homeowner can do to effect their lenders performance. The article noted that "Servicers contacted acknowledged they need to improve their performance, saying they were committed to the president's foreclosure prevention plan. They also stressed that they were doing many modifications outside of the administration's initiative." I don't think it's so much a question of being committed, but more a question of 1)being ABLE and 2) where the conflict of interest comes in between the servicers and the investors they essentially work for. These are two HUGE things that it just seems are glanced over, and we throw more money at it instead of addressing those issues.

Wells Fargo. I think they are putting on one heck of a front. Let me show you why..... In the above mentioned article, Wells Fargo said it will eliminate its backlog within weeks, attributing it to the time lag between when the government announced the initiative and when it released the guidelines. It did not start modifying loans owned by private investors until the end of June, though it began adjusting loans owned by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) in April. The statement insinuates that they are behind because they didn't start doing these until June and April 2009. The reality is that they've been doing them since June and April of 2008. What makes them think they are going to get done in a few weeks, what they couldn't accomplish and keep up with in over a year? Mike Heid, the co-president of Wells Fargo Home Mortgage said that they just added 4000 employees to their loan workout division. This poses two big questions. 1) What is the training/experience level of these 4000 people that homeowners will be trusting their lively hood to (if not previously experienced, how long is the training course to get employees up to speed on their job requirements?) 2) If the average employee is making $2000 a month, and Wells Fargo is losing money hand over fist, where can they get the 8 Million dollars a month in capital to pay for those employees? If a LARGE call center/office will have 200 employees, that's 20 NEW facilities that they would have opened to host 4000 additional employees. Even if they are leasing existing structures instead of building new ones, there are HUGE costs involved (phones, Internet, phone service, electricity, rent, etc...). So either these 4000 new employees are working out of their house, or someone is blowing smoke......

There was an additional article on CNN Money that coincided with the previous article. It gave the synopsis of the Servicers Progress Report. The article breaks down who the lender/servicer is, how much taxpayer(bailout) money they've received, how many trial mods started, what percentage of their eligible applicants they have modified. If you look at the report and compare how much taxpayer money they've received vs. how many mod's they've started, you'll see that some lenders have received up to $770K in taxpayer money PER modification they do (I want their job...). The top recipients of taxpayer money have been in order 1) Bank of America 2) JP Morgan Chase 3) Wells Fargo 4) American Home (AHMSI) 5) Citi Group 6) GMAC . Only one (AHMSI), didn't report back so far. Of those banks that reported back, Bank of America was the highest at $213,946 per mod (received 6 Billion, with only 27,985 done). The lowest was Citi with $39,150 per mod (received 1.1 Billion, with 27,571 done). A modification should not cost the American taxpayers anywhere near either of those figures. If modification companies are getting shut down by the FTC and AG's office for charging unreasonable fees.....where are the FTC and the AG's office while banks are charging the government an AVERAGE of $85,483 per modification they are doing, and this is with an AVERAGE of 9% success rate? Meanwhile, banks are joining the witch hunt advising their clients to not use a modification company for fear of being ripped off. Can we say, "Pot calling the Kettle Black..."

What adds insult to injury is that the banks that have received the most money, and have the highest "average" per modification also have some of the lowest percentages of assisted eligible delinquent loans. Wells Fargo is at 6% and Bank of America is at 4%. This is a clear indication of the lack of oversight. If I'm the president of a company, and my investors just gave me 6 Billion dollars, and six months later I was only 4% into the job I would be FIRED!

There was one lender that definitely stood out from the rest, Saxon. Saxon Mortgage Services has done the most with 212,130 trial mods started, and only $632 Million received). That makes their average cost per modification around $2979. As good as they are doing, they've only touched 25% of their eligible delinquent loans, which means they still have another 636,390 that are still needing help. What most people don't know, the Government is overlooking, and the banks would like to hide from everyone is what Saxon is doing that is making them so successful. Drum roll please..........they hired a modification company to do the work for them. This company was contracted middle to late last year, and has been contacting homeowners directly on behalf of the servicer in order to come to terms between the lender and the homeowner. Saxon realized that opposed to drowning in additional costs to try to hire, train and employ people, they would just pay someone else to do it. Not only has it worked out well for them, but it seems to be working out well for their customers (although decisions tend to lean more in the lenders favor, as the modification company is hired by them). Above all, the idea is working best for the American taxpayer.

It pretty much boils down to two choices. 1) We throw money at the lenders and hope they are willing and able to do what needs to be done 2) We allow legitimate modification companies to do their jobs under reasonable regulation, and encourage lenders to use them in lieu of asking for more bailout money. If the money was coming directly out of your checking account, what would you choose?