This morning, the Congressional Oversight Panel (COP), established by Section 125 of the Emergency Economic Stabilization Act of 2008, issued a report entitled "The Foreclosure Crisis: Working Towards a Solution." The report was approved by a 4-1 vote of the COP, with Representative Jeb Hensarling (R-TX) voting against. In its announcement of the report, the COP "examines the causes of the foreclosure crisis and the impediments to its resolution and develops a checklist that provides a roadmap for foreclosure mitigation program success" and "includes an initial assessment of President Obama’s Homeowner Affordability and Stability Plan, and outlines the extent to which it addresses many of the impediments identified in the report." The report articulates a checklist of essential questions that the COP believes must be answered in designing and implementing a mortgage foreclosure mitigation plan:
- Will the plan result in modifications that create affordable monthly payments?
- Does the plan deal with negative equity?
- Does the plan address junior mortgages?
- Does the plan overcome obstacles in existing pooling and servicing agreements that may prevent modifications?
- Does the plan counteract mortgage servicer incentives not to engage in modifications?
- Does the plan provide adequate outreach to homeowners?
- Can the plan be scaled up quickly to deal with millions of mortgages?
- Will the plan have widespread participation by lenders and servicers?
The report generally praises the Administration's recently announced Homeowner Affordability and Stability Plan, but expresses some reservations about issues not addressed in the plan:
"In particular, the Plan does not include a safe harbor for servicers operating under pooling and servicing agreements to address the potential litigation risk that may be an impediment to voluntary modifications. It is also important that the Plan more fully address the contributory role of second mortgages in the foreclosure process, both as it affects affordability and as it increases the amount of negative equity. And while the modification aspects of the Plan will be mandatory for banks receiving TARP funds going forward, it is unclear how the federal regulators will enforce these new standards industry-wide to reach the needed level of participation.
"The Plan also supports permitting bankruptcy judges to restructure underwater mortgages in certain situations. Such statutory changes would expand the impact of the Plan. Without the bankruptcy piece, however, the Plan does not deal with mortgages that substantially exceed the value of the home, which could limit the relief it provides in parts of the country that have experienced the greatest price declines."
The report also includes copies of correspondence between the COP and Treasury Secretary Geithner, and mortgage survey data gathered by the COP, the OCC and the FDIC. The mortgage survey data is particularly interesting in light of the COP's conclusion that:
"The ability of federal banking and housing regulatory agencies to gather and analyze this data is hampered by the lack of a nationwide loan performance data reporting requirement on the industry. Consequently, there is no comprehensive private or government source for accurately tracking loan delinquencies and loss mitigation efforts, including foreclosures and modifications, on a complete, national scale. No federal agency has the ability to track delinquencies and loss mitigation efforts for more than 60% of the market. Existing data are plagued by inconsistencies in collection methodologies and reporting, and the numbers are often simply unverifiable. Worse still, the data that are collected are often not the data needed for answering key questions, such as, what are causing mortgage defaults and why loan modifications have not been working. ... The Panel endorses a much more vigorous plan to collect critical foreclosure data."