Friday, July 3, 2009

Mortgage Modification Blues

The New York Times article "Paper Avalanche Buries Plan to Stem Foreclosures" documents the logistical nightmare of processing single family mortgage modifications. An excerpt:

A note in the system shows that the bank confirmed receiving documents on April 29 — pay stubs, tax returns, a letter disclosing her hardship, bank statements. Since then, the company has been waiting for WaMu to review the file.

But when Mr. Lavi calls, a representative coolly discloses that the application has been rejected because one document, a proof-of-insurance form, is missing. He must start over.

“The file had been submitted properly, and you didn’t put the pieces together,” Mr. Lavi says, his body quivering with anger. “I’m not going to stand in line again for another six months.”

He demands to speak to a supervisor, but the representative says none is free. He hangs up and redials, hoping to land in a different call center. Eventually, he reaches Chase’s executive offices, where Becky takes over the call.

“We’re not taking cases now,” she says calmly.

“Why was I transferred to you?” Mr. Lavi asks. Becky does not know. He implores her to keep the file open while he faxes in the lone missing document.

“Impossible,” she says, warning of “the sheer amount of papers coming in.”

So, to get a modification on a WAMU (now Chase) loan, you need pay stubs, tax returns, and bank statements? Contrast that with the process of getting the loan in the first place, as reported in the New York Times piece, “Saying Yes, WAMU Built Empire on Shaky Loans.” An excerpt:

As a supervisor at a Washington Mutual mortgage processing center, John D. Parsons was accustomed to seeing baby sitters claiming salaries worthy of college presidents, and schoolteachers with incomes rivaling stockbrokers’. He rarely questioned them. A real estate frenzy was under way and WaMu, as his bank was known, was all about saying yes.

Yet even by WaMu’s relaxed standards, one mortgage four years ago raised eyebrows. The borrower was claiming a six-figure income and an unusual profession: mariachi singer.

Mr. Parsons could not verify the singer’s income, so he had him photographed in front of his home dressed in his mariachi outfit. The photo went into a WaMu file. Approved.

Proper underwriting (of new loans and modifications) is labor intensive. Most servicers never had the proper underwriting infrastructure in place to originate the loans, and they certainly don’t have it now that those deals need modifications.

More at my post, “Why Did WAMU Abandon Underwriting Standards?”