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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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December 8, 2008 4:29 PM ET
In a possible setback to Congress’s efforts to help struggling homeowners get their mortgage payments reduced, a federal bank regulator released data showing that over half the borrowers whose mortgages were modified slipped back into delinquency within six months. The new study from the Office of the Comptroller of the Currency put Federal Deposit Insurance Corp. chairwoman Sheila Bair and House Financial Services Committee chairman Barney Frank (D-Mass.) on the defensive. Ms. Bair and Mr. Frank have advocated spending money from the Treasury Department’s $700 billion financial rescue package to help struggling homeowners by systematically modifying their mortgages. The new data also prompted Office of Thrift Supervision director John Reich to suggest federal efforts to help homeowners should focus on stimulating the economy rather than reducing mortgage payments. “Many defaults are ultimately related to things that happen in people’s everyday lives, such as job loss, rising health-care costs and divorce,” Mr. Reich told an OTS conference in Washington today. “I have to wonder whether or not focusing on job creation is a better way to focus federal money than a loan modification process that may be only partially effective.” Loan servicing companies have been voluntarily reducing mortgage interest payments under plans such as the private sector Hope Now Alliance, which is made up of financial institutions such as Citigroup and Bank of America. The number of modified mortgages does not come close to the skyrocketing number of foreclosed homes, which rose to a record in the third quarter. The OCC data, which the agency will release officially next week together with the Office of Thrift Supervision, show that about 36% of borrowers who got restructured mortgages in the first quarter were more than 30 days overdue after three months, said U.S. comptroller John Dugan. That rate rose to 53% after six months and 58% after eight, he said. The “remarkably high” figures were similar during the second quarter, Mr. Dugan said. Mr. Dugan said it isn’t clear why homeowners were redefaulting at such high rates, and suggested it could be because of the economy, insufficient reduction of their monthly mortgage payments, poorly written mortgages or a replacement of mortgage debt with credit card debt. “The answers have important ramifications for the foreclosure crisis,” he said. Mr. Frank said that it isn’t enough to reduce mortgage interest payments and that the monthly principal also has to be lowered. He said he would not support any attempt by Treasury Secretary Henry Paulson to get the second half of the $700 billion funding unless Mr. Paulson spent some of the money on mortgage modifications, including the reduction of principal. Mr. Frank said many lawmakers shared his view. Academic studies of loan modifications have shown that reductions of principal are one of the most effective ways to stave off foreclosure, but that voluntary efforts result in very little reduction of principal. “The quality of the mods are not what they should be,” Ms. Bair said. “I think it’s very important to look at this data carefully and know what it says and what it doesn’t say.” Mr. Paulson has steadfastly resisted bipartisan congressional pleas to spend bailout money on mortgage modifications, saying the $25 billion called for by Ms. Bair would be a federal expenditure rather than an investment. His aides have said he may ask Congress for the second half of the $700 billion rescue fund in the waning period before the Jan. 20 inaugural of President-elect Barack Obama.
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