Archive for April, 2009
Mortgage lending information provider AllRegs said Wednesday it had added new features to its state compliance package, which provides searchable access to plain language interpretations, links to supporting laws and regulations, as well as English and Spanish language disclosures for all 50 U.S. states.
AllRegs said it added three new features to the platform, including loan file checklists, disclosure matrices and permissible fee matrices for each of the 50 states. The new checklists include application disclosures and high-cost loan disclosures required by each state; while state-level required document matrices provide an overview of documents required by milestones in the lending process (i.e. time of application, closing, etc). Permissible fees matrices track allowable broker and lender fees, by state.
“We are excited to offer new checklists and matrices on state compliance, required documents and permissible fees through our State Compliance product,“ said Dan Thoms, AllRegs senior vice president. “These documents can be printed and inserted into the front of every loan file, or used as a reference for state compliance. Mortgage professionals will be able to ensure that their loan files are complete and compliant by using these new checklists and matrices, streamlining processes and promoting accuracy.”
Each product is an instant-print worksheet that is continually updated by AllRegs, the company said. For more information, visit http://www.allregs.com.
Write to Paul Jackson at paul.jackson@housingwire.com.
An affiliate of Old Greenwich, Conn.-based hedge fund Ellington Fund Management is planning to go public, the mortgage bond investment firm said Tuesday afternoon in a statement.
Ellington was founded in December 1994 with an investment from the Ziff family; the company's founders are primarily vets of Kidder Peabody's MBS trading and research group. CEO Michael Vranos was Kidder Peabody's head trader and senior manager in the early 1990's, when the firm had the industry's largest CMO book.
Only vice chairman Laurence Penn hails from a different trading desk, having run CMO origination and trading at Lehman Brothers in the late 1980s and early 1990s before joining Ellington in 1995.
Ellington Financial said on Tuesday it intends to file a registration statement tied to a planned IPO of its common shares, representing limited liability company interests; the firm was founded in August 2007, and is externally managed by an affiliate of Ellington Management Group. A registration statement should be filed by the Securities and Exchange Commission before the end of the third quarter, the company said.
Ellington Financial specializes in sub-prime residential mortgage loans, residential mortgage-backed securities (RMBS), asset-backed securities, and collateralized debt obligations (CDO).
For more information, visit http://www.ellingtonfinancial.com.
Write to Paul Jackson at paul.jackson@housingwire.com.
By no surprise, U.S. housing prices continued on a downward slide in February. In a report released Tuesday, Integrated Asset Services, LLC, a provider of default management and residential collateral valuations, reports a 3% month-over-month drop in home prices during the month.
U.S. house prices have now fallen 14.4% on a year-over-year basis and a whopping 17.9% since the height of the real estate bubble in 2006, according to IAS360 data. Since the economic collapse began in September 2008, the index shows a drop of 10.9%.
“We have seen no indication of a positive turn in the housing markets we track, if anything the rate of decline in some areas has increased,” says Dave McCarthy, president and CEO of Integrated Asset Services.
The IAS360 tracks home sales down to the neighborhood level, and then rolls up local totals in 360 counties, nine census divisions, four regions and the nation overall.
Among the four U.S. Census region levels, the Northeast reported a 12.8% decline across the last 5 months and 4.6% drop in February. Similarly, the South dropped 12.8% and 3% for the same respective periods. The West, for its part, was down 10.2% and 2.5%. The Midwest, though down, was the only region that did not experience double-digit declines, dropping a lesser 8.9%.
According to the index and its accompanying report, six of the ten largest metropolitan statistical areas (MSAs) in the U.S. have experienced double-digit declines since the economy's downturn. "No markets seem to be completely immune from the housing crisis," McCarthy says.
Boston, San Francisco, and Miami were the areas hardest hit, down 20.3%, 19.3%, and 18.1% respectively. The Boston area fell 10.3% in February alone. Within Boston's metropolitan area, Essex, MA plunged at an astonishing rate of 22.8% in February, while Suffolk, MA followed closely, dropping 19.3%.
Write to Kelly Curran at kelly.curran@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade
The Term Asset-Backed Securities Lending Facility (TALF), as it stands, is unlikely to meaningfully impact the currently tight credit markets, Moody's Investor's Service found in a recent report. The program will not "gain significant momentum" until the terms are widened to apply to other securities, and therefore the wider investor playground, including pre-2009 triple-A rated commercial mortgage-backed securities (CMBS) and residential mortgage-backed securities (RMBS). Currently TALF only covers triple-A consumer assets originated for securitization in 2009.
“TALF is structured to provide stop-loss protection to investors via non-recourse loans, while requiring participants to have ‘skin in the game’ with haircuts that force borrowers to retain a share of the risk,” said the lead author of the report and Moody's analyst, Jean-Francois Tremblay. “Once future expansions are phased in and the program gains momentum, TALF could help stimulate a market-based price-discovery process for less liquid securities, and through arbitrage, the yields on other instruments should fall — which would gradually help all forms of debt.”
Moody’s report reviews the TALF's credit implications for both investors and issuers in each eligible sector, outlines potential for new issuances under the program and identifies those originators and investors most likely to benefit. For example, “TALF 1.0 should be beneficial to prime retail auto loan lenders…[while] the benefits to lenders of nonprime retail auto loans…will likely be limited,” Moody's said in the report.
Tremblay, however, voices hesitance on new issuances in the report. “Whether the securities are prime loan ABS, RMBS, or CMBS, perhaps the biggest challenge that originators will face is to fund the riskier subordinated tranches (mezzanine and equity) that are required to support the securitization process,” he said. Originators may need to retain these riskier subordinated tranches, and the junior investors it normally attracts, on their balance sheets due to the current risk-averse environment, which Tremblay said is likely to lead to fewer new originations.
Tremblay noted a limitation to the program due to “the lack of flexibility with respect to the term of the loans, which are currently granted on a standard three-year maturity, regardless of the maturity of the securities being financed,” he said. “Investors purchasing an instrument that has a maturity over three years through TALF will face refinancing and market risks, which are both significant rating factors.”
The report's projections are not all negative, however. The rating agency expressed a “significantly more positive” view of the potential credit implications of future TALF expansions, which will extend eligibility to to other types of securities "that are currently burdening many banks’ balance sheets." An expanded TALF, explains in the report, may help banks in three capacities: as ABS originators, as broker-dealers and as investors.
Any significant influence of the TALF expansion on banks' balance sheets and, in turn, investors' confidence is likely to cause Moody's analysts to reduce their loss assumptions, "which may in turn have a positive credit impact on our calculations of banks’ capital ratios and, potentially, on their broader credit profiles and ratings,” Tremblay said.
Write to Diana Golobay at diana.golobay@housingwire.com.
(Update 1: adds in U.S.-based lender perspectives on assisted care provisions in HECMs)
A growing number of older Americans are securing reverse mortgages according to Home Equity Conversion Mortgage (HECM) data recently released by the U.S Department of Housing and Urban Development. Brokers of these types of mortgages, such as Golden Gateway Financial, say this product is a necessary step to increase borrower cash flow in retirement or to avoid financial troubles, however asset managers are voicing concerns.
According to HUD, HECM reverse mortgage application volume increased over 7,000 from 2008 to 2009, 4,603 of which were endorsed by the Federal Housing Administration. Golden Gateway says HUD showed endorsements in March 2009 that were up a significant 24 percent from February of 2009, setting a new monthly record at 11,261 insured loans during the month.
"As retirement investments have plunged and work opportunities grow scarce, reverse mortgages have become a valuable retirement planning tool for many older Americans," says Eric Bachman, founder and CEO of Golden Gateway Financial. He says reverse mortgages are also a means for those older Americans currently facing foreclosure or financial jeopardy to generate cash independent of a credit score or income requirements and ultimately secure a home.
The jump in volume was likely boosted by increasingly flexible criteria. Over the past year, the HECM loan limit was raised from $417,000 to $625,500, likely making reverse mortgages more attractive for homeowners in high cost areas. Recent legislation capped reverse mortgage fees, such as closing costs, limiting expenses for older Americans. And Counseling fees can no longer be paid by lenders or brokers, in effort to promote unbiased information from counselors.
A reverse mortgage allows a homeowner age 62 or older — which now includes the baby boomer generation — to obtain money by accessing the equity available in their home tax-free and with no requirement that it be paid back until the borrower dies or chooses to sell the home. When one of these two instances occurs, however, the cash received from the reverse mortgage plus interest and other fees must be payed to the lender.
According to the numbers, in many instances, reverse mortgages seem to be the answer for older Americans who have been battered by the state of the recent economy. Nonetheless, reverse mortgages can effectively strap an already troubled borrowers into a home as early as age 62, if the borrower doesn't have a means of paying back the reverse mortgage. And if a borrower's life span doesn't exceed the life of the reverse mortgage, their heirs must repay the loan through the sale of the house or some other payment, if they choose to keep the house — not exactly the traditional custom of leaving an estate to a younger generation, according to one source who spoke confidentially to HousingWire.
"There are advantages and disadvantages to reverse mortgages. One consideration is that house prices have to run a 1% per annum increase in value in order to be financially sound to the broker," explains the asset manager for a major European bond firm. "While this type of refi allows the borrower to go on holiday or refurb the home, there are social values pertaining to an end-of-life scenerio. Most people don't realise, for example, that if you get placed into a care home for any period of time, typically, you get booted out your house and your house gets resold by the broker."
U.S.-based reverse mortgage lenders, however, say that HUD has very specific guidelines determining residency and care, designed to protect seniors from just such alleged abuses.
"In fact, HUD provides specific guidelines that a stay for up to 12 consecutive months in an assisted care facility, nursing home, etc., will not cause the reverse mortgage to become due and payable," a reverse mortgage specialist told HousingWire. "But, a stay exceeding 12 consecutive months can cause the reverse mortgage to become due and payable. This is a wonderful exception to the customary 180 day occupancy requirement for a principal residence and applies very well to the senior community who may need a recuperative stay somewhere besides the primary residence."
Write to Kelly Curran at kelly.curran@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade
Significant non-banking financial institutions like American International Group Inc. (AIG: 25.25 +0.44%) are an integral part of the U.S. economy and so interconnected with other institutions that outright failure is not an option, Federal Reserve chairman Ben Bernanke said in a speech today. Instead, he said, such firms ought to face a strict set of regulatory requirements — and potential regulatory intervention — similar to that imposed on banks by the Federal Deposit Insurance Corp.
"As a general rule, my strong preference is that any firm that cannot meet its obligations should bear the consequences of the marketplace," Bernanke said. "But recent circumstances have been truly extraordinary."
The Fed chairman began his speech with the promise to answer four key questions about the financial crisis:
How did we get here?
What is the Fed doing to address the situation?
Does the Fed's aggressive response risk massive inflation down the road?
Why did the Fed and the Treasury act to prevent the bankruptcy of some major financial firms?
Bernanke likened the four financial questions to a practice among Jewish observers of the Passover meal, when the youngest child asks four traditional questions, the answers "to which tell the history of the Jews when they were slaves in Egypt and during their exodus to the Promised Land," he said. It's unclear why the Fed chairman linked major financial concerns to traditional Passover dialogues by drawing a comparison to the religious tale of enslavement and persecution at the hands of the operating government.
The deliverance tale he told the Georgia-based Morehouse College students and faculty Tuesday was one of monetary policy and credit-easing efforts having led investors, lenders and taxpayers out from the oppression of default-related losses and high interest rates. Of course, the biblical ending of the Bernanke's anecdote traditionally ends with a mass exodus from the land, with the newly nomadic Jews spending decades homeless in the desert.
The recent housing boom in the US was no less characterized by wandering tendencies, with careless lending habits unchecked by regulators. this is in part due to intermediaries in the subprime market being subject to little or no federal regulation, Bernanke said. In the bursting of the bubble that followed and the panic caused by heavy losses in the secondary markets, the Fed reacted by "aggressively" lowering the federal funds rate in several short years, effectively to 0% from a recent high of 5.25%.
"However, given the ongoing problems in credit markets, conventional monetary policy alone is not adequate to provide all the support that the economy needs," Bernanke said. "The Fed has therefore taken a number of steps to help the economy by unclogging the flow of credit to households and businesses," including short-term loans, lending initiatives to restore confidence in money market mutual funds and buying mortgage-related securities. "In doing so, we have demonstrated that the Fed's toolkit remains potent, even though the federal funds rate is close to zero and thus cannot be reduced further."
The Fed has also, in the process, greatly increased its balance sheet (most recent data show the Fed’s consolidated balance sheet has risen to a value of $2.07 trillion as of April 8, up $1.2 trillion from April 9, 2008) and funneled considerable amounts of liquidity into the financial market. But Bernanke's comments reiterate the Fed's view of inflation that may "persist for a time below rates that best foster economic growth and price stability in the longer term," according to the most recent Federal Open Market Committee (FOMC) statement.
"In their latest quarterly projections of the economy, most members of the FOMC indicated that they would like to see an annual inflation rate of about 2 percent in the longer term," Bernanke said Tuesday. "Right now, because of the weakness in economic conditions here and around the world, inflation has been running less than that, and our best forecast is that inflation will remain quite low for some time. Thus, the Fed's proactive policy approach is not at all inconsistent with the goal of price stability in the medium term."
The Fed chairman expressed his optimism that demand will eventually recover, as consumers find more resources and inclination to purchase goods and services. Higher demand in concert with the added liquidity already fueled into the system will pose real inflationary risks "unless the FOMC acts to remove some of that liquidity and raise the federal funds rate," Bernanke said. "We have a number of effective tools that will allow us to drain excess liquidity and begin to raise rates at the appropriate time; that said, unwinding or scaling down some of our special lending programs will almost certainly have to be part of our strategy for reducing policy stimulus once the recovery is under way."
The housing market has seen some semblance of recovery — at least in affordability –as both mortgage rates and home prices have fallen dramatically from the height of the bubble, Bernanke pointed out. "For example, two years ago, when mortgage rates were higher than 6 percent, payments on a mortgage covering 80 percent of the cost of a $215,000 home would have been more than $1,000 per month," he said. "Today, the price of that same house may have fallen to $170,000, and, at today's mortgage interest rates, the monthly payment would be about $700."
Despite the bit of bright news for prospective home buyers, the fact remains that their ultimate lenders — aggregaters like JP Morgan Chase & Co. (JPM: 37.21 -0.75%) — along with giant insurers like AIG and other systemically significant financial institutions, have had to rely on government aid in recent months in the form of capital injections and targeted investments through the Troubled Asset Relief Program. Many of these firms have come under criticism for accepting taxpayer money from the government and paying out millions of dollars in what are viewed by the public and media alike as unnecessary programs, like AIG's recent retention bonus flop.
The Fed and Treasury Department have increasingly been called out on their oversight of these institutions and, in some cases, their decision to bail out these firms in the first place. In the case of AIG, according to Bernanke's comments, failure would simply not have been an option. Complex financial firms like AIG "tend to be highly interconnected with other firms and markets," posing not only a risk to their own shareholders but to other intitutions abroad as well as "the entire global financial system," according to Bernanke.
"At best, the consequences of AIG's failure would have been a significant intensification of an already severe financial crisis and a further worsening of economic conditions," he said. "Conceivably, its failure could have triggered a 1930s-style global financial and economic meltdown, with catastrophic implications for production, incomes, and jobs."
AIG's significance may have necessitated intervention, but it also calls attention to the need for "a new set of procedures for dealing with a complex, systemically important financial institution on the brink of failure," according to Bernanke's comments. The investor fear in recent months has been a nationalization — or at least partial nationalization — of the U.S. banking system and federal regulation that reaches deeply into the roots of even the private sector. The Fed chairman did not say the regulators' new rule book on non-banks would mean such severe federal control, but his comments supported the view of some sort of intervention as necessary.
New non-bank-related procedures "would allow federal regulators to unwind a failing company in ways that minimize disruptions in financial markets," Bernanke said. "An effective regime would also provide the authorities greater latitude to negotiate with creditors and to modify contracts entered into by the company, including contracts that set bonuses and other compensation for management."
Only time will tell exactly how much control such a regime would exert over the U.S. banking system and private sector.
Write to Diana Golobay at diana.golobay@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
We all know by now that Goldman's Q12009 was, well, golden. But the NY Times' Floyd Norris has some very pertinent questions, like: where'd December go?
6:50 a.m.| Where’s December?: Goldman Sachs reported a profit of $1.8 billion in the first quarter, and plans to sell $5 billion in stock and get out of the government’s clutches, if it can.
How did it do that? One way was to hide a lot of losses in not-so-plain sight.
Goldman’s 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman’s earnings statement, and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ended in February.
The orphan month featured — surprise — lots of write-offs. The pretax loss was $1.3 billion, and the after-tax loss was $780 million.
Would the firm have had a profit if it had stuck to its old calendar, and had to include December and exclude March?
Very interesting, indeed. Two major financials have reported earnings now (WFC being the other), and both should have some questions over the gymnastics used to arrive at such seemingly sacchrine earnings numbers.
The bond insurer brouhaha hasn't yet run its course, with Moody's Investors Service late Monday cutting Ambac Financial Group's (ABK: 0.00 N/A) Ambac Assurance bond insurance unit to junk territory over concerns about rising RMBS losses.
The ratings agency cut financial strength ratings of Ambac Assurance and the company's UK-based arm by a whopping five notches to "Ba3" from "Baa1." The rating is three notches into what is considered 'junk' territory. Moody's also cut senior debt ratings of the corporate parent, Ambac Financial, ever further — six notches to "Caa1" from "Ba1."
"The downgrade of Ambac's ratings primarily reflects weakened risk adjusted capitalization, as Moody's loss estimates on RMBS securities have increased significantly (particularly with respect to Alt-A transactions)," analysts James Eck and Jack Dorer said in a press statement. "These higher loss estimates increase the estimated capital required to support Ambac's sizable direct RMBS portfolio (including securities owned as well as securities guaranteed) and also the insurer's large portfolio of ABS CDO risks."
Many bond insurers like Ambac provided the top-rated portions of private-party RMBS and related CDO deals with a guarantee that essentially was designed to serve as a proxy for the government guarantee that exists on Fannie/Freddie/Ginnie mortgage bond issues. But the strength of that guarantee is only as good as the rating of the firm that provides it — which means that increasing MBS losses have tanked insurers’ ratings, and escalated the expected amount of claim losses tied to deals they insured.
Ambac recorded a statutory net loss of $4.0 billion for 2008, ending the year with $1.6 billion in policyholders' surplus only after giving effect to $2.0 billion of new capital raised during the year. Qualified statutory capital, comprised of policyholders' surplus and contingency reserves, stood at approximately $3.5 billion at year-end 2008, Moody's noted.
At year-end 2008, the market value of Ambac's consolidated invested assets was approximately $2.5 billion below amortized cost, with much of the difference attributable to RMBS assets. While Moody's said it believes that "large liquidity premiums contribute to this differential," the analysts also said that at least some of the market price declines were likely to reflect a more traditional credit premium — meaning, in plain English, that market price declines in invested assets don't merely reflect investor fear, something that has been discussed at length in a recent column by colleague Linda Lowell.
For its part, Ambac officials downplayed the effect of the downgrade, noting that the latest downgrade marks Moody's tenth such opinion change since January 2008. Saying it is "confident in the strength of the financial guarantee business model," the company said the downgrade would do little to affect its business strategy.
Ambac recently said it will look to launch Everspan Financial Guarantee Corp., a separate insurance unit, in a bid to carve out the municipal bond insurance business from the more toxic mortgage-bond insurance business that has largely dragged Ambac (and other monoline bond insurers like it) into the financial morass.
Write to Paul Jackson at paul.jackson@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.
Hopes that the U.S. economy might be breaking out of its steep slide were dealt a blow Tuesday morning, as retail sales plunged unexpectedly during March. Weak consumer spending suggests that the nation's recession is likely to have further to run, and mortgage industry participants should plan accordingly, despite surging refinance volumes as of late.
The Commerce Dept. said Tuesday that retail sales decreased by 1.1% compared to the prior month, a far worse showing than the increase of 0.3% economists and analysts had expected. February sales were revised upward to a 0.3% gain, compared to the 0.1% dip originally estimated, but the revision mattered little in framing the March sales estimate. Read the full report.
The poor March sales number was clearly a surprise, and helped turn futures trading on major stock markets negative ahead of market open; the March decline in retail sales reverses two months of gains in Jan. and Feb. that had some expecting the U.S. economy to rebound from its Q42008 doldrums. But it's clear that job losses are finally being felt.
"Start shedding more than half a million jobs monthly, and there is simply no way retail sales chug ahead," said a senior bank executive that asked not to be named.
No sector appeared to feel that message more painfully than did U.S. automakers, which have been struggling through what many economists have taken to calling the Great Recession. During March, auto sales fell an estimated 2.3%, following a 3% drop in Feb.; auto sales in March were 23.5% below year-ago levels.
But automakers weren't alone, as retail sales fell 0.9 percent in March even excluding autos — analysts had expected flat non-auto retail sales for the month. Home-related retail categories clearly took a hit in March. Furniture and home furnishings retailers saw sales dip 1.7% in March compared to Feb.; sales were 13.1% below year-ago levels. And building material and home supply stores, including Home Depot and Lowe's among others, saw sales fall 0.9%.
A separate report from the Labor Dept. showed Tuesday morning that the nation's recession is keeping inflation in check, with prices paid to U.S. producers unexpectedly falling 1.2% in March, after a 0.1% increase in Feb. So-called core inflation, excluding the cost of fuel and food, remained unchanged; year-over-year, core inflation has posted its largest decrease in more than 5 decades.
The 1.2 percent decrease in the producer price index for finished good followed a 0.1 percent gain in February, figures from the Labor Department showed today in Washington. Excluding fuel and food, so-called core prices were unchanged. Over the last 12 months, wholesale expenses have fallen by the most in almost six decades. Tuesday's data seems likely to reignite some concern from analysts and economists over the possible threat of a so-called 'deflationary spiral' in the U.S. economy.
Write to Paul Jackson at paul.jackson@housingwire.com.
An interesting research paper released last week by researchers at the Federal Reserve Bank of Boston takes a critical look at the nation's foreclosure problem, and finds evidence that conflicts directly with what many have assumed is common knowledge — the idea that borrowers are stuck in 'unafforable mortgages,' and need strong government intervention in modification efforts to make their mortgages more affordable.
The paper's authors — the Boston Fed's Christopher Foote, Atlanta Fed's Kristopher Gerardi, University of Geneva professor Lorenz Goette, and the Boston Fed's Paul Willen — argue that mortgage "affordability", defined in the study as the borrower's DTI ratio at origination, is an exceptionally poor predictor of a future default.
"While a higher monthly payment makes default more likely, other factors, such as the level of house prices, expectations of future house price growth and intertemporal variation in household income, matter as well," they write. "Movements in all of these factors have increased the probability of default in recent years, so a large increase in foreclosures is not surprising."
The authors argue that the affordability of a mortgage matters, but not nearly as much as other factors. More from the research team: "Ultimately, the importance of affordability at origination is an empirical question and the data show scant evidence of its importance. We estimate that a 10-percentage-point increase in the DTI ratio increases the probability of a 90-day-delinquency by 7 to 11 percent, depending on the borrower. By contrast, an 1-percentage-point increase in the unemployment rate raises this probability by 10-20 percent, while a 10-percentage-point fall in house prices raises it by more than half."
Foreclosure might be the best option
Consumer advocates have gained plenty of traction in the past year decrying foreclosures as a 'lose-lose' solution, and by suggesting that everyone — borrowers and investors — have the most to gain by modifying a mortgage and keeping a borrower in their home. And the same advocates have largely pointed the finger at servicers, either overstaffed or unwilling to modify achieve what seems to be such an optimal solution.
One problem: loan modifications might not really be the win-win that so many assume.
"First, the typical calculation purporting to show that an investor loses money when a foreclosure occurs does not capture all relevant aspects of the problem," the authors write in the study.
"Investors also lose money when they modify mortgages for borrowers who would have repaid anyway, especially if modifications are done en masse, as proponents insist they should be. Moreover, the calculation ignores the possibility that borrowers with modified loans will default again later, usually for the same reason they defaulted in the first place. These two problems are empirically meaningful and can easily explain why servicers eschew modification in favor of foreclosure."
The authors derive a simple econometric model that explains why it often costs a servicer/investor more to modify loans than to simply foreclose on a property, and suggest that in certain circumstances, "a good policy might help homeowners transition to rentership through short sales or other procedures."
Write to Paul Jackson at paul.jackson@housingwire.com.
