Reply #2

http://www.nakedcapitalism.com/2012/04/gao-fannie-and-freddie-cannot-operationally-match-first-and-second-liens.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

Matt Stoller is a fellow at the Roosevelt Institute. You can follow him on twitter at http://www.twitter.com/matthewstoller

If you ask a homeowner who has tried to get a government-certified mortgage modification from a bank, half the time you’ll hear a story of lost paperwork, incompetence, and interminable phone calls to call centers with unhelpful staffers. Recent foreclosure mitigation programs designed by the government are not merely poorly conceived, they are poorly implemented. In discussing principal write-downs, one must take this into account. Who is going to do the writing down? Who will be eligible? What about homes with second mortgages? Most importantly, is there a good database that can match those second mortgages to first mortgages?

The Government Accountability Office has shown, as recently as March of 2011 that there are serious operational problems with the second lien write-down program implemented by Treasury to date. Bluntly speaking, the GAO reports, Fannie doesn’t have the computer systems and quality databases to match second mortgages with first mortgages.

The administration, the banks, and Fannie/Freddie have an impressive track record of operational failure when it comes to implementing mortgage modification programs in the mortgage market. HAMP, the administration’s major housing initiative, bombed not just because of program design, but because of severe operational problems. These kinds of loan modification programs have created bitter mistrust; debtors often send in papers, are given inconsistent instructions, and never hear back on pending loan modifications. Sometimes, debtors will get a loan modification, and after nine months or so of paying on-time, they’ll get a foreclosure notification out the blue. Some of this is because of misaligned incentives in the bank servicing model, but some is a simple lack of operational competence in the form of inadequate record-keeping, staffing and training, and quality assurance.

These same operational competence problems plague the regulatory community. A lack of good data has made it difficult to police programs implemented by banks. The Congressional Oversight Panel came out with a report years ago documenting the glaring absence of a central and complete source of data on foreclosures and mortgages. Regulators must rely on self-reported data by the servicers, or on private foreclosure or mortgage tracking companies...

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