TOPICS > Economy

Winners and Losers in Home Mortgage Modification

November 25, 2010 at 6:38 PM EDT
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Paul Solman follows up with questions and viewer reaction surrounding mortgage modifications as part of his reporting on Making Sense or Financial News.

RAY SUAREZ: Next, the problems of foreclosures and the difficult questions surrounding mortgage modifications.

Our economics correspondent, Paul Solman, has been looking at those issues in a series of recent stories. Tonight, he has a follow-up about some of the people he profiled and how viewers reacted. It’s all part of his reporting on “Making Sense” of financial news.

MELONIE GRIFFITHS: No way. When we said we need principal reductions, people said, “You guys are crazy.”

PAUL SOLMAN: Boston anti-foreclosure activist Melonie Griffiths.

MELONIE GRIFFITHS: When we said we want to stay in the homes after foreclosure and keep our communities together, people said, “You’re crazy.” Those are the things that we’re getting done right now with people power.

PAUL SOLMAN: Power enhanced by recent revelations of fishy, even fraudulent foreclosure documents which has government now stepping up its pressure on banks to modify more mortgages.

HUD Secretary Shawn Donovan on our air last month —

SHAUN DONOVAN, HUD Secretary: There are servicers who have not been, we believe, doing what they are required to do, what they should be doing to keep people in their homes.

PAUL SOLMAN: Iowa Attorney General Tom Miller is leading a 50-state initiative.

TOM MILLER, attorney general, Iowa: A lot more modifications should be made that aren’t being made.

PAUL SOLMAN: Modifications; reducing interest rates, even principal, to reflect lower home values that could give millions of distressed homeowners more affordable monthly payments.

That’s what Antoinette Coffi-Ahibo was seeking when we interviewed her last year. She’d bought her house in Jamaica, New York, in 2007 for $679,000.

ANTOINETTE COFFI-AHIBO: They told me the mortgage was going to cost me $4,000 every month, that I’m going to pay that only for one year. After a year, I can refinance so I can get the lower mortgage.

PAUL SOLMAN: Coffi-Ahibo, who was born in the Ivory Coast, is now a LensCrafters’ optician.

ANTOINETTE COFFI-AHIBO: Afterwards, I find out that I have two mortgages. One was six percent and the other one was 11 percent.

PAUL SOLMAN: But you didn’t know that at the time?

ANTOINETTE COFFI-AHIBO: No, I didn’t know that at the time, no.

PAUL SOLMAN: Did you read the paperwork? Did you get some —

ANTOINETTE COFFI-AHIBO: It was so many paperwork. I don’t know. But it’s like a bunch of papers that we have to go through that they said just signed.

PAUL SOLMAN: Coffi-Ahibo may have been intimidated by the task, and conned by the loan broker, who’s now being sued left and right. But can the economy afford to bail her out as it, to some extent, did, we learned, when we revisited her a few weeks ago?

ANTOINETTE COFFI-AHIBO: I got very good news. Maybe not that good, but I was able to get the loan modification on my mortgage.

PAUL SOLMAN: Actually, she got two loans modified. The second mortgage was for $130,000 at 11 percent.

ANTOINETTE COFFI-AHIBO: I settled for about $11,000.

PAUL SOLMAN: A hundred and thirty thousand dollars, and you just paid them $11,000, and that was the end of it?


PAUL SOLMAN: A $119,000 loss that someone’s taking. The primary mortgage was an adjustable rate loan for $543,000, originally at 6 percent, but scheduled to jump to 14 percent.

And what happened to that one?

ANTOINETTE COFFI-AHIBO: The new term of the mortgage is they gave me an interest of 4 percent. They want me to pay that in 40 years.

PAUL SOLMAN: Raising her principle to $556,000 on a house now worth about $450,000, but lowering her total payment from $4,000 to $2,600 a month.

ANTOINETTE COFFI-AHIBO: Now I can afford to pay my mortgage. I am paying my mortgage every two weeks to be able to have a good credit.

PAUL SOLMAN: What about people who would say, look, she got a better deal than I’m ever going to get? I also bought when things were too high. I paid a high interest rate. I can’t get refinanced because my house is worth so much less now. They’d say you got away with murder.

ANTOINETTE COFFI-AHIBO: I am a victim. So I don’t think I got away with murder. I think the people who sold me the house got away with murder. And I hope everybody realizes that doing the loan modification to those homeowners struggling is a good thing.

PAUL SOLMAN: Look, says Lionel Ouellette of the New York community group Changer, who helped seal the deal, principal reduction would have been even better, but at least this modification will keep Coffi-Ahibo in her house.

LIONEL OUELLETTE, Executive Director, ChangerNYC.Org: Which goes to show you how much room there is within the economy for financial institutions to modify and to cut deals.

PAUL SOLMAN: But here’s the question that’s been raised often; answered, rarely: Is the Coffi-Ahibo deal fair?

RICK SANTELLI, CNBC: This is America. How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills? Raise their hand.


RICK SANTELLI: President Obama, are you listening?

PAUL SOLMAN: Many credit this rant in February 2009 by CNBC’s Rick Santelli, a former financial trader, for needling a national nerve, helping trigger the Tea Party movement.

RICK SANTELLI: We’re thinking of having a Chicago Tea Party in July.

PAUL SOLMAN: And, we discovered, the anger is alive and well, as when we recently profiled loan modification recipient Jeanette Ford (ph), whose original mortgage was $80,000. Yet, when the house went into foreclosure, she owed $240,000.

So you took a lot of money out of the house in the form of home equity loans, I trust, when the house had risen in value.

WOMAN: Yes, over the years, we’ve taken different equity loans.

PAUL SOLMAN: Interviewees like Ford prompted e-mails like this one:

“Where is the economic justice when she benefits from loans on the property and then effectively defaults on the property?”

So we asked Karl Case, one of the country’s top housing economists and a long-time teacher of economics, to address the question.

KARL CASE, economist: All of this gets to the real nub of what economics is about. If you can show that the total benefit when you carve it all up exceeds the benefit when you let it sit, you should do it.

PAUL SOLMAN: Case cites the Italian economist Vilfredo Pareto, who brought economics around to a common definition of the good.

KARL CASE: Pareto said that if you can make some people better off without making others worse off, even potentially, that’s an efficient change. That brought the whole profession together, because reasonable people would agree.

PAUL SOLMAN: And that’s all that economics can ask for here, is that what you’re saying, that at least everybody is somewhat better off?

KARL CASE: That’s exactly right. The worst thing that can happen is the foreclosure, because then you stay in the house as long as you can, you don’t make any payments on it, you let it deteriorate. When you move out, the truck comes in and takes the copper out of it. The banks should like these alternatives to foreclosure, because foreclosure has these extra costs.

PAUL SOLMAN: And, in fact, some banks do seem to picking up the pace on modifying mortgages. Bank of America, a NewsHour

underwriter, reports that it completed nearly 25,000 modifications in October, up 50 percent from the previous month.

But with some two million homeowners now in foreclosure, $6 trillion worth of mortgages at stake, why aren’t even more being modified?

KARL CASE: There’s an incentive built into the system that’s making it not work. Right now, the incentive is the banks find it cheaper and quicker to go the foreclosure route than they do putting together a complicated deal.

The other thing though that’s blocking it is no one is considering the social cost. And so the neighborhood itself can go down as a result of the collective behavior of people. Somebody has to put that social cost on the table.

PAUL SOLMAN: But then why not force banks to offer homeowners like Coffi-Ahibo deals they can surely afford, a reduction of principal to the current market value, say?

ANTOINETTE COFFI-AHIBO: I love my house. I want to be here. So I’m not going to default. But I’m still going to fight the bank for them to give me the true value of my house.

PAUL SOLMAN: But just as her second mortgage lender accepted a real loss, Coffi-Ahibo may have to be satisfied with a modification that leaves her under water.

KARL CASE: To make everybody whole and take all the damage that’s been done away from everybody is beyond the reach of the economy. I mean, we can’t go and absorb a $6 trillion loss completely.

WOMAN: Hi, I’m Jeanette Ford (ph).

PAUL SOLMAN: So everyone gives up something. But as long as they’re better off than if they didn’t make a deal, then justice, in economic terms, has arguably been achieved.

WOMAN: And they want to sell the house back.


JUDY WOODRUFF: The magnitude of the foreclosure problem remains daunting. Just last month, banks seized more than 90,000 homes. And analysts say three to four million more foreclosures may be in store over the next three years.