The Affordable Home Modification and Refinance - a Status Update

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We all knew it would take some time for lenders and servicers to (a) decide whether or not they wanted to and could participate in these programs and(b) gear up to do so. Either we're still in the midst of that gear up time or the programs first announced March 4th - about six weeks ago - dont work beacause foreclosures are up. I suspect its the former.

Even Timmy G. told us this AM that it will take a few more months for the impacts of these programs to appear. The good news is that supposedly hundreds of thousands of applications ahve already been taken and the Treasury has signed contracts with six top servicing companies, among them Citigroup, Wells Fargo, GMAC Mortgage Inc., Select Portfolio Servicing, Saxon Mortgage Services, JP Morgan Chase. The total allocated to these big guys is $9.9 billion. JP Morgan Chase will get up to $3.6 billion, the largest sum of all companies so far, but all have been offered part of the $75 billion slice of the $700 bilion bailout ($50 billion from the bailout and $25 billion from other government sources) to participate. But, as has now become the pattern, we have no idea what those contracts say. Are they really documents that bind these companies to participate in every case possible in the programs or is this announcement merely more PR desinged to get us all pumped up and the other smaller lenders and servicers wanting to go along with the big guys?

Assuming the former, most agree foreclosures will start to decrease over the summer. But again it was the assumptions (mostly on Wall Street about mathematical models and in our minds about the markets irrational exhuberance) that got us into trouble in the first place. Everyone agrees success via these two programs is not guaranteed. A big part of their success will depend on industry participation. Some consuemr groups are alreayd claiming the programs dont do enough to help cahs strapped homeowners. If past success is an indicator, we're not going to be happy with these programs either...less than half of the modifications last year reduced borrower payments by more than 10%. And rememeber of Roosevelt's HOLC modifications 60% still ended in default, eventually rendering the US government one of the largest owners of homes in the country. Which leads us to what we've been saying all along, so many of the loans gone bad involve properties and/or borrower that never should have been approved and may just never make good business sence, no matter how much they're modified. Unfortunately these are all individual cases that have to be addressed as such and we're not going to know how many fall into which bucket until we go throught those motions. So while the numbers may appear to still be high, that may be because they have to be in order to clean out our systems. we can onyl hope (and will probably never know) that those properies and borrowers that make business sense will be saved by smart servicers and lenders - in truth the ultimate faith in the capitalism our nation was founed on.

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