Battle of the loan modifiers

Sheila Bair, head of the FDIC, was on NPR this morning talking about her new plan to stem foreclosures. She wants to entice servicers to modify more mortgages by having the government shoulder up to half of the losses from any rewritten loans that go back into default. Sound good? Not to the White House or Treasury Department.

Bair, a Republican appointee and long-time booster of the idea that more radical action is needed to stabilize the housing market, is no stranger to going in a direction other than the Bush Administration might like. She was conspicuously absent from the Treasury-anointed loan modification program rolled out by Fannie Mae and Freddie Mac earlier this week. It’s symbolically appropriate one-upsmanship that she wants to give servicers $1,000 for each loan modified; Fan and Fred recently increased the amount they offer to $800.

So now we see what happens. Bair wants money from TARP to fund her plan. Hank Paulson isn’t having any of it. But, as the Washington Post pointed out, “proponents increasingly view the Bush administration as a roadblock with an expiration date.” Bair’s term extends through mid-2011.

Barbara!

tanboontee

What the world faces now is not just another depression or recession. It is the result of great deception, outright cheating compounded by human folly. Most of us continue to be at the mercy of those in power or in the know, unwittingly falling victims to the unscrupulous every time.

Many people believe strongly that wealth can be created indefinitely. This cannot be the truth. To a very large extent, wealth is created at the expense of the precious resources of earth and the naivety of the ignorant. Wealth only transforms (much like energy), but appears to grow from nowhere, misleading people all along.

Pumping in more and more cash into the markets to bail out or nationalizing financial institutions would not be the solution, for it can create a vicious circle that could ultimately destroy the free market.

There has to be a fundamental change of our lifestyle, a shift of paradigm. What does it matter if it will be painful for many at the beginning? Think of our children’s children, and their children. We have to shoulder the responsibility of a better future for them.
(Tan Boon Tee, btt1943@yahoo.com)
gmalcolms

Do servicers have the authority to make those kinds of adjustments? They don’t own the loans – they just collect payments for their clients.

Malcolm!
Barbara Kiviat

@Malcolm!: Yeah, but servicer agreements allow for loan modifications if it means investors will get more money than in a foreclosure. Part of that calculation is how likely a homeowner is to re-default. The Bair plan aims to change the math around that possibility, giving some downside protection by having the government help pay for loans that are modified and then go bad a second time.