Mortgage Market Has a Long Way to Go

In the Bloomberg piece for me the impact was in the numbers.

  • the number of mortgages : 6.7 million
  • the percentage of Bank of America mortgages represented : nearly 50%
  • the number of days many loans are delinquent : 60 or more
  • the time line to “put it to bed” : 36 months

“We’re going to get after this, we’re going to do it the right way and we’re going to put it to bed in the next 36 months,” Terry Laughlin (BofA)

The move by Bank of America is similar, though not identical to moves taken by the likes of JP Morgan Chase, and Wells Fargo, as you will see in the piece. The benefits are clear from at least two perspectives:

  1. Investors will feel good about investing in the “good loan” pool.
  2. Managing the “bad loan” pool should be more efficient.

However, I took issue with the following statement:

“Many of the assets that are coming over into the legacy asset-servicing portfolio are delinquent or are expected to go delinquent over the next three years,” Laughlin said. “As borrowers default, we’ll evaluate them for a loan modification.(emphasis mine)

In my opinion this is one of the greatest mistakes many banks and loan servicers are making. They wait until the loan is ALREADY delinquent rather than being proactive, or rewarding owners who are trying to be proactive on their own. I have seen modifications happen prior to default, but it is taking a lot of time, and a lot of work to get through and to get it done. Unfortunately sometimes it comes down to a game of chicken between the unflinching bank, and a home owner threatening to walk away or beginning an inquiry into the short sale procedures.

If interested you can find the piece in it’s entirety here.

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