Wednesday, December 17, 2008

On the Housing Crisis: Time to Stop the Bleeding Bair Says

By Kelly Curran in the Housing Wire:

Enough is Enough suggested Federal Deposit Insurance Corp. Chairman Sheila Bair before an audience at the New America Foundation conference. “[W]e’re still very much behind the curve,” in modifying loans to prevent foreclosures, she said. “We need a fast-track, nationwide effort.”

Critics say we can end the housing crisis without modifying troubled mortgages — call that a “myth” Bair said. “Unnecessary foreclosures are a very serious threat to a housing recovery.”

“As regulators, we need to use our authority and clout to stop it, and get the country out of the foreclosure crisis…This has got to be the top priority.”

On Tuesday, House Speaker Nancy Pelosi (D-CA) requested House Financial Services Committee chairman Barney Frank to write-up a bill that would require the Treasury to modify some mortgages if it wants access to a government bank bailout fund. Frank himself said “the refusal so far to use the money [to stop foreclosures] has been a violation of the intent [of TARP]…”

While there are no magic bullets — a reference we’ve heard time and time again from officials — Bair said the core issue is lowering borrowers’ monthly payments to an affordable and sustainable level, as some federal and state governments, and consumer groups have done in recent months.

Bair once again touted the success of a program her team launched for systematically modifying loans at IndyMac Bank, a California bank the FDIC took over in July. Since the program’s launch, she has urged other lenders to use it as a template. “To date, we’ve verified incomes and completed modifications for over 7,500 loans with thousands more in the pipeline,” using the program, she said.

Using IndyMac’s program as a model for a “Loan Mod in a Box” national program, Bair said 1.5 million families could avoid foreclosure using $24 billion in government financing.

In a report by the New York Post this week, however, analyst Mark Hanson combated claims of the program’s success, and said it only turns thousands of homeowners into renters — forking over a monthly payment with no equity in the home now or in the near future. “Homeowners, SMARTEN UP!” Hanson wrote in the report.

There are some who question the effectiveness of loan modifications, Bair acknowledged, as recent data suggests that many modified loans end up re-defaulting, putting homeowners back in trouble. But she “begs to differ.” At the very least, the jury remains out, she said — dismissing reports by the Office of the Comptroller and the Office of Thrift Supervision that show substantial redefaults on modifications. See the Full Story.

The reports too simply defined “modification” and covered a period before most sustainable modification approaches were adopted, Bair said.

“The FDIC has been reworking troubled loans of failed banks for decades. We have a lot of practical experience. We know how to do this, and believe it needs to be done on a national scale,” Bair concluded.

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