I will attempt to recap my foreclosure fraud panel at Netroots Nation at some point. I know Lisa Derrick took video on her phone of the event, but apparently there’s been a hitch in getting that uploaded. Just as soon as we cross that hurdle, we’ll bring it to you. Until then, there is the liveblog from Marcy Wheeler to refer to.
Let me just use this space to look at one small element of the panel that we got confirmation on, almost at the same time that the panel was happening on Friday. Neil Barofsky talked about the settlement, and its deficiencies. And he reserved his most anger for one aspect. This is from Marcy’s recap:
Most offensive part of settlement, when they talk about accountability. It makes me angry. Same TARP program, they get credit when they put a mortgage through HAMP. The way HAMP works is incentive based system, pays servicers and banks to reduce [principal]. If I’m a bank, I reduce a loan on my portfolio. I might get check for $50,000. As part of this settlement, they’ll get credit when they receive a taxpayer check. You have a settlement that is supposed to bring accountability. How does it work? Taxpayer $$ flowing from us to them. It is very conceivable, if they’ve already marked down the value, they’ll profit, they’re going to recognize taxpayer funded profit as part of this settlement as punishment. Part of this entire approach is why in 2 years we’ll still be here talking about this problem. I don’t see how it’s going to happen.
This is something that HUD vociferously denied, even writing public communications about it. They said that “Servicers cannot use HAMP incentives to meet their obligations under the settlement, plain and simple.” That’s a clever turn of phrase that assumes money is not fungible. Maybe the money itself from HAMP incentives won’t go into the settlement. But if the banks get incentive credit through HAMP, and if HAMP loans are eligible for the settlement, then there’s no functional difference.
And we got confirmation of this, almost at the same time that Neil was talking about it on the panel:
Mortgage servicers began reducing principal on Home Affordable Modification Program workouts in April to satisfy obligations under the $25 billion foreclosure settlement, according to the Treasury Department [...]
Of HAMP modification trials started on privately owned mortgages — not Fannie Mae or Freddie Mac — that held a loan-to-value ratio above 115%, servicers forgave principal on 70% of these workouts in April, up from 66% the month before, according to Treasury data released Wednesday.
Servicers started roughly 4,000 trials under the HAMP principal reduction alternative, or PRA, in April, making up roughly 60% of the workouts on those severely underwater privately owned mortgages.
The remaining 10-percentage point difference (between the 70% overall with a principal reduction and 60% under PRA) was led by servicers reducing principal on HAMP mods to satisfy the AG settlement.
That isn’t a huge bump on principal reduction – only 4,000 workout trials, and the PRA in general has been very ineffective in securing active modifications – but it is being done, based on Treasury data, for the settlement. So there you have it.
The real question is how many loans are being written down simultaneously under PRA and the settlement. PRA allows for tripled HAMP incentives on write-downs. Treasury had no data on that.
There’s a universe where HUD isn’t lying about their version of HAMP interfacing with the settlement, and where it’s still completely offensive. Under the settlement language, the incentive payments for PRA are nominally segregated from the credit received under the settlement for principal reduction. But the servicer still comes out ahead. If they do a principal reduction outside HAMP, they get $100 of credit for a $100 principal reduction. If they do it inside, they get $73 credit, but they get $37 immediately. That’s obviously beneficial to the servicer, to get hard dollars and still a large portion of satisfaction for the settlement. You can use that $37 to make more money, for one thing.
The point is that HUD wanted to use HAMP compliance requirements on servicers for the settlement, so they had to let principal reductions through HAMP be allowed. In reality, they could have just copy-pasted the compliance guidelines into the settlement. The real reason, I suspect, is that they wanted to make HAMP look better, to make it look like more people were using it. And Barofsky pointed out why that’s so offensive: the servicers will get credit on the same loans they got taxpayer-funded checks for.
The other tidbit in the Housing Wire story is that Joseph Smith, the settlement monitor, doesn’t plan to release a quarterly report on the settlement until “the end of the year.” So we’re months away from any metrics.