Modification Program a Disappointment

Federal mortgage modification plan disappointing so far:
http://news.yahoo.com/s/csm/20100116/ts_csm/274299

This pretty well matches our experience here - the modification process, the number of completed mods, and what people were getting (especially in the first nine months of the year) were very disappointing. At the very end of the year, things started looking better and we were aware of a few good mods that went through, but for the most part, 2009 was a tough year for borrowers trying to do a modification.

My theory all along has been that a large part of the problem was that banks and mortgage companies did not have available or trained employees to complete these mods (or in their loss mitigation departments and/or REO departments which should have fed into their mods department). What we all experienced in 2007 and 2008 was a drastic reduction in the workforce of mortgage professionals (including myself and my whole office). Once they dumped these employees, most companies imposed strict hiring freezes on their mortgage arms. The departments that were needed in this new era were naturally very short staffed prior to 2007 - there was little or no need for them. Were they allowed to ramp back up quickly to respond to the tsunami of late payers, mod requests, notices of default, foreclosures, etc. that hit them in '07 to '09? Of course not. That's not the way it works. If anything, these departments had more loans per person than ever because they had taken on the portfolios of all the companies that failed. Only once this wave completely swamped the lenders that remained did they realize that they needed to actually HIRE people to deal with the problem. And this was not in any way the "profit-per-employee" hiring that they had engaged in before 2007. Nor was it "bring back the folks who know how to do this already." This was a completely different calculation and not surprisingly it took them a while to figure out how to hire these people, get them trained and start doing the modifications that were needed. Some may still not be up-to-speed.

Now add in the second factor: we have over 10% unemployment still. It's my theory that a high percentage of the people who are in trouble (which is still, by the way, less than 10% of all homeowners), are the most likely to lose their jobs in tough times. So the most likely to need help are the ones unable to qualify for HAMP or any of the other mods I'm familiar with.

The third factor is the layer upon layer of requirements that have been placed on all these programs in 2009. I've seen this from the inside, working on HARP (the partner program for refinances) and the outside in the broker world. The hoops you have to jump through to get anything done nowadays are staggering. What used to take 15-25 days now takes 45-60 and what used to be an exception that an underwriter with authority could override on an otherwise strong file has become a file-killer. This leads directly to a huge volume of files in the pipeline as compared to actual completed deals. I can only guess as to whether this applies to HAMP and the other mod programs because I haven't dealt with them directly, but I'd be surprised if it wasn't a factor.

All this was always likely to lead to a very disappointing response to the mortgage crisis. Anyway, enough of my ranting for today.
Kyle