Friday, September 18, 2009
Five months into the Obama administration’s loan modification program, only 12% of eligible homeowners have actually seen their mortgages modified. That’s because the lenders will only modify if they think it will bring them greater profits than foreclosing. Generally, if the value of a house is more than the outstanding loan, the lenders prefer to foreclose.
From the point of view of homeowners, their fate is often left in the hands of a complex computer program that advises banks whether it is more profitable to modify an existing mortgage or to foreclose on the property. However, exactly how the mathematical modeling works for the Net Present Value test is a secret because the Treasury Department has refused so far to release details about it.
Consumer advocates are not happy about the secrecy, arguing that withholding how the program works prevents outsiders from determining if there are flaws at work. “Someone needs to be able to review it,” said Diane Thompson of the National Consumer Law Center. Michael Barr, assistant secretary for financial institutions at the Treasury Department, told Congress recently that his agency was moving toward “greater disclosure of the NPV evaluation.”
-Noel Brinkerhoff
The Secret Test That Ensures Lenders Win on Loan Mods (by Alexandra Andrews and Emily Witt, ProPublica)
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