On the Foreclosure Front, It’s Woodshedding Time

Written by: Steve Cook   Thu, July 30, 2009 Beyond Today's News, Crisis Programs


Back when people had woodsheds, “woodshedding” meant one of two things.  People “went to the woodshed” to practice  in private such public skills as singing, playing musical instruments and acting.  Woodsheds also were the places fathers took their naughty children and got out the belt or hairbrush, a practice highly discouraged today.

This has been a week for woodshedding on the foreclosure policy front.  Tuesday top Treasury and HUD officials met with executives of 25 mortgage servicers to lay on the leather. With the Administration’s Making Home Affordable program taking much longer than anticipated to move the needle and foreclosures continue to soar to record heights, the political thermometer soaring in a hot Washington July.

To make sure there is no confusion that the meeting was not about fixing the program but motivating the lenders to produce results, the officials more than doubled the number of borrowers receiving help under the foreclosure-prevention plan by November first. The administration’s goal is to have 500,000 trial modifications underway.  Trial mods typically require borrowers make three months of reduced payments before they can qualify for a full modification.  Right now some 200,000 trial mods are underway.

So what was the meeting like?  “There was a sense of urgency,” Barbara Desoer, president of Bank of America Home Mortgage, told Ruth Simon of the Wall Street Journal.  Urgency?  I’ll bet.  Ouch, woodshed time.

Two weeks ago, the Administration served notice on lenders participating in the program that they would not share the ire of Congress and taxpayers alone.  By  August 4—next Tuesday-they will release information on the performance of individual mortgage-servicing companies, including the number of trial modifications offered to eligible borrowers and the number of trial plans that are underway. 

To top off the week, yesterday Barney Frank (D-MA), chairman of the House Financial Services Committee, raised the ante for lenders.  He threatened to revive “cramdown” legislation that would give bankruptcy judge the power to write down mortgages-and it’s not an empty threat.

“If this last effort to produce significant modifications fails, the argument for reviving the bankruptcy option will be extremely strong,” Frank warned in a statement released by his office.  Six weeks ago, at a briefing for real estate editors, Frank was still bemoaning his defeat on cramdown legislation at the hands of the banking lobby in March.  Hearing him talk about it at the time, one got the feeling he would relish another round if lenders should give him an opening. 

Short of some sort of Presidential event, it would be difficult to imagine what else Congress and the Administration could do to take lenders to the woodshed.  But perhaps it’s the other kind of woodshedding-training and fine tuning of skills-that are more important.

Reports are filling the blogs and bubbling up into the national media that lenders are overwhelmed with the volume and complexity of the program.  Many are miserably understaffed and not adequately trained, trying to operate an entirely new program that was never extensively field-tested and is still going through changes.  Making only $1,000 per loan mod, they have greater incentives to market refis or even FHA loans make to Make Hlome Affordable.

Reports from Tuesday’s meetings suggest that loan servicers have been hampered with trying to make a brand new program fraught with administrative issues work on a large scale very quickly.  They discussed the need for standardized forms and to figure out a way to modify primary and secondary loans simultaneously, even though the two loans have different terms and are held by two different lenders.

The second kind of woodshedding seems to be more  evident this week, but we need a lot more more of the first kind.  The air is full of more than enough threats and talk of accountability (and its handmaiden, blame) when what’s really needed is for both sides to find a friendly woodshed, sit down together away from the pressure, and figure out what’s  broken and how it can best be fixed.

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