Loan Modifications Stop Foreclosures, Study Shows. DOER ALERT!


The Center for Responsible Lending (“CRL”), a nonprofit, non-partisan organization that works to stop foreclosure during this housing crisis and protect homeownership and family wealth, in it’s June 2012 policy brief, highlighted the results of its most recent study of loan modifications and their effectiveness as a mechanism for keeping borrowers at risk of foreclosure in their homes over time.


The CRL, analyzing loan modification data for California, showed that 80 percent of borrowers that received permanent loan modifications in 2010 have remained current on their mortgage payments, and in fact only 2 percent of these borrowers have since lost their homes to foreclosure.


When you combine the results of the CRL study with the Treasury Department’s most recent HAMP report, which shows that a little over 200,000 California homeowners have had their loans permanently modified under HAMP, it’s unquestionable that loan modifications are by far the most effective tool we have for keeping borrowers at risk of foreclosure in their homes.


And these numbers are that much more remarkable when taking into account California’s economy, relatively high and persistent unemployment, and the degree to which California’s homeowners are “underwater,” meaning that they owe more than their home is currently worth, which in California is roughly 37 percent on average and quite commonly 50 percent or more.


In fact, based on these numbers, I would argue that for all intents and purposes, there is no number two.  In California, if not throughout the country, when it comes to keeping your home once at risk of losing it to foreclosure, it’s essentially loan modifications or nothing.


Based on data provided by the California Reinvestment Coalition (“CRC”), an organization made up of over 300 nonprofits and public agencies, in their study of the costs of foreclosures to local governments, published in September of 2011, these 200,000 loan modifications saved local governments close to $4 billion that would have been spent on such things as increased costs of safety inspections, police and fire calls, and trash removal and maintenance, were these homes lost to foreclosure.


And that is just the tip of the iceberg as far as the costs of foreclosures are concerned. 


For example, also according to the CRC study, property tax revenue losses related to the 200,000 foreclosures that have occurred in Los Angeles during the period, 2008 – 2012, are estimated to be $481 million.  And that same study showed that LA’s homeowners are estimated to have lost $78.8 billion in home values as a direct result of the 200,000 foreclosures during that same time frame.


As of 2011, however, California had 1.2 million homes lost to foreclosure, and even the most conservative forecasts show that the state will exceed 2 million homes lost to foreclosures by the end of 2012.


When you consider that, as of June 2012, according to the Center on Budget and Policy Priorities, California is a state facing a $6.9 billion budget deficit in 2012, and a $15 billion budget deficit in 2013, it’s clear that California cannot afford to ignore the contribution that loan modifications as opposed to foreclosures can make to our state’s financial future.


It’s not just California, of course, that can benefit dramatically by increasing the number of loan modifications and reducing the number of foreclosures.  Nationally, we have 31 states with budget deficits totaling $55 billion that states have had to close for fiscal year 2013, which will begin on July 1, 2012.


What is particularly distressing is that state budgets won’t see any relief any time soon.  Again, according to the Center on Budget and Policy Priorities, states’ obligations for things like education and health care are continuing to grow.


“States expect to educate 540,000 more K-12 students and 2.5 million more public college and university students in the upcoming school year than in 2007-08.  And some 4.8 million more people are projected to be eligible for subsidized health insurance through Medicaid in 2012 than were enrolled in 2008, as employers have cancelled their coverage and people have lost jobs and wages.”


For the most part, we haven’t felt the impact of our state budget shortfalls as yet because of the temporary aid states started receiving in early 2009 as part of the economic recovery act.  That aid, however, expired by the end of fiscal year 2011, which led to the deepest cuts to state services since the recession began, and it is now abundantly clear that the federal government spending cuts can only significantly worsen the states’ fiscal situation going forward.



Austerity, by any other name…


To date, 46 states have reduced services for state residents, and this has had a devastating impact on the most vulnerable.  And at least 30 states have already raised taxes to varying degree, and in some cases the increases have been significant.


What is too often overlooked by economists, who these days are seemingly paid for their optimism, is that the actions needed to address state budget deficits, both spending cuts and tax increases, remove demand from a state’s economy, and put a large number of jobs in jeopardy.


Spending cuts reduce overall demand and make any downturn deeper and longer lasting.  States cutting spending lay off employees, cancel contracts with vendors, and oftentimes slash benefit payments to various individuals.


In all of these instances, those that would have received state funds have less to spend on salaries and supplies, and individuals no longer receiving salaries or benefits, in turn have less money to spend.  This affect on the state’s economy is that aggregate demand is reduced.


Likewise, increasing taxes also reduce demand in a state’s economy because they reduce the amounts available for discretionary spending, however, current thinking is that as long as the tax increases only impact upper-income households, the impact on the economy is contained because the increased tax revenues come primarily from savings as opposed to consumption.


From your lips to God’s ears…


Whether that thinking will hold true in the current economic downturn remains to be seen, and I think is highly unlikely as a result of various externalities and the demographic factors inherent to an aging population.  In other words, I don’t believe this time will resemble last time, as far as consumer behavior is concerned.


Since 2010, the federal government has cut spending considered discretionary by nine percent in real terms.  In addition, discretionary spending caps that were part of last summer’s federal debt limit deal will mean cutting an additional six percent by the end of the decade.


Because a third of the federal government’s discretionary spending funds state and local governments so they can in turn fund such things as education, health care, law enforcement, human services, infrastructure and other services, these large cuts will only worsen the states’ budget deficits going forward.  The effect can only be to increase the need for deeper cuts and higher taxes at the state level, which will reduce economic activity to an even greater degree than is being assumed in the vast majority of today’s forecasts.


And all of this has done nothing to consider the impact of a European default or prolonged EU depression, and one or the other is all but assured.



It ain’t over until it’s over…


So, two things are more than clear.  One… it’s not over, not by a long shot.  And that’s not my opinion, that’s an incontrovertible fact.  And two… it’s an election year and we’re going to continue to be barraged by happy talk and fruit loopy forecasts right through the election.


You see, no one is interested in paying an economist to go on television and tell everyone the truth of our economic situation, simply because there’s no percentage in doing so.  No one profits, for example, by my communicating to you what I’ve just written, and as a result, you won’t find it on cable news or in other for profit mainstream news outlets.


It is, however, plainly factual.


What can we do in California… and then elsewhere?


Well, for one thing, we can take loan modifications more seriously.  That would be a darn good start, and now in California we may just be able to do just that.


The fact is that California’s legislature may just be able to pass into law the same servicer standards and protections as are found in the National Mortgage Settlement to all California mortgage loan servicers, not just the top five.



Very soon, as in within days… there will be a vote on a key piece of legislation, known as Attorney General Kamala Harris’ Homeowner Bill of Rights.  


The series of bills will restrict dual tracking, prohibit filing of false documents, and require servicers to provide borrowers with a designated point of contact.


But, most importantly, the legislation will include a private right of action that would allow homeowners to turn to the courts should servicers violate the new laws.  This will for the first time mean that servicers will have a strong incentive to comply with the law’s new requirements.


And borrowers will have a remedy if they do not.


The CRL’s June 2012 policy brief supports the need for the Homeowners Bill of Rights legislation.  Without question, it would create a fairer, more transparent foreclosure process.


And the result would be that more Californians would be able to get their loans modified and therefore avoid foreclosure, thus saving literally billions of dollars for our state.   We very much need the Homeowners Bill of Rights, but it won’t be given to us… we will have to not only work, but work fast and hard in order to see it become law in our state.


It’s no secret that the Homeowners Bill of Rights is being strongly opposed by the Mortgage Banking Association, the California Association of Realtors, and the FHFA even flew Alfred Pollard out to Sacramento to tell scary stories to members of our state’s legislature.  And he can scare almost anyone, I’m told.


Truth be told, the parade of expensive suits that have been landing in Sacramento over the last couple of months would scare anyone.  We’ve heard testimony from senior executives at every major bank, and all of it saying, in a nutshell…




The resistance was so great, that I threw in the towel early and I’m very much ashamed to have done so because Attorney General Harris certainly did not.  And if she wasn’t giving up, I should not have given up either.  It’s very unlike me.


I guess anyone can lose faith from time to time, and after seeing the banking lobby win year after year after year… it just gets harder and harder to run for that football, doesn’t it, Charlie Brown?  Well, I learned something from my AG, and I won’t forget it ever again.



There’s still time for REAL DOERS to DO SOMETHING about this… but it’s not going to be easy in the least.  It’s going to take quite a bit more effort that just sending an email.  You’re going to have to make this story spread like it was Norm Rousseau’s suicide, if you get my drift.


Our elected officials are going to have to hear from us like they have never heard from us before.  This is not a drill, nor a dress rehearsal.  This is the real thing… the sirens are blaring… the planes are scrambling… it’s the morning of December 7, 1941 and the Japanese are flying in low about to bomb Pearl Harbor.


It’s time to scramble our forces and make some serious noise.


If we’re successful… well, it changes everything. 


If we fail… we literally condemn hundreds of thousands of California homeowners to more of the same that we’ve all see far too much of over the last five years now.


The CRL estimates that one in nine borrowers is at risk of foreclosure in California, and I believe their estimates to be low.  The CRL says the number is currently 700,000, but whether it’s right or not, if you read what I wrote in this article carefully then you know that there will be significantly more than anyone is forecasting.


Their numbers are at least in part based on data from the Mortgage Bankers Association, and I wouldn’t trust that group as far as my mother could throw them, and mom just doesn’t throw like she used to.


It’s California’s middle class that’s most at risk, along with families of color.  It’s families… children… senior citizens… you know who it is… it’s US.


As the CRL’s brief states…


Large numbers of California homeowners are at risk of foreclosure, including many who could continue to make mortgage payments with a modified loan. However, significant problems in how lenders and servicers conduct foreclosures and consider loan modifications warrant significant solutions in order to create a fair, transparent and effective foreclosure process.


Enact a Strong Homeowner Bill of Rights in California

Pending legislation sponsored by Attorney General Kamala Harris will extend key servicing protections of the National Mortgage Settlement to all California servicers.

This legislation will:

  • Require servicers to provide homeowners fair and complete consideration for loan modifications before beginning the foreclosure process. This is critical to preventing avoidable foreclosures and stabilizing the housing market.
  • Require servicers to provide borrowers with a consistent, accountable point of contact.
  • Provide servicers with strong incentives to comply with the law, and provide borrowers with 
remedies if servicers fail to comply.

Speedy enactment of this legislation should be a top priority for California legislators.


Yeah, it should be, but it won’t be… unless they hear from an overwhelming chorus of California voters singing in harmony, and I do mean NOW… like TODAY.










Click HERE to find out how they’re voting…

If your legislator is here, call him or her immediately!






Mandelman out.

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