On October 4, 2010, President Barack Obama appointed Sarah Bloom Raskin to be a member of the Board of Governors of the Federal Reserve System.

Raskin has a B.A. in Economics from Amherst College, her undergraduate thesis was on monetary policy, a J.D. from Harvard Law, and prior to accepting the president’s appointment she served as Maryland’s Commissioner of Financial Regulation, and is said to have played an early role in her state’s response to the financial crisis, including reform of the foreclosure process, combating foreclosure rescue and loan modification scams, and the elevation of licensing and lending standards.

She also previously chaired the state’s Consumer Financial Products Agency Task Force, was a member of the State Liaison Committee for the Federal Financial Institutions Examination Council, served as the Banking Counsel for the U.S. Senate Committee on Banking, Housing, and Urban Affairs, and earlier in her career, worked at the Federal Reserve Bank of New York and for the Joint Economic Committee of the Congress.

I’m going to go out on a limb here and say that the woman is wicked smart, and one of the few people who, as you’ll see assuming you read what follows, understands and is willing to state publicly that the foreclosure crisis is what continues to prevent our nation’s economic recovery, and that the impediment to preventing unnecessary foreclosures is the mortgage servicing industry.

On February 11, 2011, Sarah Bloom Raskin was one of the featured speakers at the 2011 Midwinter Housing Finance Conference, held in Park City, Utah, “an annual event geared to the top executives in the mortgage finance industry, along with key regulators, economists, and those that serve the business,” according to the conference Website.

I read her speech yesterday evening; parts actually gave me chills, and parts left me with a hopeful tear in my eye.  She says almost exactly what I’ve written in my articles on at least dozens and at this point perhaps even hundreds of occasions, and it sure felt good to hear that message coming from the mouth of one of the Federal Reserve Governors.  Will the banking industry listen to her message?  Will it lead to meaningful change?  I don’t know, but I think it offers reason to hope, and with the Obama Administration otherwise essentially silent on this issue, I need reason to hope wherever I can find it.

I urge you to take the 10 minutes or so it will take you to read Raskin’s speech, which I’ve included in its entirety just below.  But for those that want the highlights, or struggle with some of the more technical sections, I’ve blued out the points that should not be missed… so please… don’t miss them.

And with that, I give you… Sarah Bloom Raskin speaking to the mortgage servicing industry leaders in Park City this past week…

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A Speech Delivered by Federal Reserve Governor Sarah Bloom Raskin

At the 2011 Midwinter Housing Finance Conference, Park City, Utah

February 11, 2011

Putting the Low Road Behind Us

Good evening. I would like to thank the sponsors of the Midwinter Housing Finance Conference for kindly inviting me to join you. Tonight, I’m going to share with you some thoughts about the powerful impact the housing and mortgage markets have on the nation’s economic recovery, present some ideas to effect positive change in the mortgage servicing industry, and finally impart a guiding principle that should help us find our way through the current struggles and drive the way our industry operates in the future.

Speaking strictly in an economic sense, the recession that emerged in 2008 is over. But I know that the millions of Americans still looking for work, living in cars or motels, or trying to keep their businesses out of bankruptcy would beg to disagree. Our economy is growing, but the pace of recovery is agonizingly slow, well behind the pace of recovery in prior recessions. There are several causes for this lethargy, but, in my view, the critically important drag on the economy is the absence of any substantial recovery in the housing sector. Traditionally, housing is the first sector to recover after a recession, buoyed by low interest rates and pent-up demand. The increase in housing sales and construction usually is followed by a robust increase in consumer expenditures on durable goods, like furniture and appliances, which magnifies and multiplies the effect of the housing recovery.

Yet today, demand for housing is weighted down by the enormous losses in income and net worth that households suffered in the recession. In addition, the persistent high rate of unemployment is further depressing housing demand, creating uncertainty about housing prices, and impeding that robust recovery in the housing sector that we generally see. With a pipeline full of distressed properties, the unfortunate consensus is that we should expect even more downward pressure on house prices. Potential buyers seem inclined to wait and see if they can get a better buy in the future. Builders, too, are deterred by the additional competition lurking in this reservoir of vacant and distressed properties.

Significantly, uncertainty about house prices destabilizes expectations outside of the housing sector. When banks have troubled mortgages on their books, they may be required to increase their loss provisioning and implement troubled debt restructuring, which in turn reduces the amount of funds they have to lend. Uncertainty about house prices also clearly undermines consumer confidence and undercuts consumers’ willingness to spend.

According to the Census Bureau, homeownership rates have fallen so significantly in recent years that they have more than wiped out the increase in homeownership that had taken place between 2000 and 2007. When I think about this statistic, I see not only the drag on the nation’s already-tepid recovery, but the millions of American families who have lost their homes and their hopes.

When people lose their homes, the impact is felt not only by the homeowners, but by the broader community: the bonds of community are weakened, business investment is undermined, homelessness increases, children are uprooted, unemployment deepens, and even health problems multiply.

I emphasize all this bad news not to dampen the dinner mood here tonight, but to underscore the importance of the work that you do and to reiterate what we already know: The recovery of the housing sector is critical to the robust and sustainable recovery of the American economy. To see the kind of economic recovery we want, we need to revive our housing sector and restore the communities that were shaken by its collapse.

So what needs to happen now? To begin with, we should start at the ground level and work with troubled borrowers to prevent additional foreclosures that will further weaken the market. We need to make certain that foreclosures take place only when there is no option available that would be preferable to both the borrower and the investor. It is critical for servicers to review all options on any given delinquent loan before deciding that foreclosure is the best course of action.

Certainly foreclosure cannot be avoided in every case. However, servicers must identify those instances where both the borrower and the investor would be better off modifying the loan than foreclosing on it. Some distressed borrowers should be able to qualify for a modification through Treasury’s Home Affordable Mortgage Program (HAMP). If the HAMP evaluation has been properly done and the borrower still does not qualify, the servicer should consider all other reasonable alternatives, ranging from proprietary modifications to short sales to deeds-in-lieu-of-foreclosure, before filing for foreclosure. And, for homeowners whose financial distress is the result of job loss, something as simple as payment forbearance while the homeowner is unemployed could prevent the loan from going to foreclosure.

Servicing shops need to be diligent in pursuing these options, and investors need to be supportive of efforts to find net-positive alternatives to foreclosure. These actions will have a far-reaching positive impact: A lower inventory of distressed properties for sale results in higher house prices, which leads to a healthier pace of recovery in the housing market and the broader economy. I can’t emphasize enough how important it is that servicers be willing and diligent in offering assistance to troubled homeowners: It is key to the pace of economic recovery.

For those in the housing and mortgage fields, making needed changes will not be easy. In particular, for those in the mortgage servicing industry, it means difficult changes and significant investments to rectify broken systems. For those servicers who are subsidiaries or affiliates of a broader parent financial institution, the responsibility for change and further investment absolutely extends up to that parent company, many of which have enjoyed substantial profits while their servicing arms have been run on the cheap.

In November, I spoke about the problems in residential mortgage servicing operations that were undermining the performance of this industry. These problems existed before November and as far as I can tell they remain unaddressed. How do I know this? Late last year, the federal banking agencies began a targeted review of loan servicing practices at large financial institutions that had significant market concentrations in mortgage servicing. The preliminary results from this review indicate that widespread weaknesses exist in the servicing industry. The agencies intend to report more specific findings to the public soon, but I can tell you that these deficiencies pose significant risk to mortgage servicing and foreclosure processes, impair the functioning of mortgage markets, and diminish overall accountability to homeowners.

I’m sure this has been said, but I’ll say it again because I have seen little to no evidence of improvement in the operational performance of servicers since the onset of the crisis in 2007: Until these operational problems are addressed once and for all, the foreclosure crisis will continue and the housing sector will languish.

What is needed is strong corporate governance procedures for servicers that are established, monitored, and enforced enterprise-wide in order to prevent process breakdowns. Servicers need sound policies and procedures that outline the rules, laws, standards, and processes by which internal operations are assessed. Senior executives need to emphasize compliance and qualitative measures over short-run cost efficiency, and need to articulate the presence of adequate quality controls and audit processes to identify risks and take timely, corrective actions where needed. Corporate leadership needs to communicate performance expectations that hold all business lines accountable to strong procedural controls.

If errors occur or internal processes become challenged, servicers must act swiftly and responsibly to contain the damage to consumers and markets. Going forward, the servicing industry must foster an operational environment that reflects safe and sound banking principles and compliance with applicable state and federal law. This is a primary responsibility of the servicing industry, but regulators now have to be prepared to monitor servicing functions on an ongoing basis to ensure confidence is restored and take enforcement actions, when necessary, to address significant failures.

I’m not going to outline for you the consequences of these failures. You know them all too well. Suffice it to say that when servicers misapply payments, lose paperwork, file incorrect foreclosure affidavits, or simply do not answer the phone or make available knowledgeable staffpersons, there are consequences to the consumer. With few adequate remedies to provide meaningful recourse in the event errors occur–after all, it’s not as if consumers have a choice regarding who does their servicing–many consumers find themselves captive to practices that have emphasized speed and aggressive timeframes over responsiveness, accuracy, and completeness.

So something is wrong. Here we are in 2011, looking at high levels of foreclosures on the horizon, looking at significant failures in process, and nothing much has changed since 2007. I always thought this dysfunction was going on for too long–but I’m someone who thought the successive waves of foreclosures in 2007 amounted to a virtual tsunami. In my mind, massive foreclosures were always a sign of an equally massive market failure. Well, now it seems to me we have reached a point where this sign of failure is hindering our economy’s ability to rebound.

In addition to improvements that individual servicers need to make, we also have to find a way to fix broader problems in the industry and make it functional.

In my November remarks, I began the conversation about a flawed business model that creates misaligned incentives in ways that are more difficult for any one company to change on its own. So let’s talk now a little bit about how a better-functioning servicing industry would be structured.

One step the industry could take that would have an enormous payoff for consumers and market participants would be to change its pricing model. The economic incentives and pressure points of the current servicing model cause problems at multiple levels.

In addition to float income and ancillary fees, servicers earn money through an annual fee on each loan. This annual servicing fee is an important income source that has to cover some wildly varying costs. On a performing loan for which costs to servicers are minimal, the revenue stream from ancillary fees and float may itself be nearly enough to fairly compensate servicers.

But when a loan becomes non-performing, costs start climbing. Costs associated with collections, loss mitigation, foreclosure, the maintenance and disposition of real-estate owned properties, and so on, are lumpy and can be high. The current model is structured with the hope that, over a given period of time, there are enough of the low-touch performing loans to cross-subsidize the high-touch non-performing ones, so that the overall pool of servicing fee revenue is sufficient to cover expenses and return a reasonable profit. But if that doesn’t happen, servicers are either being paid too much for their efforts or not enough.

The current model also rests on the expectation that, in good times, servicers are using some of the residual income to build out systems and procedures to handle the pressures that come with worse times. Unfortunately, as we have seen, this has not happened.

A better business model–one that might attract more entrants and increase competition–would more closely tie expenses with compensation and reduce many of the principal-agent problems that currently exist.

Rather than rolling most of the compensation into one annual fee that covers performing and delinquent loans alike, servicers could be compensated quite modestly for the routine processing of payments involved with performing assets. They would be required to have either significant capacity for loss mitigation and the other work involved with non-performing loans, or business relationships with third parties, such as specialty servicers, that do. Contracts could spell out a structure wherein the investor would pay significantly higher and more direct compensation for the more labor-intensive work involved in delinquent loans, though they would need to be careful not to create perverse incentives to encourage such delinquencies.

There would also need to be much more clarity and specificity about loss mitigation standards and systems for auditing internal procedures. Such a system could more appropriately compensate servicers and sub-servicers for the level of work involved in servicing very different types of loans. Specialists could emerge who focus primarily on the routine performing loans or the more involved non-performing ones. If the non-performing specialist was a third party, the existing servicer could either transfer the servicing rights once a loan hits a certain delinquency trigger, or simply have the loans subserviced–of course with high levels of accountability–on a fee-for-services basis until the delinquency is resolved. One structure along these general lines has recently been proposed by Fannie Mae, Freddie Mac, and Ginnie Mae. While many details would need to be worked out and possible implications thought through, I believe it is a promising start.

Another structural change that would help would be a limit on the extent to which servicers have to advance principal and interest on non-performing loans. In times of high delinquency, this can put considerable financial strain on servicers, which can lead to negative consequences for consumers trying to work with those stressed servicers. This could be addressed by changing secondary market standards so that servicers only have to advance mortgage principal and interest up to, say, 60 or 90 days beyond delinquency. Alternatively, they could advance principal and interest payments only as they come in–a so-called “actual/actual” schedule. Either change would affect the payment streams to investors, but I would imagine that participants in the secondary markets would be able to model with some confidence how this would affect the value of securities and adjust pricing accordingly.

This means that future pooling and servicing agreements will need to look different than those of the past. They will need to be much more detailed and provide clarity about what the servicer can and cannot do. They should explicitly allow for loan modifications and other non-foreclosure workout actions when they are determined to lead to a smaller loss to the investor than would a foreclosure. There also needs to be clarity that the servicer is expected to work in the aggregate best interests of the investor, regardless of tranche. And we need to find ways to deal with the problems that arise from the conflicting interests of senior and junior lien interests that can hold up workable alternatives to foreclosure.

Too many of the practices in the mortgage servicing industry have been developed and defended solely on the basis of “standard industry practice,” but many practices were not only standard but shoddy. This has proven true, I might add, on the underwriting and secondary market sides of the house, and we are now seeing courts reject some of those practices. More explicit rules and procedures need to replace standard practices. And these rules and procedures need to be incorporated into the deals with investors, who will factor them in to the value they see in the securities.

These are some initial thoughts on how to rebuild an important but currently dysfunctional sector of the housing market. Surely details need to be worked out, costs accounted for, and potential unintended consequences thought through. This isn’t easy, and time is of the essence because the drag on our recovery is palpable. We need the incentives that permit us to reengineer this sector of the market and build a business model that actually works. That model will need to provide adequate and appropriate compensation for servicers, protect consumers, give investors what they need, and be sufficiently transparent to all parties and the public. It needs to be transparent and accountable–one that better aligns the interests and incentives of homeowners, investors, and servicers. And servicers need to understand that the homeowner is an important constituent, if for no other reason than that it is the homeowner who is critical to the revitalization of the housing sector.

In the process of rebuilding, we all have a significant and urgent role to play. The Federal Reserve Board has acted to provide unprecedented levels of liquidity to the market since the crisis began through the development of an accommodative monetary policy and the establishment and implementation of back-stop facilities and last-resort lending. We clearly need to continue thinking about obstacles that exist in the realm of strong mortgage lending. There is always more that the Federal Reserve can consider in terms of reforms that are needed for housing finance, mortgage lending, and mortgage service providers.

But the government can only do so much, and relevant private sector actors need to think beyond their bottom line and focus on how their firms’ actions are or are not contributing to the economic recovery. I am convinced that, in order for our economic reconstruction to come about, it will be essential for each of us to commit to furthering the good of our nation, our neighborhoods, and our fellow citizens.

I do not want to revisit all of the sordid events that brought us to economic crisis in 2008 but, suffice it to say that, in the housing sector, we traveled a very low road that had nothing to do with looking out for the greater good. On the contrary, there were too many people in all of the functional component parts–mortgage brokers, loan originators, loan securitizers, sub-prime lenders, Wall Street investment bankers, and rating agencies–who were interested only in making their own fast profits and were indifferent to the consequences of their actions for homeowners and communities, much less the nation as a whole. This selfish free-for-all ultimately led to an economic slide the effects of which are still visible in the boarded-up houses and sheriffs’ foreclosure notices posted all over America.

We pulled back from the brink of depression only through a massive and unprecedented infusion of public dollars in the banking system, and in other systemically important firms, to prevent collapse. In other words, the public was forced into a position where it had to put a lot on the line to save the financial system from its own follies and from total ruin. And many were bitter about having to do so.

Now, it is time to pay back the American citizenry in full, and not just in the literal sense, but in the sense that there must be reciprocity and mutuality in our structuring of economic policy so that we do not travel this low road again. Bluntly stated, the government reluctantly provided the taxpayer funds necessary to unfreeze the financial markets and get our financial institutions on their feet again, with the expectation that the benefits would be directly meaningful to those taxpayers in their households and communities.

The financial institutions that have been bolstered directly and indirectly by government subsidy and aid must now seek to support those who have been buffeted and injured by the housing crisis.

This must go beyond the corrective actions that need to be taken to rectify current deficiencies. It means that financial institutions need to understand the effects their actions will have on consumers and the country as a whole, and factor those considerations in to their business decisions. This is the high road–a moral and economic imperative that must be the driving purpose that unifies and animates our efforts. Indeed, the high road demands that we become effective institutional innovators for positive changes in our communities and for housing practices that promote community well-being. When we traveled the low road, the only question was: Will this practice make me rich? Taking the high road means we continually ask: Do our financial and legal arrangements contribute to the public welfare and the common good?

Yes, our economy has started to rebound, but we need a strong housing market in order to ensure a complete, stable, and sustainable recovery. The meltdown in the housing sector set off our economic crisis, and the reconstruction of the housing sector will help bring it to a close. Each of you has a role to play in this mission, and I urge you to embrace this challenge and to do your part to contribute to the economic rebuilding of our country.

Thank you.

~~~

So… what did you think?  Better than a poke in the eye with a sharp stick, right?  The woman knows what she’s talking about and isn’t afraid to say things that may offend her peers.  She must be lonely there on the Federal Reserve’s Board of Governors… I wonder how she and Bernanke get along.

Now, if we could team her up with Elizabeth Warren, Brooksley Born, Meredith Whitney, Janet Tavakoli, Yves Smith, Erica Payne, Nomi Prin, Anya Schiffrin, April Charney, and Sheila Bair (assuming she promises to leave Tim Geithner out of the discussion), and I would have no doubt that we would have the foreclosure crisis under control within six months and be on our way back to economic prosperity by year’s end.  And tell you what… just to show you that I’m completely anti-men… Simon Johnson can come along too.

I’ve had about enough of the boys club… the fellas aren’t doing anything for me lately… it’s the women that have their arms around this issue and personally I’d like to see them get a chance to set the course going forward.  The guys have been at it a bit too long and they’re obviously all tired and too rich to know what this country looks like anymore.

Bye-bye guys… the showers are on… and then it’s time for a nap.

Ladies… let’s show the world what you can do… it’s your century, I can feel it.  But, hurry… we’re melting fast at this point, so there’s no time to lose… push, and push harder… the people will support you, I know it to be true.

Mandelman out.

That’s just half a million people, by the way…

According to RealtyTrac, 1,050,500 homes we repossessed by banks last year.

In 2006… that number was 268,532.

In 2007… 404,849.

In 2008… 861,644.

In 2009… 918,376.

Now… in 2010… we’ve broken through the one million mark at 1,050,500.  So, for those that think foreclosures are somehow a good thing, I guess congratulations are in order.  For those not afflicted by such diminished cognitive abilities, I can only request that the last person to leave, please turn off the lights and bring the flag.

And remember… that just over a million homes with 2010′s fourth quarter foreclosure freezes imposed by the largest banks in response to the robo-signer scandals coming to light as a result of sworn testimony by various employees of those banks.  Had those freezes not taken place, that number would most assuredly be significantly higher, and with the foreclosure-gates now reopened, we will likely see whatever number was suppressed last year carried over into the current year’s records.

James Saccacio RealtyTrac’s CEO had the following to say…

“… 2010 foreclosure activity still hit a record high for our report, and many of the foreclosure proceedings that were stopped in late 2010 — which we estimate may be as high as a quarter million — will likely be re-started and add to the numbers in early 2011.”

Also according to RealtyTrac’s 2010 report…

“… a total of 3,825,637 foreclosure filings – including default notices, scheduled auctions and bank repossessions – were reported on a record 2,871,891 U.S. properties during the year.”

Here a quote from Bloomberg’s New Years’ story on the topic:

“The number of U.S. homes receiving a foreclosure filing will climb about 20% in 2011, reaching a peak for the housing crisis, as unemployment remains high and banks resume seizures after a slowdown, RealtyTrac Inc. said.

This past week, Zillow.com announced that its index of home values fell for the 53rd consecutive month in November, and that since June 2006, home values have now fallen 26% nationwide.

Zillow’s Katie Curnutte, in a blog post, pointed out…

“That’s more than the 25.9 percent decline in the Depression-era years between 1928 and 1933.”

And lest you think that Zillow’s numbers show too much decline, Case-Shiller’s index has fallen even further, now showing a 30% drop over that same period.

“The foreclosure crisis is the biggest threat to U.S. economic growth, according to Mark Zandi, chief economist for Moody’s Analytics Inc.

So… don’t you just love it when we break records in this country?  Chant with me… U.S.A.  U.S.A.  U.S.A.  And it’s nice to see that real estate market analysts are finally starting to get it.  The question is… why isn’t the Obama administration?

Mandelman out.

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Other Mandelman Matters articles you might enjoy…

My Grandmother, Standard Oil & the Banks

We Are On the Brink of a New Age of Rage

Obama Asks for Help from Public to Reform Housing Finance System?

Senate Investigation Says Banks Caused Crisis, Not Borrowers

The secret NPV formula used to qualify for HAMP that no one is allowed to know. Transparency at it’s finest.

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It’s Labor Day today, September 6, 2010.

Click here for the…

Mandelman in the Morning Podcast

1. Lehman Bros. CEO says bankruptcy wasn’t Lehman’s Fault.

2. Stimulus is folly.

3. Call it a depression.

4. Geithner’s happy about HAMP.

5. Foreclosures breed foreclosures.

6. AZ’s loan mod program won’t work.

7. Obama’s new loan modification initiative won’t work.

8. The political season has begun.

9. Obama administration in a corner on housing.

I’ve written before on several occasions about law firms that offer to help homeowners obtain loan modifications that I’ve seen do a great job in real life situations and on numerous occasions.  CDA Law Center has been one of those firms.

I’ve chosen to write about these firms because I thought it would be helpful to homeowners who are trying to navigate the oftentimes frustrating process of getting a bank or mortgage servicer to agree to modify a loan.  All I’ve seen from the state or federal government on this topic is that everyone’s a scammer and that homeowners should call their bank directly or try a HUD counselor.

I’ve tried both of those options on dozens of occasions, and heard from hundreds of homeowners that have tried them as well, calling a bank directly and trying a HUD counselor, and to be blunt, haven’t been impressed with either of them.  More times than not, I’ve seen neither option work out for the homeowner.

I’ve never asked for, nor have I ever received a nickel for writing about or recommending any of the law firms I’ve written positive things about, in all cases I’ve written what I have solely because I saw their work on numerous occasions and thought others should know.  Period, end of story.

But… I certainly understand that in today’s world, people have every right to be skeptical about anyone recommending anything, and I would never suggest that anyone do anything based solely on what I’ve said.  I can only share what I’ve seen, openly and candidly, and it’s up to homeowners to go through their own decision making process from there.

Like I’ve said countless times before, I don’t have any financial interest in what anyone does, I’m not in the loan modification field, or any related field, so it doesn’t matter to me what anyone decides to do, except that I’d hate to see anyone get scammed, and I’m as confident as I could be that those I write about and recommend are not scammers.

My Secret Shopper…

Coincidentally, a couple of weeks ago, someone I’ve known for many years had the occasion to hire a lawyer to help obtain a loan modification, and without talking to me, she decided to retain CDA Law Center.  Now, I’ve visited CDA many times, written about them before, have referred several dozen homeowners to them in the past, and all have reported that they were very satisfied with the outcome.

But, this time I didn’t refer this homeowner, she just called them on her own and hired them to help.  And here’s the letter she sent me, I received it just a week ago.

CDA had no way of knowing that this homeowner knew me, so there’s no way they could have treated her any differently that they treat all of their clients every day.

Martin:

You would never guess, nor would I even cross your mind, but I just used CDA Law Center and wanted you to know.  I insisted that I only deal with one person at CDA, so poor Jim Cerronne was stuck with me.  I truly liked him.

I had originally used “Springboard,” a non profit organization, due to a letter I received from B of A stating they were going to begin foreclosure within 3 weeks.  I had a three way phone call with Springboard, B of A and myself.  I received a new loan amount to begin the next month.  I was informed that I must contact the bank at least once a week.

I tried for three days straight and was unable to reach a human being on the number I was given.

I had phoned CDA and obtained information from them prior to contacting Springboard, so concerned that I would somehow end up not reaching them, I went ahead and gave them another call to see if they could now help.

I retained them as my attorney, and they had it resolved within about 30 days.  CDA’s JC (Jim Cerronne) was great and I would give him many thanks.

I wanted you to know that I am on your side regarding this law center.  They put up with my fears, my doubts, and really put me at ease which is not an easy task, as you know.  I would recommend them in a minute.

A Homeowner from Orange County California

The people at CDA Law Center are the same people behind HAMPReport.com, and they are now making the REST Report available to homeowners, which is something I very much endorse.  The REST Report is an 11-page report that tells a homeowner with certainty, whether or not they pass the NPV test and qualify for a loan modification under HAMP, the Home Affordable Modification Program.

The REST Report is generated by a version of the same software platform used by banks and servicers for loan disposition analysis.  It’s the best way I’ve seen for a homeowner to know whether they pass the NPV test, and homeowners can send the report to their servicer, along with their documentation, so that the bank or servicer sees that investors will be better off financially by modifying as opposed to foreclosing on an NPV basis.

Homeowners can call HAMPReport.com, talk with knowledgeable and caring experts that have successfully negotiated hundreds of loan modifications, and they’ll help the homeowner make sure that the report is accurate.

They also review the results with the homeowner, show them how to read it… even though it’s very easy… they tell them about their options based on what the report shows, and they tell them how they can use the report with their bank to improve their chances of getting their loan modified.

Even if your loan amount would disqualify you for the HAMP program, the REST Report has proven to be helpful getting banks to modify loans.  Recently, a homeowner with a $900,000 mortgage sent in the Report to a major bank, and although he had gotten nowhere with the bank for over nine months, after receiving the report, the bank agreed to a trial modification that took the payment from $3,800 to $2,200.

I’m certainly not saying that will happen for anyone else, I’m just saying that the report proved itself in the sense that it stimulated the discussion that resulted in a loan getting modified.

I worked for ten months with the software company that developed the REST system, to make it available to consumers without receiving a dime, just so homeowners could run REST Reports and as a result, I do receive a small percentage on each report run.  But it’s a very small percentage, nowhere enough to get me to endorse something I don’t believe in 100%.

In my view, running the REST Report is the single best thing someone can do when attempting to get their bank to modify their loan.  There’s no other system in the entire country that’s available to homeowners that can duplicate what the REST system offers.  As I said, it’s a version of the same loan disposition analysis software used today by banks and servicers to determine HAMP eligibility.

I truly believe that if you call the experts at CDA Law Center/HAMPReport.com, you’ll see why I say that… and you’ll agree.

If not… not.  But I’ve written close to 300 articles about the foreclosure crisis and loan modification over the last 18 months, I’ve been a speaker at the American Bar Association’s Consumer Financial Services, and at the Judicial Conference for district, appeals, and bankruptcy judges from the 9th Circuit Court of Appeals.

I’ve spoken to thousands of homeowners and hundreds of attorneys from all over the country.  I certainly don’t claim to know everything about what’s happening with loan modifications today, but I certainly know quite a bit more than most at this point.

If you want to, you can contact me and I’ll be happy to speak with you about my specific experiences and the conclusions I’ve drawn as a result.

And if you want to talk to the REST Report specialists at CDA Law Center or HAMPReport.com, you can reach them at 800-253-5742.

They’re not the only firm that will be offering the report, but because they’re backed by CDA Law Center, I certainly consider them to be one of the best.  While no one can guarantee that you’ll get your loan modified, I’ve seen CDA Law succeed time after time. Take it for whatever it’s worth, and don’t hesitate to contact me if you have questions.

For more information from Mandelman Matters specifically on the report, please use info@restreportmatters.com.

Martin Andelman

Mandelman Matters

Michael Barr is undoubtedly a very smart guy.  On May 21, 2009, he was confirmed by the United States Senate to serve as the Treasury Department’s Assistant Secretary for Financial Institutions, which means he’s the guy responsible for developing policy on legislative and regulatory issues that affect financial institutions.  To be honest, I expected to find out that he had spent the last eight years at Goldman Sachs, but I was wrong.

Barr’s predominantly an academic.  He taught at the University of Michigan Law School, was a Senior Fellow at the Center for American Progress and at the Brookings Institute, and it looks like he’s co-written a couple of books with titles that aren’t likely to be picked for their movie rights, if you know what I mean.

He was also Treasury Secretary Robert Rubin’s Special Assistant, Deputy Assistant Secretary of the Treasury, Special Advisor to President Clinton, Special Advisor at the State Department, Law Clerk to Justice Souter… this is one special guy, yes he is.  He got his law degree at Yale, but I won’t hold that against him, because he was also a Rhode Scholar, and that always sounds so cool.

He’s smart, okay, I get it.  So, what’s happened to Michael?  Here are a few excerpts from a speech he gave in late August.

Today, I want to outline the steps that Treasury and the Administration have taken to strengthen the housing sector, help millions of homeowners and lay the foundation for economic recovery and financial stability.

Go on… apparently these guys think they’ve taken steps.  Let’s give them a chance.

HAMP’s pay-for-success structure aligns the interests of servicers, investors and borrowers in ways that encourage loan modifications that will be both affordable for borrowers over the long term and cost-effective for taxpayers.

Wait… maybe he’s talking about a different HAMP.  Maybe there’s more than one HAMP.  Maybe we’ve only seen the HAMP that doesn’t work and that lenders and servicers lie about regularly and use to abuse borrowers.  Could that be it?  Because the HAMP I’ve been reading about certainly doesn’t align any interests, or am I missing something.  Hang on… I have to go look up the word “align”… be right back…

This Administration has acted quickly and aggressively to confront the economic challenges facing our economy and our housing market.

Come on, Michael.  I know you just threw up in your mouth a little when you delivered that line.  I’m not saying you had any choice in the matter.  I probably would have said the same thing were I in your very erudite Alden lace-ups.  You know as well as I do that, while the Administration has pumped enough cash into the banking system to keep Iceland going for 1,000 years, it would be an exaggeration to say that you guys have confronted anything.  How about you went in quietly through the back door and brought the government’s bottomless checkbook.  And as to housing… well… ‘nuf said.

Within weeks of assuming office, President Obama worked with Congress to enact the largest economic recovery plan since World War II.

That makes total sense, since we’re currently eating the biggest crap sandwich we’ve been forced to eat since the 1930s.

Within a month of taking office, on February 18, we announced the Making Home Affordable (MHA) Program, a critical element of Treasury’s Financial Stability Plan.  This program was broadly designed to stabilize the U.S. housing market and offer assistance to millions of homeowners by reducing mortgage payments and preventing avoidable foreclosures.

It was broadly designed to do that, huh?  Well, thank God it wasn’t designed to “stabilize the U.S. housing market and offer assistance to millions of homeowners, blah, blah, blah.”  It was “broadly designed”.  Because if it had been designed to do that, I would have to say that whomever you guys brought in to do the designing was drunk and you should probably send him back to the Yugo factory where you undoubtedly found him.  But, since you said “broadly designed,” and because I have no idea what that means… I’m going to go with it, because you know… you’re a really smart guy.

A key part of the broad housing plan is the Home Affordable Modification Plan – a comprehensive $75 billion program to lower monthly mortgage payments for at risk borrowers, providing modifications on a scale never previously attempted.

See, I’m thinking that we haven’t seen the plan you’re talking about.  We’ve only seen the plan that the President talked about on television last February.  Where’s the FAQs on the “Broad Housing Plan”?  There must be a Website, right?  Should I check: www.governmentbroadhousingplan.com?

There are clear signs that the incentives offered under the Home Affordable Modification Program are having a substantial effect.  Over forty-five servicers have signed up for the Home Affordable Modification Program, including the five largest.  Between loans covered by these servicers and loans owned or guaranteed by the GSEs, more than 85% of loans in the country are now covered by the program.  These participating servicers have extended offers on over 570,000 trial modifications.  Over 360,000 trial modifications are already underway.

Okay, now here’s the plan I know something about.  Covering the loans is good, don’t get me wrong, but I’m worried that you guys may be putting too much emphasis on what it covers and not enough on what it actually modifies.  And if by “extended offers,” you mean they’ve mailed some letters, well… okay, if that’s what were calling it now, then fine.

I might have said they’ve sent out over 570,000 direct mail packages, but you know a lot more than I do about what stuff should be called, so I’ll go with your terminology.  Oh, and one more thing, you do realize that a lot of those trial modifications end up getting foreclosed on, right?  And that there are going to be 3.6 million foreclosures this calendar year, give or take?  I’m sure you’re quite aware, I just thought I’d mention… I’m sorry… go on with your speech…

The HAMP program establishes detailed guidelines for the industry to use in making loan modifications with the goal of encouraging the mortgage industry to adopt a sustainably affordable standard, both within and outside of the HAMP program.

In the past, a lack of agreed-upon guidelines has limited the number of loan modifications that are completed, even in instances where modifications would have been beneficial to all involved.  HAMP should help increase the number of modifications industry-wide by providing standardized modification guidance to servicers and lenders. 

That will be good for borrowers, good for lenders, good for mortgage lending standards and good for improved stability of our overall financial system.


Um… Michael.  We can talk about this later, but I don’t think this part is working.  And see… I’m not at all sure that it was “a lack of agreed-upon guidelines that limited the number of loan modifications” that were completed in the past.  I’m pretty sure that that the financial institutions that you regulate and develop policy for are pulling your leg there, Mike… can I call you Mike, or is it Michael.  Mr. Assistant Secretary?  Oh, okay, no problem…

See, those financial institutions don’t give a damn about guidelines, agreed-upon or otherwise.  They lie all the time, Mikey… I mean Mr. Assistant Secretary.  And I wouldn’t even mention it, but for future reference, there’s actually no such word as “sustainably,” so maybe make sure you’ve got the box checked on your spell checker that says “Correct As You Type”.  I’m sure you probably knew that.  Just trying to be helpful, Mr. Assistant Secretary.

Under HAMP’s loan modification guidelines, mortgage servicers are prevented from “cherry-picking” which loans to modify in a manner that might deny assistance to borrowers at greatest risk of foreclosure.  Participating servicers are required to service all loans in their portfolio according to HAMP guidelines, unless explicitly prohibited by pooling and servicing agreements, and further must make reasonable efforts to obtain waivers of any limits on participation. 

Participating servicers are also required to evaluate every eligible loan using a standard net present value (NPV) test.  The NPV test compares the net present value of cash flows with modification and without modification.  If the test is positive, the servicer must modify the loan.  


Well… now don’t shoot the messenger here, sir, but like none of this is happening, sir… none of it… ever… not happening.  Maybe you’re talking about the “Broad Housing Plan” again.  No?  Well, then for sure… something is amiss because this stuff is not going on anywhere.  I think those financial institutions are perhaps pulling your leg again, sir.  They’re quite the jokesters, you know.  Real cut-ups.

And while we’re on this point… the whole NPV thing.  You know… the one that’s supposed to be transparent and disclosed all the time… yeah, well it’s never either… transparent or disclosed.  And as I understand it, there are quite a few people that have contacted Treasury to ask why that might be, sir.  And Treasury has told them they’re not telling… that’s right, sir.

Oh, and one more thing… it might be best to cut back on your use of words like “must” and “required” when you’re talking about lenders and servicers.  You see, sir… they obviously don’t like it when you use those words and I’m afraid they’re taking it out on the borrowers.  When you say “must” I’m convinced that they never do it just to have some fun at your expense.

At this early date, HAMP has already been more successful than any previous similar program in modifying mortgages for at risk borrowers to sustainably affordable levels, and helping to avoid preventable foreclosures.  


Now, I might have gone with a different point here, Mr. Ass Sec.  Is it okay to abbreviate your title like that, sir.  It’s just that it’s so long.  Anyway, you see the last program was called Hope-for-Homeowners, and it was President Bush’s baby, and well… you see sir, it had a budget of $320 billion, but for whatever reason, it had only modified, um… let’s see… minus four, carry the three… 1 mortgage after like six months.  That’s right, sir, one mortgage.

Of course, the good news was that President Obama was able to use that same money as the foundation of his plan, but the thing is… I’d consider avoiding any comparisons, especially those where you say that yours is more successful than any past plan, well… because it’s funny, that’s why.  And you don’t look like the kind of guy that wants laughs during your speeches.  And you keep using that non word “sustainably”.

We are asking that all servicers move rapidly to expand servicing capacity and improve the execution quality of loan modifications.  This will require that servicers add more staff than previously planned, expand call center capacities, provide a process for borrowers to escalate servicer performance and decisions, bolster training of representatives, enhance on-line offerings, and send additional mailings to potentially eligible borrowers.


Just thinking out loud here, but perhaps the whole “asking” thing isn’t working out the way you guys obviously had hoped it would.  It’s not your fault, sir.  I’m sure you would have been much more responsive were you in their shoes, but M.B… maybe instead of “asking,” perhaps next time try “asking nicely,” or maybe even “asking politely”.  Try something new, that’s all I’m saying.  And as far as a “process for borrowers to escalate servicer performance,” you see… I’m not sure anyone has the foggiest idea what you’re talking about, sir.

And one more quicklittle thing… if I were you, I’d lay off the “enhanced on-line offerings” and the sending of the “additional mailings to potentially eligible borrowers”.  It’s the whole laughing thing again, sir… probably best to just skip that part next time.

We have made significant progress in reaching implementation objectives outlined during our July 28 meeting. 

We are establishing denial codes that will require servicers to report the reason for modification denials, both to Treasury and to borrowers.  This will enhance Treasury’s ability to evaluate the program and consider options for further program enhancement.  We expect denial codes to become operational on Oct. 1.

We are working with servicers and Fannie Mae to streamline application documents and develop web tools, which can serve as a centralized point for modification applications, and for borrowers to check the status of their applications. 

Three, we are taking additional steps to expedite implementation, including greater disclosure of the NPV evaluation.

You know Mitch, I’m having a little problem with you leading off with the whole “we’ve developed denial codes” bit.  I know… it’s the servicers’ favorite part, but again… personally, since they’ve been pretty much denying loan modifications on a full time basis for a couple of years now… and all that without a denial code… so developing those codes probably could have been sidelined for a bit.  And back to the whole laughing thing… you see… it was the very first line when you said “made significant progress towards reaching implementation objectives”… see that even made you laugh when I said it back to you.  Yes, sir… you are funny, sir… missed your calling perhaps?

As Secretary Geithner has noted, we are committed to transparency and better communication in all of Treasury’s programs.  Accordingly, Treasury is focused on continued transparency and servicer accountability to maximize the effectiveness of HAMP.   Specifically, we have taken three additional concrete steps in conjunction with the July 28 servicer liaison meeting to enhance transparency in the program: 

On August 4, we began publicly reporting servicer-specific results on a monthly basis.   The second public report was published this morning, September 9.  These reports provide a transparent and public accounting of individual servicer performance by detailing the number of trial modification offers extended, the number of trial modifications underway, the number of official modifications offered and the long terms success of modifications.   


This must pertain to the Broad Housing Program that I haven’t seen.  And by the way, when you guys say “transparent,” do you really mean to say “opaque”?  Transparent’s the one you can see through, and opaque is the one you can’t.  No problem, sir, I’ll write it down and leave it with your aide.

Opaque?  Now you see, that’s where some of the confusion is coming from, right there.  Everyone thought you were saying transparent and really you meant to say opaque… that’s a good one, sir.  Well, misunderstandings do happen, sir, that’s right, sir.

Okay, sir… I’m going to go ahead and take off now, sir.  Thank you so much for letting me attend your speech on the housing crisis and how you guys in the Obama Administration have everything under control.  I’m going to sleep much better tonight, sir… Mickie… Michael… Mitch…Mr. Ass Sec.  I’ll have the whole title thing down by next time, I promise…

Oy vey.

In case you don’t already know, I wrote the cover story for the May issue of The Niche Report magazine, titled “Pigs, Puppets & People in Peril – The Administration’s Curious Case Against Loan Modification Firms”.  And it was really popular.  REALLY, REALLY POPULAR.  In fact, for those in the loan modification field… it was basically Disneyland meets Law & Order.

As a result, the magazine decided that I should write four more cover stories this calendar year… and it should go without saying that I, of course, concurred.  And in addition, they asked me to write a monthly column, which I decided to call: Bringing Up the Rear, so that each month I could bring up a new REAR… the first month’s rear was Ben Bernanke of the Federal Reserve.

And this month… the REAR in question is FDIC Chair Sheila Bair.

The July issue will be out in a day or two, but the magazine sent me a link to the Sheila Bair as the REAR of the Month, and I thought I’d provide it here on my column, so that those of you who have not yet subscribed to The Niche Report… why, I do not know… could get a feel for what my monthly column will be like in the months ahead.  The link is below… and I hope you enjoy it… a lot.

Oh, and by the way… I also wrote the cover story for the July issue of The Niche Report… the one that’s coming out in a day or two.  Just look for the giant cartoon pig of a banker on the cover.  The title is: “Cuomo’s Crossing: An Outsider’s Appraisal of the NEW HVCC Rules.”  If you’re not a subscriber and want a copy send me an email and I’ll make sure you get one.

If you know an appraiser, it makes a lovely gift… perfect for any occasion… just thinking out loud over here.

But I forgot the best part… you can subscribe to The Niche Report… FREE!  Woohoo!  And I’m not talking Obama-FREE, I’m talking about free… like without cost.  And then you’ll never have to miss another cover story of mine, and you’ll know who the REAR of the month is… and you wouldn’t want to get caught with your pants down on something like that.

Bringing UP the REAR with FDIC Chair Sheila Bair…

Destroying Home Equity, One Neighborhood at a Time.

And, in case I convinced you that The Niche Report is really something you should not miss… by the way the rest of the magazine is great too… click here and get to subscribing…

SUBSCRIBE TO THE NICHE REPORT FREE!