Countrywide wants up-front payments to discuss some loan mods? So what?
Last week's Investor's Business Daily painted a pretty rough picture of everyone's favorite industry whipping post Countrywide Financial Corp., after getting wind of a servicing policy that requires some delinquent borrowers to pay 30 percent of arrearages before the lender will begin discussing loan modification options -- fees that the reporter, Kathleen Doler, called "a steep entrance fee." From the story, an indictment:
They said Countrywide is requiring homeowners to pay 30% of the amount they are in arrears on payments, plus 30% of accrued late fees and 30% of attorney fees already incurred in the foreclosure process. The payment doesn't guarantee a loan modification, they said. It is only the price some consumers must pay to begin discussions with Countrywide, based in Calabasas, Calif. The policy seems to go against Countrywide's advertising and public statements about its efforts to help troubled borrowers stay in their homes. It comes amid a major drive by Congress and the Bush administration to steady the housing market and help homeowners avoid foreclosure.It's not a blanket policy, as Doler notes, but some borrowers are seeing this policy while others are not. And, of course, Doler finds a few consumer advocates more than willing to demonize the policy, and Countrywide as well. Not hard to do these days. For its part, Countrywide told IBD that the policy was intended to be a good-faith demonstration, and suggested that the 30 percent policy is only applicable to borrowers staring down a scheduled foreclosure auction (emphasis added):
"It is Countrywide's fiduciary duty to our investors to ensure that borrowers seeking workouts have the wherewithal to stay in their home," the statement said. "For those who have not contacted the company and are seriously delinquent, the company views a 30% payment as good faith towards a modification and a demonstration of the borrower's ability to resume and make payments in the future."Which is another way of saying that this policy likely doesn't even enter into the equation with a one month delinquent borrower. Probably not even a 3 month delinquency. (It probably would behoove Countrywide's press folks to learn the value of actually communicating with the press, but that's a story for another day.) Allow us to paraphrase what we think the nicely-worded press statement really says: look, if we've tried and wasted our resources trying to contact a borrower anywhere from the past 8 to 12 months and they don't bother to return any of our calls, read any of their mail, or answer the door when we send countless loss mit specialists out there in person, you'll have to forgive us for calling bullshit when they decide to call asking for a loan mod the day before the foreclosure sale. That's what we'd suspect the policy really is, although we can't be sure, since Countrywide has decided to play coy with the press on this. I'm sure, given Countrywide's recent track history in the servicing arena, that some borrowers have been assigned the 30 percent fee erroneously; I'm also pretty sure that many borrowers can't negotiate Countrywide's maze of a loss mitigation department fast enough to formally request a loan modification before their account gets flagged for the 30 percent requirement. And that's a real problem -- problem enough even to suggest that the up-front loan mod fee should be rescinded. But that's a very different argument than simply suggesting that the policy is inherently wrong to begin with, and that Countrywide's policies "change with the wind" -- an allegation made by one Glenn Neely of American Mortgage Resolution Advocates LLC in the story. (I tried to find the company on the Web, but apparently they have no Web site.) Loan modifications are costly, and can be time consuming -- if you've ever worked in servicing for a meaningful period of time, you learn pretty quickly that the borrowers who go AWOL until right before the foreclosure sale, or right before an eviction, aren't usually the ones interested in keeping their home and negotiating in good faith. It may not be pretty to say, but it's absolutely true, and it happens all the time. Beyond that, by deciding to hide from the servicer for months on end, fees and arrearages have been piling up -- totals that must be paid by the servicer and/or borrower regardless of whether the loan is restructured or not. Which means qualifying for a viable loan modification is that much harder to do, even if the borrower isn't playing games; after all, isn't the entire point here for servicers to invest their limited resources in preventing avoidable foreclosures? If so, I'd argue that such a policy -- unpopular as it may seem -- could be helping Countrywide do just that; and borrowers making good-faith and early efforts to work with their servicer on a solution should be thanking their lucky stars that it exists. Note: the author is long on CFC.