Fannie/Freddie to Homeowners: Do Nothing and Help Will Arrive

Housing Wire is reporting that Federal Housing Finance Agency, the conservator of Fannie Mae and Freddie Mac, has launched a new loan modification program. The program is a major departure from HAMP and HARP (thankfully!). It puts mortgage servicers in charge of delivering relief, instead of requiring homeowners to run down, chase, and exhaust themselves contacting their mortgage company.

The basic details available so far are that the program will start this July 1 and end August 2015. It will be open to Fannie/Freddie homeowners who are 90 days or more delinquent on their mortgages. Homeowners will not have to submit proof of financial hardship or undergo extensive underwriting to be qualified for modifications.

This "Streamlined Modification Initiative" needs a better name, better branding, and at least so far, better publicity. But overall, I am very encouraged that FHFA is adopting this kind of program. It's what I call a "push program," requiring the servicers to deliver relief. We've seen at least two servicers roll out similar push programs as part of the National Mortgage Settlement. Bank of America sent letters to over 100,000 homeowners stating that if the borrower literally did nothing that their second mortgage would be forgiven and released, and the debt reported to credit bureaus paid in full. Guess what, 99% of homeowners who got this letter got the relief. Similarly, JPMorgan Chase rolled out a Settlement "refinance" program that was actually a simple, no-doc, interest rate reduction for the life of the loan. Their consumer response rate was multiples of other institutions that required full documentation for their Settlement refinance programs. Both programs are innovative and leverage the servicers' resources, while reducing the onus on everyday families.

Undocumented Debtors

Immigration issues continue to be a major political football, and the work of Jean Braucher, Bob Lawless, and Dov Cohen on race in bankruptcy garnered front-page NY Times attention this year. This makes the publication of Chrystin Ondersma's paper titled Undocumented Debtors particularly timely. The paper is the first-ever look (to my knowledge) at whether and how undocumented people file bankruptcy. The key finding is that while it seems legal--and indeed arguably explicitly contemplated by the bankruptcy system--that undocumented people may file, the rate of filings is very low--on the order of less than one percent of the rate of debtors in the general population. Ondersma also provides a good overview of the credit systems available to undocumented people, ranging from those offered by large national entities, such as ITIN mortgages, to informal mechanisms such as tandas.

The Meaning of Bankrupt

Every so often in the United States, I come across a discusion of the choice of the word "cramdown" (cram down, cram-down) to describe either stripping down liens or confirming a repayment plan without creditor consent. The basic thrust of these articles--the best of which is probably this treatment by William Safire--is that the word itself conveys a great deal about the cultural view of the legal action. In the context of cramdown, I think the word choice reflects the fact the U.S. legal regime generally protects the collection rights of secured creditors in bankruptcy.

At a recent World Bank event, a provocative discussion emerged on the choice of what to call people who file bankruptcy. The Working Group report notes an international trend in the law away from calling people "bankrupt" toward the term "debtor." Judge Wisit Wisitsora-at from Thailand offered a slightly different flavor on the problem--that whatever the word chosen, the literal translation, and cultural meaning, of of such a word can vary tremenedously. He reported that the current word in Thai for a person who files consumer bankrutpcy literally translated means "worse than a failure." Even a quick run of the word "bankrupt" through Google translate in several languages produces some words that are a far cry from the dominant U.S. perspective (at least among academics) of the Fragile Middle Class. Here's a sampling: beggar, penniless, upset, defeated, fallen down on the ground, and unsound.

The Mortgage Settlement's Big Day

Today, October 2, is the last day for the nation's five largest mortgage companies to implement the servicing reforms in the National Mortgage Settlement. As California Monitor, I issued my first report to highlight one of the most important changes--restricting dual tracking. Dual tracking is the name given to the race between foreclosure and loan modifications. Because banks control both processes, beyond some specified waiting periods by state law, many families lose the race to get a decision on whether they can save their home with a loan modification. Restrictions on dual tracking are key to avoiding preventable foreclosures and creating fundamental fairness in the foreclosure process.

The report gives some data on dual tracking to bring visibility to this issue. After the jump, I report some bad news and good news on how the Settlement implementation reforms are going. 

Tribal Bankruptcy

The Wall Street Journal reported last week about a challenge to a bankruptcy filing by the Santa Ysabel Resort and Casino. The casino, located on a reservation outside San Diego, filed a chapter 11 case, listing debts of about $40 million. The bankruptcy filing is being contested by the debtor's lender on the grounds that Native American tribes are sovereign nations and they are cannot use chapter 11. The twist in this case is that the lender raising that argument and trying to get the Resort and Casino tossed out of bankruptcy is itself a federally-recognized Native American tribe, the Yavapai-Apache Nation. It bought the Resort and Casinos' debt from JPMorgan Chase.

When I was in practice I worked on some related issues. For example, whether a tribe who was a creditor of a debtor waived its sovereign immunity by filing a proof claim. The Santa Ysabel case seems to raise much more fundamental issues about the availability of bankruptcy protection. If Santa Ysabel cannot file chapter 11, could it somehow file chapter 15? Would it need its own tribal bankruptcy system to do so? Does it matter whether the resort had incorporated under state law (it apparently is unincorporated)? Does it matter if the resort were not located on tribal land, even if it were wholly owned by a tribe?

Credit Card Data

The CFPB released a beta version of its complaint database on June 19th. Right now, one can only search credit card complaints, which the CFPB began taking on the first birthday of its creation, July 21, 2011. My takeaway is that this is major step forward for the disclosure of complaint data but that the "beta" in the website is well-deserved. You can see some neat graphics and and best of all you can download the raw data. One problem is that this is SO apparently cutting-edge and sophisticated that I couldn't figure out how to use many of the features after a half-hour of poking around (and while some may disagree, I think it's safe to say I have more technology and statistical skills than the vast majority of U.S. consumers). Below was my effort to use the "embed" graphic feature that is touted as allowing one to "publish this dataset on the internet at large."

https://data.consumerfinance.gov/dataset/Complaints-by-issue/c2vc-5i9b/widget_preview?width=760&height=646&customization_id=

And yes, I know the graphic does not appear and the hyperlink does not work. If you cut and paste it into a window (old school), it does appear.

Thank You to Bill Maurer and Stephen Rea

Last week, Credit Slips was fortunate to have the thoughtful insights of Bill Maurer and Stevie Rea on payments systems. Their posts reflect years of research in the United States and overseas on the social meaning of money, the potential and perils of mobile money, and the future of cash. We thank them for sharing their ideas with us.

As anthropologists working in a field shaped by legal rules--and lack thereof, Bill and Stevie offered insights on the ways in which cultural beliefs, social networks, and other non-legal forces are likely to shape the regulation of payments system in the future. If you missed their posts, I highly recommend you treat yourself to them. In their final post, they offer a challenge to Credit Slips readers that I hope we'll take up:

Welcome to Guestbloggers Bill Maurer and Stephen Rea

Credit Slips welcomes Bill Maurer as a guest blogger this week. Bill is NOT a lawyer! Isn't that great? (We all need an occasional break from lawyers, even those of us who are lawyers.)

But Bill is one of my colleagues at the UC Irvine School of Law, where he has a joint appointment. He is a cultural anthropologist whose work focuses on law, property, and money and finance. Of great interest to Slips readers will be Bill's expertise on payment systems, and particularly on mobile money. He is the Director of the Institute for Money, Technology, and Financial Inclusion, a Gates Foundation-funded center for academic and policy research.

Bill's recent paper, Regulation as Retrospective Ethnography: Mobile Money and the Arts of Cash, examines how we are integrating mobile money products into our understanding of money, which traditionally has meant cash. He also has published work on BitCoin, Islamic banking, offshore financial structures, and other payments issues.

Bill will be joined by Stephen Rea, a graduate student in anthropology at UC Irvine. Stephen also is affiliated with the Institute for Money, Technology, and Financial Inclusion and has co-authored a forthcoming paper with Bill and another scholar on mobile money agents in the developing world.

We look forward to their insights.