Tuesday, July 13, 2010

Obesity and Mortgage Delinquencies

By Katherine Guthrie and Jan Sokolowsky

Abstract: We show that obesity is an economically significant predictor of mortgage delinquencies at the county level. In practice, however, loan contracts do not incorporate easily verifiable health risk factors such as obesity. The discrepancy between theory and practice suggests the existence of substantial cross-subsidization and misallocation of funds in the loan market. The potential for business opportunities and policy implications warrants further investigation of our results with more detailed, albeit costly data.

Download here: papers.ssrn.com/sol3/papers.cfm?abstract_id=1617484

Saturday, July 3, 2010

Strategic defaults remain high, but relief may be in sight

According to the new Experian–Oliver Wyman Market Intelligence Report, strategic defaults continued as a high percentage of all mortgage delinquencies at 19 percent in the second quarter of 2009. While, overall, the broad trends observed in the first Experian–Oliver Wyman Market Intelligence Report on Strategic Defaults have continued into 2009, there is reason to believe the phenomenon may have peaked, or be close to peaking.

Download the complete press release here: www.oliverwyman.com/ow/pdf_files/OW_EN_FS_2010_Press_ExperianOW_Strategic_Defaults.pdf

Friday, July 2, 2010

U.S. GAO: Further Actions Needed to Fully and Equitably Implement Foreclosure Mitigation Programs

Congress created the Troubled Asset Relief Program (TARP) to, among other things, preserve homeownership and protect home values. In March 2009, the U.S. Department of the Treasury (Treasury) announced the Home Affordable Modification Program (HAMP) as its cornerstone effort to achieve these goals. This report examines (1) the extent to which HAMP servicers have treated borrowers consistently and (2) the actions that Treasury has taken to address the challenges of trial modification conversions, negative equity, redefaults, and program stability. GAO obtained information from 10 servicers that account for 71 percent of HAMP funds and spoke with Treasury, Fannie Mae, and Freddie Mac officials.

While one of Treasury's stated goals for HAMP was to standardize the loan modification process across the servicing industry, GAO found inconsistencies in how servicers were treating borrowers under HAMP that could lead to inequitable treatment of similarly situated borrowers. First, because Treasury did not issue guidelines for soliciting borrowers for HAMP until a year after announcing the program, servicers notified borrowers about HAMP anywhere from 31 days to more than 60 days after a delinquency. Many borrowers also complained that they did not receive timely responses to their HAMP applications and had difficulty obtaining information about the program. Treasury has recently issued guidelines on borrower communications, and plans to monitor compliance with the guidelines. Second, Treasury has emphasized the importance of reaching borrowers before they are delinquent but has not issued guidelines for determining when borrowers are in imminent danger of default. As a result, the 10 servicers that GAO contacted reported 7 different sets of criteria for determining imminent default. Third, while Treasury required servicers to have internal quality assurance procedures to ensure compliance with HAMP requirements, Treasury did not specify how loan files should be sampled for review or what the reviews should contain. As a result, some servicers did not review trial modifications or HAMP denials as part of their quality assurance procedures. Fourth, Treasury has not specified which HAMP complaints should be tracked, and several servicers track only certain types of complaints. Fifth, Treasury has not clearly informed borrowers that the HOPE Hotline can be used to raise concerns about servicers' handling of HAMP loan modifications and to challenge potentially incorrect denials, likely limiting the number of borrowers who have used the hotline for these purposes. Finally, Treasury does not have clear consequences for servicers that do not comply with program requirements, potentially leading to inconsistencies in how instances of noncompliance are handled.

For links to the full reports: http://www.gao.gov/products/GAO-10-634

Recommendations for Executive Action

Recommendation: As part of its efforts to continue improving the transparency and accountability of HAMP, the Secretary of the Treasury should expeditiously establish clear and specific criteria for determining whether a borrower is in imminent default to ensure greater consistency across servicers.

Agency Affected: Department of the Treasury

Status: In process

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

Recommendation: As part of its efforts to continue improving the transparency and accountability of HAMP, the Secretary of the Treasury should expeditiously develop additional guidance for servicers on their quality assurance programs for HAMP, including greater specificity on how to categorize loans for sampling and what servicers should be evaluating in their reviews.

Agency Affected: Department of the Treasury

Status: In process

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

Recommendation: As part of its efforts to continue improving the transparency and accountability of HAMP, the Secretary of the Treasury should expeditiously specify which complaints servicers should track to ensure consistency and to facilitate program oversight and compliance.

Agency Affected: Department of the Treasury

Status: In process

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

Recommendation: As part of its efforts to continue improving the transparency and accountability of HAMP, the Secretary of the Treasury should expeditiously more clearly inform borrowers that the HOPE Hotline may also be used if they are having difficulty with their HAMP application or servicer or feel that they have been incorrectly denied HAMP, monitor the effectiveness of the HOPE Hotline as an escalation process for handling borrower concerns about potentially incorrect HAMP denials, and develop an improved escalation mechanism if the HOPE Hotline is not sufficiently effective.

Agency Affected: Department of the Treasury

Status: In process

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

Recommendation: As part of its efforts to continue improving the transparency and accountability of HAMP, the Secretary of the Treasury should expeditiously finalize and issue consequences for servicer noncompliance with HAMP requirements as soon as possible.

Agency Affected: Department of the Treasury

Status: In process

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

Recommendation: As part of its efforts to continue improving the transparency and accountability of HAMP, the Secretary of the Treasury should expeditiously report activity under the principal reduction program, including the extent to which servicers determined that principal reduction was beneficial to investors but did not offer it, to ensure transparency in the implementation of this program feature across servicers.

Agency Affected: Department of the Treasury

Status: In process

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

Recommendation: As part of its efforts to continue improving the transparency and accountability of HAMP, the Secretary of the Treasury should expeditiously finalize and implement benchmarks for performance measures under the first-lien modification program, as well as develop measures and benchmarks for the recently announced HAMP-funded homeowner assistance programs.

Agency Affected: Department of the Treasury

Status: In process

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

Recommendation: As part of its efforts to continue improving the transparency and accountability of HAMP, the Secretary of the Treasury should expeditiously implement a prudent design for remaining HAMP-funded programs.

Agency Affected: Department of the Treasury

Status: In process

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.