Tuesday, January 6, 2009 at 12:06 pm
By Barbara Kiviat
Curious Capitalist blog
When the OCC first reported its statistics, it focused on the fact that more than half of the people who receive modifications are back to being late on their mortgages within six months. Technically, that's true. The thing is, that's looking at what percentage of people are 30 or more days late. Even in normal times, plenty of people are a little late mailing in their checks—especially among subprime borrowers, who make up a decent chunk of the overall numbers. If you look at the percentage of people who are 60 or more days late—an indication of a more-serious problem—the figure drops back down to 37%.
Rod Dubitsky, the head of asset-backed securities research at Credit Suisse who probably knows more about loan modifications than anybody else (you decide on your own what this says about our policymakers), thinks it's ridiculous that no one has sorted all this out yet. He's been pushing for a coordinated national effort around modifications since at least early November. He also wants banks that have rolled out their own programs—like JP Morgan Chase, Bank of America and IndyMac (under the direction of Bair's FDIC)—to release standardized data about what, specifically, they're doing. He wants disclosure around the type of modification (e.g., interest-rate reduction, extended amortization), the documentation that was used to determine how much a homeowner can pay, other loss mitigation options that were considered (for example, HUD's Hope for Homeowners program) and the math that shows the decision that was made is the best one, assumptions about future home prices, and a lot of other things.
Keep in mind that Dubitsky's constituency is made up of investors in asset-related securities. Helping people keep their homes is great, but there's also a purely capitalistic motive to collecting clean data and analyzing it and figuring out what works and what doesn't.
In talking with Dubitsky, he made a remark about the government needing a "data swat team." He pointed out that there are quite a few unemployed Wall Streeters who, guess what, know something about mortgage securities and sifting through data and building computer models. I liked what he was getting at: evidence-based public policy. Fascinating thought, no?