OCC's Dugan Takes Aim at HOPE NOW's Workout Claims
After first requiring servicers to report loan level data to his agency in early March, Comptroller of the Currency John Dugan said Wednesday that the OCC had released a new, comprehensive report on mortgage performance during the fourth quarter of 2007 and first quarter of 2008.
What the report found is telling, to say the least. The OCC study seems sure to create the latest firestorm among industry participants, coming at stark odds with the workout claims made recently by the HOPE NOW coalition, which has been reporting on the voluntary industry group's loss mitigation efforts since the early part of this year -- disparities that clearly underscore just how difficult obtaining data can be in an industry where one firm's Alt-A mortgage is another's subprime loan.
HOPE NOW officials have claimed in recent weeks that lenders have helped more than one million borrowers between October of last year and this March -- numbers that have been pushed by Bush administration officials as proof that numerous assistance programs are helping troubled borrowers -- but the OCC said that its analysis found that only 167,000 borrowers had been helped in the same time frame.
Dugan said that as the OCC began to collect data from servicers, a "lack of loan-level validation raised real questions about the precision of the data, at least for our supervisory purposes." In statistical terms, what Dugan's referring to is the whole enchilada: both reliability and validity of the underlying data.
"We ... came to realize that there were some significant limitations with the mortgage performance data reported by other organizations and trade associations," Dugan said, including varying definitions of credit class and shifting definitions for delinquencies as well.
In particular, Dugan singled out loss mitigation reporting as particularly problematic, saying that "some [were] counting any contact with a borrower about payment reduction or relief as a mitigation in process, while others did not count mitigation efforts until a particular mitigation plan had been formally implemented."
"Virtually none of the data had been subjected to a rigorous process to check for consistency and completeness," he said.
The OCC report is the first of what will become a quarterly analysis; the OTS is working on a similar report, but has yet to release its findings.
HOPE NOW has come under fire in recent months by consumer advocates and some industry analysts for allegedly inflating its statistics, or failing to properly report its data -- and Dugan's remarks seem likely to fan the flames of that debate further. Like immediately.
American Banker reported Wednesday evening that HOPE NOW executive director Faith Schwartz was already on the defensive.
"OCC data is reflective of the results of the nine banks it governs that offer mortgage loans," she said in a statement. "Hope Now statistics reflect member data and provide a larger view of the number of solutions delivered by a larger number of mortgage servicers. Because of these differences, the data will not match exactly."
Of course, not exactly matching is one thing. Not matching at all is entirely another, and something tells me that Schwartz will be forced to say much more before this brou-haha dies down.
That sort of massive disparity led Jaret Seiberg, an analyst at Stanford Washington Research Group, to suggest that Dugan's remarks were tantamount to a warning.
"Regulators hold a lot of sway, and if the industry resists their call for better data reporting, then these servicers run the risk they are going to have a system imposed on them that's going to be much more onerous," he said in remarks reported by American Banker.
Behind closed doors, industry participants have long known that data is problematic -- ask anyone that's ever worked at Clayton Holdings, Inc. ($0.00 0%), First American CoreLogic LoanPerformance, any credit rating agency, or as an erstwhile MBS analyst for any number of i-banking operations. It's long been impossible to get "clean" data, and the firms that have even come close to doing it have had a very profitable niche in the secondary markets for quite some time.
Other disparities exit in the OCC data as well, relative to HOPE NOW -- the OCC found, for example, that repayment plans outnumbered loan modifications by more than four to one during March. HOPE NOW has said in previous reports that loan modifications represented 49 percent of all subprime workouts in March.
Sources that spoke with HW said the differences appearing the data don't lend themselves to explanatory reconciliation.
"There isn't a way to explain one difference versus the other, given how amazingly wide the gulf is between each," said one source, an MBS analyst that asked not to be identified by name. "Either HOPE NOW is wrong, or the OCC is. Take your pick."
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