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November 30th, 2009

Shaming Lenders — Part II



If it didn’t work the first time, what makes the Obama administration think it will work this time?

What we’re referring to here is Washington’s insistence on shaming mortgage lenders into modifying more loans. We can think of several reasons why this strategy is merely the latest in a string of Making Home Affordable missteps.

Back in August we wrote a post tilted “When All Else Fails, Try Shaming Servicers into Cooperating.” The fact that the words we wrote nearly four months ago are still a perfect fit to describe both the White House’s current gripes and the lenders’ consistent rebuttals indicate that nothing was solved through shaming the first time around:

The disconnect over the foreclosure-fighting strategies had led to a host of criticisms that seem to fall into two separate camps. Lenders and servicers say the influx of borrowers looking to modify or refinance has been overwhelming. They’ve cited faulty computer systems, complex paperwork, and long-awaited guidelines as obstacles that have only served to slow the process down. The White House on the other hand claims that lenders, time after time, aren’t doing enough. Despite the billions in Federal dollars they’ve received, Washington feels that major lending institutions aren’t toeing the line — they’re not doing all they can.

The Treasury Department made their displeasure with lenders known today as they announced strategies that are designed to make loan modifications more permanent. Disappointed with how few loan mods actually reach a permanent status, the Treasury announced that lenders will not be given incentive payments until mods become permanent. Also, the administration plans to shame lenders by releasing a list of services who are doing a sub-par job.

From the New York Times:

“The banks are not doing a good enough job,” Michael S. Barr, Treasury’s assistant secretary for financial institutions, said in an interview Friday. “Some of the firms ought to be embarrassed, and they will be.”

“They’re not getting a penny from the federal government until they move forward,” Mr. Barr said.

How can you embarrass a lender for not fully participating in a voluntary program? What if a large majority of the borrowers who were declined permanent loan mods didn’t qualify even under government guidelines? Would granting a permanent mod to a borrower who failed to meet the trial-to-permanent guidelines solve anything in the long run? Are we asking lenders to push these mods through to a permanent status regardless?

Don’t think that we’re abandoning borrowers and siding with the lenders — we’ve heard countless stories first-hand about just how frustrating this process can be. We think the Treasury should re-examine this whole process and alter it to better fit the current makeup of failed borrowers. Some say this program was failed from the get go, and whether you’re of that opinion or not, our parting question in August’s post remains just as pertinent now as it did then: “Is publicly shaming lenders going to allow them to work more diligently, swiftly, or effectively?”

What do you say? What is it about Making Home Affordable that needs to change, or is shaming the lenders the right way to go?

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4 Responses to “Shaming Lenders — Part II”

  1. realestatewonk (Jamie Smith Hopkins) Says: November 30th, 2009 at 7:48 pm

    RT @HSHassociates: Shaming Lenders Part II http://bit.ly/6HNjXq Treasury announces plan 2 shame lenders into modifying more loans. It di …

  2. Esko Kiuru Says: November 30th, 2009 at 10:48 pm


    It sure appears that mortgage lenders and servicers have been dragging their feet with loan mods and other foreclosure rescue efforts. Trying to shame them now likely won’t spur them directly into doing more of the mods. What the government’s aim might be is to hurt their reputation among consumers and as their bottom line starts shrinking because people take their business elsewhere then they will come around and begin an honest effort to help borrowers in distress.

  3. Taff Elliott (Brit Army retired) Says: December 1st, 2009 at 3:09 pm

    Hi Stuart,
    I saw your program on “shaming lenders” today, Tuesday December 1st, 2009. I have been coming in and out of the USA for the past 4 years on a B2 visa, with my wife but now the immigration service is telling me that we are spending too much time here. The reason my wife and I, spend so much time here is so as to help our daughter, an RN working at a local hospital and a single mom, raise her 8 year old boy (he’s a citizen). I would love to purchase one of those forclosed houses for around $250,000.00, cash, and be allowed to live here as a retireee. At present there is no catagory, short of coming out of retirement and starting a business, or investing $500,000.00 in a business, that would get us “green cards”. I think there would be a whole bunch of worthy people in a similar situation as that of my wife and I, ready to buy homes here. Why not make us purchase a house for at least $250,000.00 and allow us to spend our retirement pensions and savings here. Love your show. Taff Elliott.

  4. Tim Manni Says: December 1st, 2009 at 6:23 pm


    Thanks for commenting, it’s good to hear from you. I understand and agree with you, but is it the role of our government to try and ruin the reps of businesses that don’t perform up to the expectations of a voluntary program (however TARP banks must participate)? What if these lenders feel they would make more money if they simply foreclosed? Do they not have the right to do that?

    Don’t get me wrong, I feel for these struggling borrowers I do, I know first-hand how frustrating the process can be, but this act of “shaming” really rubs me the wrong way. They could take other avenues.

    Great to hear from you,

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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