Last week’s Investor’s Business Daily painted a pretty rough picture of everyone’s favorite industry whipping post Countrywide Financial Corp., after getting wind of a servicing policy that requires some delinquent borrowers to pay 30 percent of arrearages before the lender will begin discussing loan modification options — fees that the reporter, Kathleen Doler, called “a steep entrance fee.” . . .I'm pretty sure Angelo was in favor of using "bullshit" in the statement but his PR people told him he's already in enough trouble over "disgusting."
It’s not a blanket policy, as Doler notes, but some borrowers are seeing this policy while others are not. And, of course, Doler finds a few consumer advocates more than willing to demonize the policy, and Countrywide as well. Not hard to do these days.
For its part, Countrywide told IBD that the policy was intended to be a good-faith demonstration, and suggested that the 30 percent policy is only applicable to borrowers staring down a scheduled foreclosure auction. . . .
Allow us to paraphrase what we think the nicely-worded press statement really says: look, if we’ve tried and wasted our resources trying to contact a borrower anywhere from the past 8 to 12 months and they don’t bother to return any of our calls, read any of their mail, or answer the door when we send countless loss mit specialists out there in person, you’ll have to forgive us for calling bullshit when they decide to call asking for a loan mod the day before the foreclosure sale.
As far as the policy itself, of dealing with eleventh-hour workout requests from borrowers who have been blowing you off until the week before the trustee's sale? I have two words to respond to that: Laura Richardson. You will recall that the good Congresswoman let three homes go into the foreclosure process--and she has admitted that she made no attempts to work with the servicer until all three foreclosures were well advanced and the legal fees had started piling up--and then got all righteous with WaMu because her request for a modification the week before the scheduled sale didn't magically make everything go away. I am not suggesting that Richardson is a "typical American borrower," but she suggested that, so there. Would I make her put cash down on the table before bothering to start a last-minute workout with her? You bet your sweet eclair I would.
What really frustrates me about the criticisms of this specific policy is the complaint that it's "inconsistent": it is exactly a policy that is applied only in certain circumstances. On a case-by-case basis. When appropriate. (I am not affirming excessive faith in Countrywide's ability to determine what is and is not "appropriate" in all situations. But saying they need to do better at that is not to say the policy is wrong.) But as I have argued since the "Hope Now" thing first emerged last year, one-size-fits-all paint-by-numbers workout strategies are doomed to fail.
The fact of the matter is that not all borrowers are the same, and not all circumstances are the same. I am reminded of this article from the Washington Post we looked at several weeks ago, which contained some pretty level-headed advice from Diane Cipollone, of the Sustainable Homeownership Project:
Then, said Cipollone, contact a nonprofit housing counseling agency or an attorney. Avoid any unsolicited offers from people who say they can save your house. Do not avoid mail or phone calls from your lender. And if your lender stops accepting payments because it is moving toward foreclosure, save that money for a contribution toward the loan workout. "If you've missed eight mortgage payments and have spent all that money because the lender stopped accepting payments, that is not a good outcome [nor] a good way to start negotiations," said Cipollone.The article then describes the successful modification workout that a couple named Ramsey received, after having made a $3000 "down payment" to the servicer.
The fact of the matter is that no one is going to modify your mortgage payments down to zero in any scenario. If you have made no payments for months on end, and have made no attempt to contact your servicer to request a repayment plan or anything else during those months, and at the last minute before foreclosure you do not have any money in savings--the equivalent of several months' worth of a reasonably modified payment--why should the lender bother with you? You can try telling the lender that for the last six months or more your other expenses were so high that you could not set aside even two or three hundred dollars a month that would otherwise have gone toward the mortgage payment, but in that case, how will you afford the modified payments? If you can document a "temporary" financial hardship, why haven't you contacted the servicer until now?
I am personally willing to bet that if Countrywide asked you for 30% of back payments, late fees, and legal charges, and you were only able to scrape up 20%, they'd probably play ball with you, assuming you have a good story about why there is reason to believe that you can and will make the modified payments. Workouts are a process of negotiation; that's the point. And I'll eat my blog if it turns out that Countrywide is the only servicer with a policy similar to this for late-stage modification requests. My sense is that the animus here is against Countrywide, not any coherent objection to a policy of asking borrowers to put down some "earnest money" before being given a deal that may be in everyone's financial best interest, but which is inevitably beset by moral hazard.