Three months have passed since many delinquent IndyMac borrowers received the first wave of letters telling them about the Federal Deposit Insurance Corp. (FDIC)-installed systematic loan modification program. So, how's it going thus far?
Well, the results appear to be a mixed bag. The first round of mailings sent to borrowers for whom IndyMac has recent financial information has netted a decent response, on the order of two-thirds, according to the Wall Street Journal. Borrowers for whom the bank does not have recent financial info, however, have been less inspiring: About 10% have replied, according to the article.
Additionally, modifications have been completed on 3,500 loans, and the average reduction in monthly house payments for those borrowers is 23%.
Ninety days in, it looks like there are at least two lessons that servicers can take from the FDIC experiment. The first relates to borrower contact. The letters sent by IndyMac were sent in overnight delivery packages, which require signatures from the recipients, notes a recent BusinessWeek article.
This method of contact, the thinking goes, prevents borrowers from automatically discarding the letters because they think it's junk mail. The BusinessWeek story also mentions that the letters were ‘remarkably straightforward’ by bank standards, including the new monthly payment amount being offered and the statement, ‘We want to help you stay in your home.’ An IndyMac source confirmed to the Wall Street Journal that correspondences that include a specific payment amount are more likely to result in replies.
The second lesson regards incoming phone calls. The Wall Street Journal article quotes several borrowers who expressed frustration with their attempts to find out more information about the modification options available to them. One borrower said she was twice disconnected, and when she did finally speak with an operator, she was told that she could only refinance (which was the by-product of one of the FDIC program's most apparent shortfalls: Only those borrowers who are delinquent can qualify; borrowers who are on the brink cannot).
These findings aren't necessarily breaking news items. Servicers have long explored various manners in which to ensure borrowers receive – and more importantly, read – mortgage-related notices. Moreover, call-center inefficiency is not a new problem. These two points, however, do reinforce some of the many challenges facing the increasing number of shops that have elected to roll out large-scale modification programs.
The latest player to go this route is JP Morgan Chase, which said last week it will modify $70 billion worth of mortgages in the hope of keeping some 400,000 borrowers in their homes.
As part of the program, JP Morgan will press pause on foreclosures for 90 days, while it unleashes a bevy of loan counselors in newly opened regional centers. The company, which acquired the subprime-heavy Washington Mutual in a federal government-brokered deal less than two months ago, has received $25 billion from the Treasury's Troubled Asset Relief Program, although it remains unclear if those funds will be used toward reshaping its mortgage operations.
As JP Morgan and others continue down this road, they must remain mindful that they'll be pitted against not only those new difficulties that accompany massive operational overhauls, but also those fundamental issues that servicers have had to contend with forever.
This brief examination of loss mitigation successes and failures would be incomplete without mention of the Federal Housing Administration's HOPE For Homeowners (H4H) program. Originally projected to assist approximately 400,000 borrowers refinance into 30-year fixed-rate mortgages, it now appears H4H will help closer to 20,000 borrowers, based on what Department of Housing and Urban Development spokesperson Steve O'Halloran told the Washington Post was an ‘extremely preliminary estimate.’
Whereas the FDIC began mailing out info about its program in late August, H4H has only been in existence for little more than a month. Thus, it's fair to say the program's newness may lead to misleading projections. That said, a drop from a 400,000-person estimate to 20,000 is stunning, and it should speak volumes about the level of confidence that the mortgage industry has in its ability to succeed.