The Foreclosure Crisis Round 2
Monday, December 22, 2008SUZANNE PRATT: Despite industry efforts to modify troubled home mortgage loans, more borrowers are falling into trouble. New data from the Federal government show more than half of all loans modified in the first quarter of this year went bad again six months later. As Stephanie Dhue reports, loan servicers are on the front line of the foreclosure crisis.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Ocwen Loan Servicing specializes in collecting home mortgage payments and paying the investors who back those loans. Many of the mortgages it services have been sliced and diced and sold in traunches to investors. These days, the company spends a lot of time helping borrowers who are behind on their payments avoid foreclosure. The company says it modifies four out five of its delinquent loans. But Ocwen Executive VP Paul Koches says not all troubled loans can be saved.
PAUL KOCHES, EXECUTIVE VICE PRESIDENT, OCWEN FINANCIAL CORPORATION OCN: There are some cases where the borrower frankly doesn't want to stay in the home or the economics are such that there is no adjustment to a mortgage instrument that is both affordable for the borrower and will return maximum net present value to the investor.
DHUE: If a loan can't maximize net present value, that means investors benefit more when a home is sold in foreclosure. Eric Stein of the Center for Responsible Lending says investors can have competing interests.
ERIC STEIN, CENTER FOR RESPONSIBLE LENDING: Some traunches of investors do better if they go ahead and foreclose now, rather than modify and that causes paralysis and paralysis defaults, means you go to the default decision, which is foreclosure, which is the easy one to make. To modify is difficult. It's expensive. You are incurring risk.
DHUE: One of the biggest risks is a re-default. New data show more than half of all loans modified in the first quarter of this year have already failed again. Ocwen boasts that less than a quarter of its modified loans re-default. Koches says the company uses behavioral science techniques to weed out bad borrowers.
KOCHES: What it does is it assists in identifying particular categories of debtor psychology that will drive whether or not the borrower is truly going to be able to sustain a modified mortgage.
DHUE: To encourage more loan modifications, FDIC Chairman Sheila Bair wants the government to guarantee up to half the loss if a loan re- defaults. But Bair warns it's not a quick fix to the mortgage mess.
SHEILA BAIR, CHAIRMAN, FDIC: I think we kind of need to get away from this short-term thinking that we can write a big check and we can somehow get all these loans undone. It's laborious to restructure them. We've got to work, roll up our sleeves and just work at getting it done.
DHUE: Analysts say even with an increase in loan modifications, a weakening economy and declining home prices will drive three million homeowners into foreclosure next year. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
