Shaming Lenders — Part IIby Tim Manni
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.
“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?