Anonymous_IHB
New member
<A href="http://www.latimes.com/business/la-fi-foreclose23-2009apr23,0,7383726.story?page=1">http://www.latimes.com/business/la-fi-foreclose23-2009apr23,0,7383726.story?page=1</A>
Mortgage defaults rise but homeowners stay put
- Thread starter Anonymous_IHB
- Start date
SoCal78_IHB
New member
Some things I took away from this....
<em>"The various federal efforts now underway do offer some incentives for banks to help homeowners in default -- including a $1,000 payment to loan servicers for every successful loan modification.
But the incentives are even better for loans that are current -- $1,500 in those cases. And the centerpiece of Obama's plan, the Homeowner Affordability and Stability Program, is aimed at people who are current on their loans."</em>
I don't see how this encourages owners to keep current on their loans when the backlog is so great, that only the people who are "circling the drain" as the article says, are the ones that get pushed to the front of the line. I had no idea the loan servicers are receiving this type of incentive but how does that motivate people to keep current?
Also this is interesting and I didn't know:
<em>"To qualify for one of Obama's programs, a mortgage's balance must be no more than 105% of the value of the home."</em>
<em>"The various federal efforts now underway do offer some incentives for banks to help homeowners in default -- including a $1,000 payment to loan servicers for every successful loan modification.
But the incentives are even better for loans that are current -- $1,500 in those cases. And the centerpiece of Obama's plan, the Homeowner Affordability and Stability Program, is aimed at people who are current on their loans."</em>
I don't see how this encourages owners to keep current on their loans when the backlog is so great, that only the people who are "circling the drain" as the article says, are the ones that get pushed to the front of the line. I had no idea the loan servicers are receiving this type of incentive but how does that motivate people to keep current?
Also this is interesting and I didn't know:
<em>"To qualify for one of Obama's programs, a mortgage's balance must be no more than 105% of the value of the home."</em>
CapitalismWorks_IHB
New member
How long can servicers sit on non-performing loans? It is driving me nuts. It is my understanding (limited) that servicers have broad authority to act in the interests of the bond holders, however in practice it would appear that there is a significant deficiency in the Default to Foreclosure process. To me it would seem that servicers would have a direct incentive to process process the non-performing loan as quickly as possible in an effort to maximize recovery values considering falling asset prices. Shoving non-performing loans into purgatory would seem to contradict their fiduciary duty.
awgee_IHB
New member
[quote author="CapitalismWorks" date=1244863476]How long can servicers sit on non-performing loans? It is driving me nuts. It is my understanding (limited) that servicers have broad authority to act in the interests of the bond holders, however in practice it would appear that there is a significant deficiency in the Default to Foreclosure process. To me it would seem that servicers would have a direct incentive to process process the non-performing loan as quickly as possible in an effort to maximize recovery values considering falling asset prices. Shoving non-performing loans into purgatory would seem to contradict their fiduciary duty.</blockquote>
The uncollected payments are counted as income on the bank's until the property is foreclosed. So, the servicer is incentivized to avoid foreclosure and avoid processing the non-performing loan as long as possible.
The uncollected payments are counted as income on the bank's until the property is foreclosed. So, the servicer is incentivized to avoid foreclosure and avoid processing the non-performing loan as long as possible.
CapitalismWorks_IHB
New member
[quote author="awgee" date=1244864238][quote author="CapitalismWorks" date=1244863476]How long can servicers sit on non-performing loans? It is driving me nuts. It is my understanding (limited) that servicers have broad authority to act in the interests of the bond holders, however in practice it would appear that there is a significant deficiency in the Default to Foreclosure process. To me it would seem that servicers would have a direct incentive to process process the non-performing loan as quickly as possible in an effort to maximize recovery values considering falling asset prices. Shoving non-performing loans into purgatory would seem to contradict their fiduciary duty.</blockquote>
The uncollected payments are counted as income on the bank's until the property is foreclosed. So, the servicer is incentivized to avoid foreclosure and avoid processing the non-performing loan as long as possible.</blockquote>
Perverse incentives must be at play here. I just reread Tanta's post on CR about servicing, and according to her booking revenue is limited to loans that are 90-days past due, because after that point the prospect of collecting on past due amount diminishes sharply (here is the quote: Basically, a usual servicing contract will require the servicer to advance interest until the loan is more than 90 days delinquent, after which it is placed in ?nonaccrual? status, meaning it is deemed uncollectable and no more interest has to be advanced.) Of course her comments are regarding the servicing end of the business, and may not necessarily apply to how the banks/investors are accounting for the problem.
It is hard for me to imagine that banks are reporting income on 90+ day delinquent loans, but that doesn't mean it isn't happening.
Let's assume that they can't continue to record income from non-performing loans, but can avoid realizing losses on securities/loans by pushing off the disposition on the collateral. Aided by a complicent FASB, and the altering of mark-to-market accounting, banks have been given some extra time. Still, how long can a bank carry of this charade? What about the MBS investors? Why wouldn't they be demanding an expedited foreclosures in light of declining market values on collateral and the resultant upward pressure on severities?
The uncollected payments are counted as income on the bank's until the property is foreclosed. So, the servicer is incentivized to avoid foreclosure and avoid processing the non-performing loan as long as possible.</blockquote>
Perverse incentives must be at play here. I just reread Tanta's post on CR about servicing, and according to her booking revenue is limited to loans that are 90-days past due, because after that point the prospect of collecting on past due amount diminishes sharply (here is the quote: Basically, a usual servicing contract will require the servicer to advance interest until the loan is more than 90 days delinquent, after which it is placed in ?nonaccrual? status, meaning it is deemed uncollectable and no more interest has to be advanced.) Of course her comments are regarding the servicing end of the business, and may not necessarily apply to how the banks/investors are accounting for the problem.
It is hard for me to imagine that banks are reporting income on 90+ day delinquent loans, but that doesn't mean it isn't happening.
Let's assume that they can't continue to record income from non-performing loans, but can avoid realizing losses on securities/loans by pushing off the disposition on the collateral. Aided by a complicent FASB, and the altering of mark-to-market accounting, banks have been given some extra time. Still, how long can a bank carry of this charade? What about the MBS investors? Why wouldn't they be demanding an expedited foreclosures in light of declining market values on collateral and the resultant upward pressure on severities?
Geotpf_IHB
New member
[quote author="CapitalismWorks" date=1244865015][quote author="awgee" date=1244864238][quote author="CapitalismWorks" date=1244863476]How long can servicers sit on non-performing loans? It is driving me nuts. It is my understanding (limited) that servicers have broad authority to act in the interests of the bond holders, however in practice it would appear that there is a significant deficiency in the Default to Foreclosure process. To me it would seem that servicers would have a direct incentive to process process the non-performing loan as quickly as possible in an effort to maximize recovery values considering falling asset prices. Shoving non-performing loans into purgatory would seem to contradict their fiduciary duty.</blockquote>
The uncollected payments are counted as income on the bank's until the property is foreclosed. So, the servicer is incentivized to avoid foreclosure and avoid processing the non-performing loan as long as possible.</blockquote>
Perverse incentives must be at play here. I just reread Tanta's post on CR about servicing, and according to her booking revenue is limited to loans that are 90-days past due, because after that point the prospect of collecting on past due amount diminishes sharply (here is the quote: Basically, a usual servicing contract will require the servicer to advance interest until the loan is more than 90 days delinquent, after which it is placed in ?nonaccrual? status, meaning it is deemed uncollectable and no more interest has to be advanced.) Of course her comments are regarding the servicing end of the business, and may not necessarily apply to how the banks/investors are accounting for the problem.
It is hard for me to imagine that banks are reporting income on 90+ day delinquent loans, but that doesn't mean it isn't happening.
Let's assume that they can't continue to record income from non-performing loans, but can avoid realizing losses on securities/loans by pushing off the disposition on the collateral. Aided by a complicent FASB, and the altering of mark-to-market accounting, banks have been given some extra time. Still, how long can a bank carry of this charade? What about the MBS investors? Why wouldn't they be demanding an expedited foreclosures in light of declining market values on collateral and the resultant upward pressure on severities?</blockquote>
There's a certain logic there. If somebody is less than 90 days past due, there is at least a chance they might get current. After that, the possibility probably drops to so close to zero it might as well be zero.
The uncollected payments are counted as income on the bank's until the property is foreclosed. So, the servicer is incentivized to avoid foreclosure and avoid processing the non-performing loan as long as possible.</blockquote>
Perverse incentives must be at play here. I just reread Tanta's post on CR about servicing, and according to her booking revenue is limited to loans that are 90-days past due, because after that point the prospect of collecting on past due amount diminishes sharply (here is the quote: Basically, a usual servicing contract will require the servicer to advance interest until the loan is more than 90 days delinquent, after which it is placed in ?nonaccrual? status, meaning it is deemed uncollectable and no more interest has to be advanced.) Of course her comments are regarding the servicing end of the business, and may not necessarily apply to how the banks/investors are accounting for the problem.
It is hard for me to imagine that banks are reporting income on 90+ day delinquent loans, but that doesn't mean it isn't happening.
Let's assume that they can't continue to record income from non-performing loans, but can avoid realizing losses on securities/loans by pushing off the disposition on the collateral. Aided by a complicent FASB, and the altering of mark-to-market accounting, banks have been given some extra time. Still, how long can a bank carry of this charade? What about the MBS investors? Why wouldn't they be demanding an expedited foreclosures in light of declining market values on collateral and the resultant upward pressure on severities?</blockquote>
There's a certain logic there. If somebody is less than 90 days past due, there is at least a chance they might get current. After that, the possibility probably drops to so close to zero it might as well be zero.