Mike Calhoun, president of CRL



Fix or Evict, the Center for Responsible Lending's latest in a series of research reports on mortgage lending and foreclosures, reaches eye-opening conclusions in its ongoing scrutiny of America's still-unfolding foreclosure crisis.  It's no secret that banks and other loan servicers are harming struggling homeowners by pushing unnecessary foreclosure.  Now, this research shows that banks are also acting directly against the best interests of loan investors – the companies that own the loans including pension funds and life insurance companies. 

Most importantly, the report found that the lending industry's poor track record on loan modifications cannot be blamed on homeowners who re-default.

"It's well documented how mortgage servicers' unfair, shoddy practices have hurt homeowners," said Mike Calhoun, president of CRL.  "This research shows that servicers also routinely give the investment community a raw deal." 

At present, families facing eviction outnumber those with a modification by a 12-1 margin. Updated statistics show that residential mortgage foreclosures are on track to reach 13 million by the end of 2014 at a cost of nearly $1 trillion in direct losses to families, local governments, and financial institutions. When CRL factored in the lost value to homes in close proximity of foreclosures, $1.9 trillion in losses will be stripped away by 2012. 

From CRL's perspective, it is time for the banks to accept the consequences for the hundreds of billions of dollars in damages that have been inflicted on the nation.  It was the lack of accountability by banks that is so disturbing when the public bailed them out. Before any foreclosure is allowed to proceed, there needs to be full disclosure for homeowners and investors to ensure that every loan got a good look from the servicer. Further, the current loan servicing investigation by the nation's attorneys general must result in remedies to reform an industry that perpetuated the crisis. Let's not forget that this crisis began with foreclosures and spread to the rest of the economy.

Findings from Fix or Evict? also corroborate recent data from the Home Affordable Modification Program (HAMP), which showed how four out of five households that received HAMP modifications are still current on their mortgages.  Unlike many short-term loan repairs that occur outside the HAMP program, HAMP loan modifications are most likely to involve reducing the homeowner's monthly payment – and this is the type of modification that is likely to be the most successful.

It is amid this growing body of objective analyses that some from the investment side are questioning the low number of modifications as well.

"The misalignment of economic interests between the owners of mortgages and those who service them is the single reason why the mortgage problem has become a crisis and a massive economic drain on this country", said Bill Frey, president of Greenwich Financial Services and a longtime investor advocate. 

"Servicers have been allowed to follow their own voluntary loan modification program", said CRL's Calhoun, "and the result has gone against the best interests of everyone but the servicers themselves.  We need mandatory reforms that ensure servicers follow the law and act in the best interests of their clients – that would end up benefiting everyone."  

Perhaps if investors with deep pockets could align themselves with the people whose pockets have been picked, we could have a real and sustainable recovery.  Sure, it would be an odd couple alignment. But, maybe after so many losses, it's the one that could make the true difference.

 

Charlene Crowell is the Center for Responsible Lending's communications manager for state policy and outreach.