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HOPE Now January Report

posted by Adam Levitin

HOPE Now, the government-encouraged alliance of mortgage servicers assembled to facilitate mortgage workouts, has released its January 2008 numbers. There's good and bad news in these numbers.

Here's the good news: the total number of workouts is up and the percentage of those workouts that are modifications, rather than repayment plans, has risen, especially for subprime loans. It looks like more people are being helped and in more meaningful ways. That's good.

Now the bad news. First, the data comes from servicers covering 2/3s of the industry. How representative are these servicers? It's pretty easy to imagine a case in which the most diligent, responsible servicers are the ones that joined HOPE Now and report their numbers, while the servicers that don't have their acts together are the ones not reporting. We simply don't know, but the self-selection bias in the reporting leaves me worried about the other third of the industry.

Second, we don't know what these modifications look like. Are they sufficient? Servicers presumably want to make the minimum modification possible, which might lead to insufficiently modified loans. There's really no way of knowing. HOPE Now has not released data on the number of modifications that have failed. An older Mortgage Bankers Association report, however, shows that 29% of foreclosures are from failed workouts (modifications and repayment plans), which should at least make us concerned about modifications qualitatively.

Third, there are still a very large number of repayment plans. While it is encouraging that the percentage of modifications has risen, there are still more repayment plans than modifications. Repayment plans may be appropriate for some borrowers, such as those who got behind because of an unexpected expense or a temporary loss of income, but if the problem is a teaser rate resetting to an unaffordable level, a repayment plan makes no sense.

Finally, and perhaps of most concern, is a number not spelled out in the HOPE Now report. The report lists the number of completed foreclosure sales in Q3 and Q4 2007 and in January 2008 (the number does not count deeds in lieu, short sales, or jingle mail). What it doesn't do is project the January 2008 numbers into Q1 2008. If the January numbers hold, we're on pace to have around 200 completed foreclosure sales in Q1 2008, a 35% increase from Q4 2007 and a 45% increase from Q3 2007. HOPE Now might be doing more workouts, but the January ratio of workouts to completed foreclosure sales is lower than Q3 or Q4 2007. Clearly there are a lot of people still not getting helped.


I would submit that, until such time as a servicer's profit is no longer tied directly to fees assessed to a borrower, programs like "Hope Now" or "FSASecure" will never be able to truly help homeowners. And until and unless there is complete transparency in programs like Hope Now and FSASecure as well as the industry as a whole, there will never be a clear picture as to exactly what happened with this "crisis", who ultimately caused it or what can definitively be done to prevent it from happening again.

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