Michael McKeever, partner at Philadelphia-based Goldbeck, McCafferty & McKeever, moderated a session at the Mortgage Bankers Association (MBA) National Mortgage Servicing Conference 2010 this week. The following are some of his remarks during that session, "Loss Mitigation: When HAMP is Not an Option":
Last year at this conference in Tampa, Fla., some of us stood around watching Obama announce the Making Home Affordable Program. Relatively speaking, the Home Affordable Modification Program (HAMP) has been successful, but we shouldn't forget about the other options to loan resolution.
Without substantial principal reduction subsidized by the government, it's not in the homeowner's interest to modify a loan severely underwater.
The blame game has always been counterproductive to successful loan resolutions. Parties that feel misled at the point of loan origination have legal rights they can pursue. But there is some element of shared blame. That's a good starting point but, it doesn't lead to resolution.
Remember it's a financial transaction that affects the borrower on a very real level. A borrower came up to me and told me their mom got a reverse mortgage and died, what should they do? My first reaction was, call your servicer.
Homeowners are looking to their banker for advice. That personal relationship is lacking in the industry. This is a personal transaction with the borrower, no matter how much we'd like to make it a strictly business transaction. These are communication issues, not decision-making issues.
Even given the current levels of job loss and income reduction, most homeowners — if they are still employed at the same level — are probably still paying. Somewhere between 80 and 85% of US mortgage borrowers are still paying.
In terms of the blame game, it goes both ways. We can't be blaming individuals for what is really a global economic downturn.
Here's a telling statistic: 10m mortgages are underwater at an average $69,700 per property. This is why we should pursue other options than HAMP.
Foreclosures are being put on hold for 90 days under HAMP trial periods. After that, what should happen? Is the lender communicating and telling borrowers to continue paying after 90 days?
As for non-HAMP options, there is an idea that Fannie Mae's Deed For Lease (D4L) program would keep neighborhoods stabilized, as tenants keeping those homes fixed up might be a way to prevent blight and keep value stable. The Cash for Keys program also addresses a lot of issues.
The majority of cases that go into foreclosure are not contested, but move through the process. If you engage in that conversation, you can expedite the process. Most homeowners just want a little security.
As for strategic default, I think of it like a football player holding out for a better contract. I'm not advocating it, but this is what these homeowners are looking at. They are making an economic decision that they will never be able to afford the home.
On the flip side, that's what lenders do. It's not that we don't like the borrowers, but we think they sometimes might not be able to afford the mortgage.