What Loan Modifications Have to Do with Leaving Money on the Table and Knowing the Value of a Dollar


I never saw it coming.  Truth is, I never thought I’d think about being a “Dad” as being a job… that is until about a second after the nurse handed my daughter to me wrapped in a soft white blanket.  I held her close, looked into her eyes and she smiled up at me.  Her hair was brown, her eyes sparkled, our fingers touched, and I knew that she knew who I was.  She had come to see me.

From that unforgettable moment, back in 1995, I knew that being a father had just eclipsed all else to become my life’s preeminent work.  I had found my eternal calling, or maybe it had found me… and for the very first time there wasn’t a modicum of doubt in the universe.

I suppose all parents know intuitively that they have a responsibility to teach their children many things in order to make sure they’re prepared for life. Treat others as you want to be treated, the difference between right or wrong, the importance of respecting your elders.  And then as they get to be a little older… always do what police officers tell you, but try to stay away from them whenever possible.

But it seems to me that for kids in my generation, whose parents had lived through the Great Depression, the single most important thing was to be taught “the value of a dollar.”  In fact, for parents during the wonder years, to fail in this singular regard, was essentially to fail as a parent, to raise a spoiled, slovenly, lazy child sure to become an unproductive and undesirable member of our society.  And that would reflect badly on the parents of such a child.

Recreating the Great Depression…

To my father, teaching me the value of a dollar basically meant requiring me to do any amount of menial jobs for essentially slave wages at the time of his choosing.

To earn the money I needed to take my girlfriend to her Senior Prom in the Spring of my junior year, I raked the leaves through the fall, mowed the lawn in both fall and Spring, shoveled snow through the winter months, cleaned the garage and basement where there were oils and chemicals that were certainly toxic, painted both of my little sisters’ rooms using oil-based paint that required washing up with turpentine, and washed and waxed the family car until I couldn’t straighten my arms for the better part of a week.  For all of that, my father gave me $80.

I’d bet anything that if my father had he hired an undocumented worker from Honduras to do the same jobs I did that year, even back then it would have cost him north of a $1000.

The home I grew up in was a mile from my high school.  My father’s office was the same distance in the other direction.  And I can remember waking up for school to find the kind of rain that you’d have no trouble referring to as a downpour and asking my father for a ride to school.

“No, I’m going the other direction,” he’d reply without even giving the question any consideration.

You mean, A MILE in the other direction?  Today, I live in Southern California where it rains two or three days a year, and I can’t think of a single circumstance when I’d even suggest my daughter walk a mile.  I’ve driven a mile in the “other” direction because my daughter wanted to see a street sign with her name on it.

I grew up in Pennsylvania during the 1970s.  We had actual blizzards with temperatures that went down to negative 40 degrees with the wind chill, and buried the entire city under yards of snow.  Weather so cold that city workers weren’t allowed to work outside unless dressed as if part of Admiral Perry’s Expedition to find the North Pole.

On the other hand, I was expected to brave the frozen tundra with slightly less protection from the elements, walking to school in ripped canvas tennis shoes and a zipper that never zipped all the way up on my jacket.  Of course, my mother would have happily provided me a hat that had flaps to cover my ears, the sort of hat that would have looked like a hand-me-down even if worn by John-boy Walton.

In ’74, however, even a single siting would have destroyed my chances of talking to a member of the opposite sex until college, so my preference was to take my chances on losing an ear to frostbite.

Having the flu or tonsillitis just meant my mother slowing me down long enough to drink a glass of frozen-from-concentrate orange juice and chew up a Flintstones’ vitamin before walking the mile in weather considered too cold to take police dogs outside.  It’s an interesting contrast to consider all the people these days that end up in jail for leaving their dogs in hot cars for a couple of hours.

For lunch, by the way, I get peanut butter and grape jelly that after spending hours freezing solid while zipped up in a pocket and then defrosting in a locker, would come out of its baggie in a state unfit for mixed company.  For desert some moms packed cookies… I got a box of raisins almost the size of a Zippo lighter.  As a result, I didn’t know what it was to eat lunch on a daily basis until I turned 26.

And my parents saw no reason for me to buy anything to drink when the school provided perfectly good water fountains.  Water was “a lion’s drink,” my mother would say, which made me wonder whether she would have thought it acceptable for me to live in a cage with a hose.

On rare occasions when we ran out of peanut butter or bread, I could often make mom feel guilty enough to give me the 60¢ to eat in the school’s cafeteria.  If she didn’t have exact change, she’d empty her purse and turn the house inside out rather than hand over a one-dollar bill.

She was clearly hesitant to hand me any amount of money when I hadn’t done anything unbearable or infuriating to earn it.  I mean, you start throwing dollar bills here and there and before you know it, you’ve raised Charles Manson, is close to what must have been running through her mind at the time.

She knew that I could not be trusted to return home with the 40 cents left over after buying lunch.  She knew that with an unearned 40 cents burning a hole in my pocket, it wouldn’t be long before I’d be spending it on heroin and sleeping in an alley somewhere.  And just think of the embarrassment she’d feel over that.

And then there were days when I walked to school with a quarter, a nickel and 30 pennies, which remains one of those eternally memorable high school moments… holding up 50 of my classmates in line behind me as I counted aloud… twenty-seven, twenty-eight, twenty-nine.  It’s the kind of memory that makes me understanding of how the Menendez Brothers had handled things in their family… I didn’t say I agree with what they did, but I do understand it.

The thing is that I don’t remember any of those events from my childhood teaching me the value of a dollar, if that was the plan.  I think mostly I was learning what it was like to be a Jewish version of Alex Haley’s slave character from Roots… Kunta Kohen.

I can remember when I was 16 and my girlfriend, went to England on vacation with her parents for what seemed an eternity, and when the phone bill came there were $44 in long-distance charges and I knew by my father’s reaction that he never could have hoped to survive a bill much higher than that without a crash cart and paddles at the ready.

Always the teacher, he told me that before I was born, when his father had passed away, he was in Germany… and he had only spent $6 on the call home to his mother upon hearing the news.

I remember that I couldn’t decide whether I found it more troubling that he could remember the amount of the long-distance phone call he made upon hearing of his father’s death… or that in his mind, only spending $6 on such a call was somehow virtuous.  I can distinctly remember learning something at that moment, but it wasn’t the value of a buck that was on my mind.

Fast-forward to fatherhood… 

So, I think it should probably go without saying that my daughter’s childhood was destined to differ from mine, like the childhood of Prince Charles might have differed from the formative years of a banana slug.

My daughter got her first iPhone upon graduating from elementary school at the conclusion of sixth grade… an event my own parents never even considered as being worthy of recognition, by the way.  It was the very first year for the now wildly popular Apple cell phone, and I remember sipping my coffee at 4:30 AM, as I waited in a line with several hundred other at least partially insane parents, only to be told five hours later that they had sold out and I would need to return the following morning by a teenager who was inappropriately chipper about the whole thing, thus making me realize why laws that allow people to carry concealed weapons should be opposed.

Today, my daughter uses version five of the iPhone, and although I have no idea whether she has ever called England, I’m pretty sure that she downloaded at least $44 worth of iTunes on the very first day with her iPhone, without me giving it a second thought.  I was too busy being happy that she liked the thing so much, and so proud of her academic achievement that I’m not sure she could have downloaded too many songs that day no matter what.

As our daughter was growing up, my wife was pretty much constantly concerned that whatever was happening as a result of me being her father, wasn’t teaching her the value of a dollar.  She’d tell me I was spoiling her, and I’d say she was wrong… that it was not necessary to treat children like indentured servants in order to teach them to be responsible with money.

But my wife grew up similarly to the way I did, with parents who had spent their own childhoods during the Great Depression leaving them obsessed with the idea that children must find money difficult and painful to earn, lest they become unappreciative and greedy little urchins of which they themselves would be ashamed.

As a father, I was the polar opposite of my parents, at least when it came to teaching her about the value of a dollar.  Throughout her life, I made sure money seemed entirely irrelevant… easy to get at any time for whatever she wanted.

Winnie the Pooh?  Nah, let’s get all the characters.  Beanie Babies by the hundred… of course.  A Barbie Computer at three years old… why, it’s an absolute necessity.

Designer purses at nine years old almost made my wife physically ill and thinking about smacking me with a bat on several occasions, but to her credit she survived it without turning our marriage into something seen on The Jerry Springer Show.

And although I’ll admit that True Religion jeans took my breath away when I saw that their $300 price tag was not for a six-pack, I quickly recovered and threw down for several pairs secure in the knowledge that my daughter would quickly decide they were not nearly as cool to wear as they were to want.

Money, I made sure she knew, was not important to me and certainly not something she needed to be concerned about earning.  Her job, I explained when she was quite young, was to do her absolute best in school, learning as much as she could and being an all around good person, and my job was to make sure she had whatever money she wanted at any time… and that our family always had the wonderful things we had, like vacations in Hawaii and the like.

I knew that there were plenty of others who were whispering behind my back about how I was most assuredly spoiling my daughter by failing to teach her the value of a dollar, feigning concern over how she would feel when someday the harsh realities of life unavoidably shattered the bubble inside which I was keeping her.

I knew people were talking because some weren’t whispering so quietly, and a few even lost their ability to restrain themselves on several occasions, making the quickly regrettable decision to engage me in some sort of debate on what constituted optimal parenting, I suppose thinking for a moment that perhaps I had not given careful enough consideration to the subject… and soon discovering otherwise.

For one thing they all seemed to overlook the obvious… all kids are different, so there’s no such thing as a one-size-fits-all anything where teaching children is concerned.  But, at the same time, they also failed to consider that it’s not just what you say or what you buy… it’s who you are, and the nature of your relationship with your child that’s doing most of the teaching.  And that you can’t possibly be spoiling a child by buying her a Barbie Computer at age three, because she doesn’t even know what that is… at age three.

Of course, the beauty of life is that proof is found in pudding, and as our daughter continued to develop into the exceptionally hard working and extremely responsible 18 year-old she is today, many of those who had opined were forced to reconsider their earlier positions… and admit that I was entitled to take a few bows for having done something right, whatever it was.

Our daughter manages her money exceedingly well, gives careful consideration to every purchase, and since she learned growing up that all that glitters is not gold, she’s always mindful that impulse buys often end up in the garage.  I remember being quite pleased with myself when she stopped wanting anything Disneyland had to offer before she was in kindergarten, while her peers were still longing for worthless pieces of plastic, and draining their parents bank accounts on every trip to the Magic Kingdom.

I was equally, if secretly, quite proud when our daughter was elected class treasurer in 10th grade, and then class VP her senior year.  When she was also named President of the National Honor Society, and co-captain of her varsity dance team, I was starting to worry that I had gone too far.  She got her first paying job in sixth grade when her dance studio invited her to become an assistant teacher handling classes of 5-6 year-old girls.

When she was admitted to U.C. Berkeley, I’m sure there were several who had to hide their surprise at her turning out so well, without having had to grow up as if staring in a Dickens’ novel.

During her freshman year, even though I told her that I didn’t want her to have a job, and that she certainly wouldn’t need one because I would make sure she had the money she needed and then some, as I’d always done, she still ended up working as a tutor for disabled students, being chosen for an internship made available by the School of Public Health, and more recently, she was picked to be one of the three directors of Thrive, the dance company at Cal she auditioned for and joined only a month after moving into her dorm room.

When I asked her why and whether she would still have enough time for her classes, she assured me she would saying, “Dad, I can’t just sit around and watch Netflix, I have to be doing something.”

I don’t think those familiar with our family have any idea how it happened exactly… but I do, because it was no accident.  And I can tell you for sure that my relationship with my baby girl has always been so much better than mine ever was with my father, that it’s like comparing U.S. and Canada relations with those of the U.S. and Cuba.

So, yes… it’s important to teach children the value of a dollar, but the real question is how to achieve that objective.  My father’s generation thought that the only way to do it was to re-create the Great Depression so we could learn the same lessons in the same ways they did.  But, you can’t make a 1970s kid learn something like that from an artificially imposed meager existence and a life of indentured servitude when you’re watching a color console television and taking ski vacations in Vermont over Christmas.

And parents should remember that it’s also very important to teach children that there are times when the value of a dollar doesn’t matter at all… because money isn’t all that matters in life.

Never leaving money on the table…

Knowing the value of a dollar has led us to the understanding that dollars should never be left on the proverbial table.

It seems to me that for last 40 years, our culture has increasingly become obsessed with money in general, and as a result today we clearly think it laudable, when there’s money involved, to do everything possible to avoid not coming out with even a dollar less than we could have had we been better at our job of making sure every possible dollar ends up in our pockets.

Leaving money on the table is never seen a good thing.  Success means winning, and winning has come to mean that someone else has to lose.  We’ve come to see negotiations involving money as what economists call a “zero sum game.”

I always found a zero sum game easiest to understand by picturing what happens when cutting a cake at someone’s birthday, because in that situation, someone taking a larger piece means someone else being served a smaller one.

The problem is that taking the view that everything is a zero sum game is a huge problem for all sorts of reasons.  It’s often bad for the parties directly involved, and bad for our society as well.

For one thing, zero sum games are considered “strictly competitive,” meaning they are never non-competitive, and therefore never involve collaboration among participants… and collaboration is often a very positive thing for everyone.  In fact, I would go as far as to say that when you eliminate the possibility for collaboration… in many instances, everyone loses.

First of all, when we view a situation as being strictly competitive… when we think someone has to lose for us to win… we become willing to do just about anything to come out on top.  Many people will excuse unethical behavior when it’s in the pursuit of leaving no money on the table.

How many people would have no trouble, for example, lying to a car dealership about any number of things, if it were to mean leaving no money on the table, and therefore getting a better deal on the car?  I think most people today would find lying in that instance entirely acceptable, even though they might view lying in other situations as being clearly wrong.

But it’s a very slippery slope because once we can excuse lying in one instance, doesn’t it become easier to find the next occasion when it’s okay to alter or withhold the truth without feeling guilty for doing so?

In addition, if you consider the example of cutting a cake, by collaborating it’s possible that we could work together to bake a larger cake, or bake a pie to be served along with the cake.  Or maybe we’d change the game’s dynamics and serve cupcakes instead.

Foreclosures and the loan modification process…

We’re going into year six of the foreclosure crisis, and even though in general it has gotten somewhat easier to prevent a foreclosure and get your loan modified, it’s still not easy, by any means, and it’s simply not making the situation better… fast enough.

Our government and the mortgage servicing industry sure don’t want to say so, but data released this past week by the Mortgage Bankers Association (“MBA”) made it abundantly clear that’s the truth of the matter.

According to Millions of Nonperforming Loans Resolved, Millions to Go, which ran in Mortgage Servicing News a few days ago…

“… there were about 6.6 million overdue mortgages at the end of 2009, according to the Mortgage Bankers Association.  Now, there are some 4.4 million…”

Now, if you want to make this statement sound encouraging, you could say that it shows that we’ve resolved more than two million of the problem loans, but that characterization shouldn’t make anyone feel all warm and fuzzy because you also have to remember that during the same period of time, we’ve reportedly lost about SEVEN MILLION homes to foreclosure, some percentage of those 2 million will undoubtedly re-default, and no one isn’t forecasting more new foreclosures ahead.

And even the “Underwater for Dummies” type data that’s continually published by any number of companies claiming to track home prices, shows that we’ve still got 10 million homes underwater, give or take, which is approximately 20 percent of all mortgages in this country as of the beginning of this year.  And we should all understand that’s a number that’s a long way from being precise, by any means, and is unquestionably low, not high.

As I’ve explained numerous times in past articles, the far more important point is that millions more are “effectively underwater,” meaning that when you add the six percent sales commissions and moving expenses to their balances, they’re now underwater.  And since no one sells their home to break even, what happens to the numbers when we add 20 percent to the balance in order to cover the down payment on the next home?

Now how many are underwater then… half, at least?  More?

Then there are other factors contributing to the low volume of home sales we’ve been experiencing since the beginning of 2014, such as:

  • Household formation running about a third of historical norms
  • 40 percent of 18-39 year olds still living at home.
  • Median incomes falling consistently for the last five years.
  • Credit being much tighter and loans requiring 20 percent down payments.
  • Unemployment, which is bleak in terms of meaningful progress.
  • And baby boomers naturally moving less as they continue to age into retirement.

All of these factors are limiting the potential for both supply and demand in housing markets all over the country… and anemic housing markets are severely limiting the potential for recovery in consumer spending.  It’s a logjam of Herculean proportion, not the sort of thing that fixes itself unless you take fairly drastic action or plan on waiting for decades.

So, the fact that six years in, we’ve still got 4.4 reporting delinquent should make everyone feel sort of like they’ve been punched in the stomach.

Mortgage Servicing News asked Rick Sharga (who has apparently moved over to Auction.com from… wasn’t he at RealtyTrac?), and Chris Whalen (now a senior managing director at Kroll Bond Rating), how long it will take to process the remaining volume?

Sharga, optimistically, picked three years, which just shows you can take the boy out of RealtyTrac, but you can’t take the RealtyTrac out of the boy.  Whalen hedged his bet with a SWAG of 3-5 years.  Of course, neither has the faintest idea as to what to base those forecasts on, and all I know for sure is that either forecast is dependent on a fair amount of good old American optimism… faith in the nation, if you will.

The same sort of hopeful factors that have been powering forecasts since Ben Bernanke first told us that the crisis would be contained to the sub-prime sector… or Mark Zandi.

(That wasn’t a typo, by the way.  I think we’re far enough into this mess to start using “Mark Zandi” as a punch line… Lord knows he’s performed like one long enough, we might as well start using him that way.)

I loved reading Chris being quoted in this article.  They asked him how many of the 4.4 million reportedly delinquent loans will become foreclosures in the future and he replied… “It’s hard to say.  They haven’t been moving very fast.”

(Now, if you know Chris Whalen and the dynamics of the crisis in any depth… that’s a very funny quote.  Hard to say… LOL… it doesn’t happen often, but every so often it cracks me up to see Chris asked a question that he knows he can’t answer substantively.  And unlike countless others, he’s not a great diplomat… he doesn’t lie well… so he answers at a much lower IQ than the level at which he normally operates… and it cracks me up, that’s all.)

Mortgage Servicing News says that Chris is equally concerned about the 8 to 10 million borrowers whose homes remain underwater… and I’m sure he is.  I’m also sure that’s the tip of the iceberg, and we do seem to have the clear propensity to keep those icebergs coming, if the last six years is any sort of guide to the future… and by future I mean two years.  Beyond that, I don’t care who you are, you’re not forecasting, you’re guessing.

And since our track record for doing things that are smart and effective is non-existent, and since at this point we are using a “don’t change a thing and maybe it will fix itself” strategy that eventually will work… but it will also mean that in order to save the village, it will have become necessary to destroy it.

Whalen also points out that the MBA is showing that 6.39 percent of mortgages are now overdue, while 2.86 percent are “in foreclosure.”  But, I can’t tell what that means, and I don’t really care anymore anyway.  It’s like needing to know how many feet of water you’re drowning in… 200 or 400?  Does it really matter how deep it is exactly?

Besides, every time I spend hours compiling data from different sources in order to report it on Mandelman Matters, only a few weeks pass before someone else in the industry publishes new data with different data points, comparisons and/or definitions… so, whatever.

And then one day we’re having a recovery… until we’re not… and then we are… and meanwhile, I can’t find a for sale sign anywhere in my neighborhood, but home prices are at an all time high, and the same number of distressed homeowners continues to contact me every day.… while mortgage purchase applications are at a 19 year low, but new homes sales are surging… the whole thing is too stupid for words.

As this month began, Fed Chief Yellen had the following to say about the economic to a congressional committee…

“The recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery.”

So, that’s apparently what we call the precipitous drop in home sales volume that started right after New Years – 2014 and continues today… a “flattening?”  Is that correct?  Did she say flattening or flat-lining.  Maybe English is Yellen’s second language.

I don’t know about you, but it’s been six years since we implemented a strategy apparently designed to start slow and taper off, as we heard ongoing warnings by the Fed, and at this point, the use of euphemisms like “flattening” to describe what’s happened in housing in 2014, is really starting to make me angry enough to kick a pigeon.

It’s not that I don’t understand that she feels a need not to panic the U.S. and global financial markets with hyperbole to the downside, but using the word “flatten” is treating me like I’m six or stupid.  And since the Fed’s track record addressing the impact of the housing market meltdown is positively insipid, I can’t stand watching any more over-confident stupidity in the face of an overwhelmingly obvious need for a more aggressive response.

The real moral of this surreal story is that none of this is anywhere near over, and it saddens me that for millions it’s only just beginning.  And since we’ve changed little and fixed nothing since 2009, and since we’re certain to see more of that same sort of being and nothingness at least until the next administration has their own opportunity to underwhelm, I think I’m going to pretend people like Yellen aren’t there at least for the summer.

After all, it’s the same strategy I’ve been using at least somewhat successfully to maintain my sanity as related to Obama since 2009.  (I said, “somewhat” successfully.)

A loan modification program that just won’t quit…

So, what’s the bottom-line here, Mandelman?  Now that I’ve read all of these disparate insights wrapped up in memories of your youth, and topped with your data analysis and anti-social commentary, what was it all about, Alfie?

So, you’re having trouble connecting the dots, is that about right?  It’s understandable.  Let’s see if I can bring this whole thing into focus, and provide a real payoff for the time you’ve spent reading without knowing why.  You can’t possibly think I brought you this far without a plan, right?

Well, we’ve had a federal loan modification program in place in this country for going on six years now.  It’s called HAMP, as most everyone knows, and on the popularity scale for federal programs, while HAMP is no Social Security… it’s not quite conscription either, otherwise known as “the draft.”

Of course, how one feels about HAMP, greatly depends on one’s personal experience applying for a loan modification. 

If you decided to spin HAMP’s wheel of eternal damnation in ’09, running back and forth to Kinko’s replacing documents at all hours of the day and night, only to lose your home at a trustee sale three hours after your Wells Fargo Customer Servicer Representative proclaimed that finally, all of your documents had been received… then you waited in 2012 for a check to arrive for $150 as compensation for your entire life coming apart after following the instructions from your bank’s representative… then you’re basically in favor of euthanizing bank executives over 40 years of age for misdemeanors.

On the other end of the spectrum, if you didn’t apply for a loan modification until 2012, maybe you live in Nevada where a change in the state law passed in 2010 brought foreclosures to a virtual standstill for several years, or maybe it’s because you managed to avoid applying for a modification for some other reason, then you had a very different experience.

You sent in your paperwork only once and were able to submit it electronically… and although you were stressed out doing it because of stories you’d heard, you got approved for your trial modification in a couple of months.  You had to send in a couple of things twice, but your single point of contact did end up staying with you the whole time, and he was reasonably easy to reach and nice enough.

Three months later your permanent modification paperwork arrived, and life returned to normal without you losing too much sleep.  Maybe you didn’t get a principal reduction, but the fixed rate of 3.5% made your payment $550 a month less than it was, and included taxes and insurance. Now, when your Acura lease is up, you’re thinking that maybe you’ll upgrade to the BMW 3-series.

Of course, in between those two extremes, there are an infinite number of possibilities, uncertainties, injustices, aberrations, permutations, and potentially unpleasant gyrations.  And if the loan modification process is filled with anything, it’s uncertainty and inconsistency.

I hear from homeowners every single day… seven days a week… something close to 365 days a year.  And I can tell you that every time I start to believe that I’ve seen everything, I quickly discover that I haven’t.  Every time I start to think that the loan modification process has actually turned a corner, even a small corner, I find myself smacking into a brick wall that wasn’t supposed to be there.

A divorced mom in Cleveland, Ohio recently called me.  She had missed her payment one month when the furnace unexpectedly quit while the weather was cold, and then the following month her ex-husband’s gas station was robbed, which led to him missing a month’s child support.

The following month she went into the bank to make one payment, and explain that she’d catch up the next month when her tax refund arrived… but the bank wouldn’t accept one payment, and by the time her refund arrived, she couldn’t bring it current all at once.  She was already six months into foreclosure when she called me for help, and was about to hire a lawyer.

She had saved her payments each month, however, and had enough to make her back payments, and I knew that once there were lawyers on both sides, she would be on a runaway train to the court system, because it wouldn’t be in either’s interest to settle quickly.  But, was hers really a legal dispute, or more importantly should it have been a legal dispute in the first place?  Who would have actually WANTED this to happen?

Luckily, I was able to intervene in her particular situation.  And the bank agreed with me… what was happening seemed entirely unnecessary.  Luckily, she had found me online and contacted me.  Luckily.  How many aren’t so lucky?

It was the BEST of times… it was the WORST of times.

There’s no question about it, the loan modification process is better than it was in 2009 or 2010 or 2011 or 2012… the numbers are what they are, so yes… it is better.  But, Good Lord… is it better enough?  It has been going on six years now, shouldn’t it be even better still?

Should we still have a loan modification process known to be unpleasant, always uncertain, often unfair and unclear as to what the outcome will be, or when it will be?   I mean, I can’t think of anything like the loan modification process that exists in our society, that is to say, it seems to me that everything in this country works better than the loan modification process.

It’s also quite clear at this point that, as bad as it may still be, the loan modification process is better today, because servicers have tried to make it better… it’s not better by accident, right?  So, that means there are very smart people who have been trying to make the loan modification process better for some time now, and what we see today is the result of their collective best efforts?

You can’t say that there hasn’t been a ton of money thrown at improving the loan modification process, because there has.  You can’t say there haven’t been a whole lot of people looking at making the process better, either.  Or any shortage of people complaining that the loan modification process is not nearly what it should be by now.  There’s plenty of all that.

So, the inescapable conclusion, it would seem to me, is that the mortgage servicing industry is collectively doing the best it can or is willing to do… and our society as a whole has accepted the loan modification process in its current state as being all that it can be… even if that means that it’s still a process absolutely capable of torturing the frailest members of our society.

There seems an unspoken accepted truth pertaining to the foreclosure crisis… that nothing more can be done to improve what’s involved in getting loans modified.

Asking that the loan modification process be made better for borrowers nonetheless, is like asking a natural disaster not to happen.  When our elected officials hear another story illustrating just how bad the process can be, it’s as if they reply:

“We understand, and we’d like to, but we can’t… we simply can’t.”

And finally, after devoting an enormous amount of time to an enormous amount of careful and diversified study, I think I understand a big part of the reason why…

The Foreclosure Crisis & Loan Modification Process – A ZERO SUM GAME

I’ve finally come to understand the fundamental reason we haven’t made any significant process stopping the destruction being caused by foreclosures, is tied to why we have a loan modification process only capable of small and incremental improvement.

It’s because whether we’re designing programs to prevent foreclosures in general, or creating guidelines for the loan modification process… we come to the table prepared to play a zero sum game.

Do you remember what playing a “zero sum game” meant?  I realize it was so many pages ago that those over 50 may have totally forgotten by now.  It meant that someone’s loss was necessarily another’s gain.  I used the example of a birthday cake and how someone slicing off a larger piece required someone else’s piece to be smaller, which is “strict competition,” for those comfortable with econo-speak.

I also explained that the problem with strict competition is that, by definition, it eliminates the potential for collaboration and cooperation among the players.  And I don’t think it’s too terribly difficult to imagine that there are certain situations where this sort of thinking and eliminating collaboration may harm not only the players, but also society as a whole.

I should also point out that there are also places where strict competition is the best and only way to think and proceed.  In an auction, for example, anything less than strict competition actually corrupts the auction process.  If bidders at an auction are collaborating, it’s an auction in which you do not want to participate, and in fact, such collaborating may even constitute criminal behavior.

Thinking of the issues surrounding the foreclosure crisis, and the guidelines related to modifying loans, in terms of a zero sum game, however, I think is what has made solving the former or improving the latter, appear and as a practical matter become, impossible tasks.

The stereotype of the “irresponsible borrower.”

First of all, doesn’t the view that borrowers who are having trouble making their mortgage payments as being somehow “irresponsible,” and therefore deserving of their plight, tie in to and even emanate from the idea that they did not properly learn “the value of a dollar.”

Like, allowing your credit card debt to overwhelm your ability to repay it would have to be the very essence of failing to understand the value of a dollar, at least according to my father’s teachings on the subject.  Because someone who understands the value of a dollar, as I’m certain my father would readily agree, would never engage in spending behavior that would max out their cards.

He and so many millions of others would say that the way you teach that person the lessons he or she needs to learn, is not to make anything about life easier, it’s to withhold 40¢ and deprive the individual of food at lunchtime, or make them work harder and for less… it’s certainly not to bail them out of their debt.

Back in November of 2011, I wrote a piece under the headline, “Our future hinges on just one thing,” that I think made a very well-research and detailed open and shut case showing that what has prevented us politically from doing more to help homeowners during this crisis, is the widely held view that in doing so, we’d be helping “irresponsible borrowers,” individuals clearly undeserving of such help.

In that article, which I view as one of my best or at least most important, among many other things, I said:

You know the stereotype… we all do… reckless and greedy people who bought homes they could never hope to afford by signing their names on nothing down, 80/20 ‘liar loans’ with negative amortization and teaser rates of 1%.  And the property flippers looking to make a quick buck, gambling that home values would only go up forever.  They gambled and they lost and as a result today’s foreclosures are appropriate and deserved…

And I also explained why we weren’t seeing our politicians even trying to solve the problem…

People buying homes they could not afford is not a crisis… it’s also not something that requires further examination… it’s not something that can be… or needs to be “fixed.”

Defining the problem this way continues to prevent policy makers at both state and federal levels from taking any meaningful action to mitigate the damage being wrought by the steadily increasing numbers of foreclosures.  There is never going to be political support for a “bail out of irresponsible borrowers.”

Fundamentally, what I was saying was that if the underpinnings of the foreclosure crisis were defined as people spending irresponsibly, then we would continue to find addressing the crisis in any effective way, impossible.  Isn’t that what we’re still dealing with today whenever we try to work with financial institutions on solutions to the obvious problems caused by such historically high volumes of foreclosures?

Making the loan modification process better…

The bankers, it should go without saying, are also people who have been taught to know the value of a dollar, and therefore, they do not want to “leave money on the table.”  To allow money to be left on the table would be irresponsible, and the very antithesis of what bankers and creditors do in all areas of their business lives, if not their personal ones as well.

Consider the following…

BORROWER: I’m self-employed.  How much income do I need to show to get the bank to approve my modification?

Customer Servicer Rep: I can’t tell you that.  Just fill out the form and send it in, along with the required documentation, and we’ll let you know.

It’s reminiscent of the game, “I’m thinking of a number between one and 10.”

You guess, “6” and the bank replies, “Wrong,” but the program’s rules say that you can try again, so it’s back to the end of the line with you… and before you know it, four years have passed, the amount of your arrearages has increased dramatically, and the amount of income needed to qualify has as well.

And when that loan-modification-go-round ends in foreclosure…

  1. The servicer gets blamed for creating the process that appears to be designed to create foreclosures, as opposed to preventing them, but in reality is also losing financially as a result of the process.  Saying “no” would be much less costly and time consuming for a servicer than spending years trying to say yes, in a system designed not to leave money on the table.
  2. The borrower suffers emotionally and economically, but also often wins financially, by not having to make monthly mortgage payments for several years, and then their net worth increases by getting out from under the inflated debt of their underwater mortgage.
  3. Homeowners, neighborhoods, cities, states and our national economy all lose as a result of the process… or more simply put, everyone else loses in countless and incalculable ways.  (Well, okay… except the foreclosure “mill” attorneys, but even though it is admittedly infuriating, that’s just a case of incidental war profiteering.)

But, what else can possibly be done here?  Any other system would risk leaving money on the table, right?  Let me show you why that’s the case…

BORROWER: I’m self-employed.  How much income do I need to show to get the bank to approve my modification?

Bank’s Customer Servicer Rep: $5,000 will do it.

BORROWER: Okay, thanks, I’ll make sure my P&L shows $5,000 in monthly income.

Bank’s Customer Servicer Rep:  Oh, wait a sec, actually you’ll need $6,500.

BORROWER: Oh, okay… no problem.  I’ll make sure my P&L shows $6,500 in monthly income.

See the problem?  Viewed as a zero sum game, where the homeowner’s gain is the bank’s loss, the only way to ensure that no money is left on the table in this situation is to not answer the borrower’s question: “How much income do I need to qualify?”

How about the classic starting place for a loan modification: “We can’t talk to you about a loan modification unless you’re three months behind on your payments.”

Why would that be a prerequisite for being considered for a loan modification?  Because it’s the only way to know whether the borrower actually “needs” his or her loan modified… or merely “wants” a modification.

You see, while the government and most people in this country would say that they want foreclosures to be avoided via loans being modified, almost no one would say that the banks should modify loans that people can afford to pay as agreed, because that would be like throwing money away… taxpayer dollars… on people trying to take advantage of the situation.

That would be no different than people who don’t need federal assistance getting it, and almost no one favors that happening.  But, how can banks know that the person who is applying for a modification is truly in need, as opposed to someone trying to cheat the system and therefore win… at the bank’s expense in the zero sum game… someone who is trying to cut themselves a larger slice of birthday cake, if you will.

This is another topic I wrote about back in the beginning of 2011, in an article titled: “How Banks View Loan Modifications,” in which I said…

When you call your bank to ask about a loan modification, they’re going to tell you that they can’t talk to you until your payment is delinquent by at least 30 days.

You hang up the phone.  You’re disappointed.  And you now have your first decision to make: Do you let your credit score get trashed by going 30 days late on your mortgage?  It’s not an easy decision.  Once you head down that path it’ll be years before your credit score is back up where it’s always been, and if you need your credit to be good for other reasons, chances are you’ll decide that you no longer want a loan modification because the cost of trying to get one… sacrificing your credit score… is too high.

The bank’s process has just saved the bank quite a bit of money.  Had the bank agreed to modify your loan, it would have been like throwing money away unnecessarily because you kept making your payments without them having to modify your loan.

If you don’t bring your loan back to current status, you’re about to start receiving a series of letters and phone calls designed to make you feel ashamed, guilty and scared.  And those letters will come more and more frequently, and they’ll be written using stronger and stronger terms.  And chances are you’ll feel worse and worse as time goes by.

Eventually, and certainly in an increasing numbers for a variety of reasons, assuming a borrower is shown to ultimately qualify for the loan modification program, loans get modified, but you prove that you have a legitimate need for assistance with your mortgage, by being willing to endure the stress of being at risk of foreclosure and pay the price of harming your credit score.

The thinking is that if someone isn’t willing to do those things, and as a result decides not to apply and just keeps making their payments… well, good… then that person didn’t really need a loan modification.  Picture this fictitious conversation between the Treasury Department and a Bank president back in 2008.

Can’t leave billions on the table…

Treasury: We’re going to need you to modify loans so we can avoid foreclosures where possible.

Banker: Okay, got it.  But you’re not saying that we should modify loans for people that can’t afford to make payments, right?  Like people who don’t have incomes or just bought too much house.

Treasury: No, there’s no point in that… if they can’t afford the house, they’ll just end up re-defaulting anyway.  We’ll give you a formula to follow.  And you just have to document their incomes.

Banker: And you’re not saying that we should modify loans for people that can afford to make their payments, but just say their having a hardship in order to get their payment reduced, right?

Treasury: No, that would be throwing away money for no reason.  So, how do we tell if the person has the money and can afford to pay?

Banker: That’s easy… we simply put them on The Rack and torture them until they show up with the cash.  If they don’t, we’ll modify them.

Treasury: Okay, but just be careful not to kill them accidentally stretching them too far and then find out they really didn’t have the money.

Banker: Well, we may lose a few to collateral damage, but it’s really the only way to make sure we’re not leaving billions on the table.

The scale of the problem is a big part of the problem…

I will say that I have come to understand this part of the problem and I do understand that it wasn’t an easy one to solve.  In fact, it would have been close to impossible even under the best of circumstances.

You have to realize that everyone would say they had a hardship to get their mortgage written down.  A lot of people would lie to reduce their balance or cut their interest rate to 2 percent, and since there’s no way to help everyone, much less everyone at once… and since there were too many that legitimately needed help as it was, how would you distinguish between those in need and those who weren’t?

I remember one particular homeowner who called me in 2009 and explained that he needed a modification and was about six months behind.  His gross monthly income was $16,000 a month and his mortgage payment was $3,000 a month, so I asked him, “Won’t the bank say that you can afford your payments?”

And he replied, “But we can’t.  My income is down like $5,000 a month and we’ve got a kid in college, one in private school, three cars, a vacation place, and we got a little crazy with our credit cards.  There’s no way we can pay all that and our mortgage payment.”

I explained that the banks thinks he should make his mortgage payment first, and cut something else, and he wasn’t happy about that at all and launched into what was to become an all too familiar tirade.  “We bailed out the banks, so blah, blah, blah…”

Right from the start, a Zero Sum Game…

I knew that HAMP wasn’t working right away, but the media wouldn’t touch the issue until the end of 2009, when the news came out that, while there were roughly one million trial modifications, there were only 3,000 permanent mods.  And from that point forward, the questions about whether banks wanted to modify or foreclose increased month after month.

And based on what homeowners were experiencing, and what the government wasn’t saying or doing, it started to be accepted as fact that they must want to foreclose… they were doing it on purpose… they were evil incarnate.

As time has passed, I realized that they couldn’t possibly want to foreclose because they weren’t making more money by doing so, but yet getting a loan modified was still like doing a high wire act without a net… and getting pushed off most of the time anyway.  And what was happening in the courts only made the inexplicable positively surreal.

Today I can tell you that the jury is in and most banks and servicers do want to modify loans instead of foreclosing, but that doesn’t mean that they want to leave money on the table.  And it doesn’t mean that they won’t view the process as a zero sum game.

We need to shift to a Positive Sum Game…

I think viewing the loan modification process as a zero sum game, which eliminates collaboration and requires a winner to take from a loser, is the reason why, after so many years, we still have a process that for the most part is resulting in a lose-lose scenario.

Sure, the servicers have gotten incrementally better at modifying loans, but I think it’s undeniable that the process still leaves a lot more to be desired.

Remember… earlier in this article when I showed the stats on delinquent borrowers and said that we’re largely running in place?  Remember Chris Whalen saying that based on the MBA’s latest data, it was still going to be a long time before this foreclosure crisis is over?

Six years since HAMP began and what we see today is the best outcome we could create?  We’re doing something terrible wrong, if this is the best we can hope for, because I’m here to tell you, as I have too many times to remember, that the path we’re on doesn’t end for a long, long time.  And it only gets more painful as the years go by.

Well, what would happen if we started viewing the process as a “positive sum game,” where collaboration is encouraged because EVERYONE CAN WIN… without anyone having to lose.

And what if we, within reason, stopped worrying about leaving money on the table?

Surely, that’s the direction Fannie and Freddie were headed when on March 27, 2013, the FHFA announced the “Streamlined Modification Initiative,” which was designed to provide certain delinquent borrowers with a no-document and therefore more efficient way for delinquent borrowers to obtain a permanent loan modification.

Because whatever vigilance banks and servicers have employed to prevent leaving money on the table… well… it’s laughable… it has not worked in the least.  Or even if someone would say that it has, then let’s just say that everyone has continued to experience enormous losses anyway… and I do mean everyone… and the end of those losses is nowhere in sight.

We need programs that stop foreclosures and provide reasonable resolutions for borrowers faster than one at a time.  Don’t tell me about investor restrictions being the bottleneck here… come up with new programs that are out of the box and have the potential to lead to dramatic improvement, as opposed to incremental change.

FIRST CHANGE: Stop the Optimism for Optimism’s Sake…

I don’t want to see another optimistic forecast, like the ones I’ve been shown every single year since the crisis began, and that we’ve never come close to achieving.  I want to see the opposite… show me what happens if we don’t hit the numbers.

What if home prices fall by another 10 percent?  What if unemployment remains flat through 2016?  What if more cities file for bankruptcy?  What if the situation in the EU worsens?

We don’t have another 5 years to watch another five million foreclosures happen, and we certainly won’t like spending the next 10 years watching 10 million more, followed by some report showing the people in charge were wrong.  No one will take any pleasure in that sort of admission made far too late to change anything.

Cities like Richmond, California using the power of eminent domain to force a solution by taking over underwater loans and writing them down for homeowners is a major step to change our current destiny, but alone it’s not going to fix the entire country as far as foreclosures are concerned.

We need improved communications with borrowers so they know what’s happening and can comfortably collaborate, instead of competing to win, so the banks can lose.  We need programs that allow homeowners to become renters for up to 2-3 years, when they can’t qualify for a modification, because we don’t need more homes sitting empty.

And we need to put pressure on our elected officials, telling them that we are tired of being told we’re recovering, when we clearly are not.

And anyone who says otherwise… Mark Zandi.


I knew when I was a young teenager that I was only learning two things from my father’s teaching methods and one of those things was that I wanted to make him as miserable as he was making me, and because of that you might say that we didn’t get along until I turned 30.  You might say that, but it would be an understatement.

After High School in Hell, I moved out at 17 years old, went hitchhiking, got fired by every reputable summer camp in New England, and ended up enlisting in the United States Air Force as soon as they would have me.

My father followed a slightly different course in his younger years.  He graduated from Harvard in ’52, and got his Ph. D. in Water Chemistry a few years later, and spent his career as a highly respected professor and researcher at the University of Pittsburgh’s Graduate School of Public Health.  You’d be safe saying that he considered having an Ivy League education more important in life than having… let’s say… eyesight.

You could also say that if given the choice between having a son enlist in the U.S. military, or having one who got a degree in South American Egotistical Poetry before settling down in Humboldt County to grow pot… I’m pretty sure he’d have checked the box for the latter without hesitation.

He met me on a street corner the day before I flew to Lackland Air Force Base in San Antonio for Basic Training because I needed some money to begin my adult life as a military man and true to form, he handed me two $20s, along with a small gym bag containing two packs of underwear.  (I’ve heard that in Soviet Russia, convicted dissidents receive more than that from the NKVD before boarding the Solzhenitsyn Express to spend their lives at hard labor somewhere in the Gulag Archipelago.)

The next time we saw each other we were both 12 years older, it was just before my 30th birthday.

I went to college in my twenties and into my early thirties, attending two graduate schools for two different masters, including an MBA from Pepperdine.  I feel lucky that my wife and I were able to travel all over the world together with my parents during the years my father and I managed to remain on speaking terms, because there were plenty of years when that was not the case.

The other thing I knew during my teenage years was that I wanted to remember for the rest of my life that what he was doing to teach me the value of a dollar, was not working in the least.  And I vowed back then that I would never make the mistakes he had made when I became a parent.

I came to understand the value of a dollar, but not because of my father… in spite of him.

My daughter, on the other hand… and just today as a matter of fact and incredible coincidence … lost her wallet while shopping at the mall.  She was crying when my wife called for me to come console her, but she wasn’t upset over the monetary loss or even the inconvenience.

She was upset because she had managed not to lose her wallet her entire first year away at college living in a dorm at U.C. Berkeley, and had only been home for a day and now had lost her wallet.  She said that she somehow must have set it down while shopping this afternoon… and apparently it was gone, she had already called the stores.

She couldn’t believe that she had been so careless, and she was disappointed in herself for having lost them.  Now that’s knowing the value of a dollar, I thought to myself, because she would have had no idea what I was talking about.

I hugged her tight telling her not to worry or feel badly… that we’ve all done the exact same thing in our lives.  I reminded her that mom had lost her iPhone the year before, inadvertently in a rest room, and told her stories of the countless things I had kicked myself for losing over the years. I told her that when I’d done similar things, I’d always found that I ended up liking the replacement more than the one I lost, because there’s always a new model that’s better.

The only things of value were some random gift cards totaling about $175… everything else could be cancelled and replaced within a matter of days.  I told her that losing things when we’re younger is how we all learn not to lose things by the time we get older.  And I pointed out that the sort of person that finds a wallet but doesn’t turn it in doesn’t have very much in life, so she should think of it as making a donation to those less fortunate.

She laughed.  Besides, I explained that buying her gift cards was one of my absolute favorite things to do, and we both laughed.  Now, with her tears all gone, she was smiling and as I hugged her tight again, she told me that she loved me and that I gave the absolute best pep talks in the world.

So I retired to my study to finish this very article that I’d been working on all week, because now, I thought to myself, I had the absolute perfect ending.

After working on this piece until about 2:00 AM, I decided that I’d better go through it again with fresh eyes the following morning.  It’s a long one, I realized, but in my mind, it’s message is also one of enormous importance, so I wanted to make sure it read as smoothly as possible before asking anyone to devote the time needed to read and digest what it had to say.

And then this morning, as I was just about to have my coffee and start editing what you’ve just finished reading, my daughter came into my room to deliver a very important piece of news.

Her wallet was found at Grandma’s house. 

Grandma had confused it with hers, and taken it from the counter.  She was positively glowing… she hadn’t been irresponsible or careless where money was concerned after all.  She had this look on her face and I knew that to her… once again, the world made sense… and balance had been restored in the universe.

“Perfect,” I told her.  Because she was.

But, then… I wasn’t so bad, myself.


Mandelman out.



P.S. If you’re with Bank of America and having a hard time getting your loan modified, you can reach me at Mandelman@mac.com.  I am often able to help.




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