From the U.S. Government Accountability Office, www.gao.gov

Transcript for: AskGAOLive Chat on Foreclosure Mitigation

Description: Online video chat with Matt Scire, Director, Financial
Markets and Community Investments

Related GAO Work: GAO-12-296: Foreclosure Mitigation: Agencies Could
Improve Effectiveness of Federal Efforts with Additional Data Collection
and Analysis

Released: July 2012

>> Jeremy: All right, welcome to Ask GAO Live, the U.S. Government
Accountability Office's Web Chat Project. My name is Jeremy Cluchey. I'm
with GAO's Public Affairs Office. I'm here today with Matt Scire, a
Director in our Financial Markets and Community Investment Team. I want
to start off by thanking you very much for joining us. This is our third
web chat. We're doing this as an opportunity to engage with you, get
questions from the public, and provide you answers in real-time to your
questions about our new work as it comes out. Today we are going to be
discussing federal efforts to help homeowners struggling to keep their
homes. Matt's team lead work on a report that was issued last week. It's
GAO-12-296 that's available on our homepage, GAO.gov, if you want to
download it. And for today's chat, we're going to start with an
introduction from Matt about the work, and then there's an opportunity
for you to submit any questions that you may have about it. There are a
few ways for you to do that. You can do it over e-mail, by sending an
e-mail to askgaolive@gao.gov. You can submit your question over Twitter:
just use the hashtag  #@askgaolive or on Ustream, where you're viewing
this, to your right of the screen there should be a chat box. You can
enter your question there and we will find it there, as well. So, please
feel free to submit that and without any further ado, Matt, I'd like to
open it up to you. I'm hoping you can start by giving a brief
introduction to this topic, Foreclosure Mitigation Efforts by the
Federal Government and talk about why GAO did this study.

>>Matt Scire: Okay, I'd be glad to. So GAO has undertaken a number of
engagements, taking a look at the Home Affordable Modification Program
that Treasury operates and a lot of folks might be familiar with that.
It's an attempt to help borrowers who are struggling with their
mortgages. We thought we'd follow-up on that work and broaden it to look
at the federal response more generally. So, this engagement takes a look
not only at HAMP, but at other federally-sponsored efforts to mitigate
foreclosures, and we do several different analyses. We try to take a
look at where the mortgage market is and assess the extent to which
borrowers are at risk of foreclosure. We also take a look at the
catalog, the federal efforts that are underway and present information
on ways that those efforts could be improved. We have a few slides that
we could present here. The first one is one in which we take a look at
what's happening with defaults and foreclosures and by the way, if
you're having difficulty reading this slide, it's in the report so I
recommend that you take a look at it. So here, we're showing defaults
and foreclosures and the message is that we're still at very high
default and foreclosure rates. Overall, default meaning loans that are
90 days or more past due, and foreclosures meaning the home is in
foreclosure. Those together are about 8% of all mortgages, and this is
as of the end of last year. That's near a historical high. House price
not shown here, but other, sort of indicators, of stress in the mortgage
market are house price declines. We present information in the report
there. So for example, in the last 5 years, you had 32% decline in house
values. We also present information on where homeowners are in terms of
the equity of their homes versus mortgage of debt. And for the first
time since data were collected in 1945, in 2006 and 2007, we had the
situation where mortgage debt exceeded homeowner's equity nationwide,
and by a sizeable amount, by 3.7 trillion dollars. So that first graph
is telling you that we're still having trouble in terms of foreclosures
and defaults. The second graphic is our attempt to try to layout and
show the amount of activity from federally-sponsored loan modification
efforts. And what you'll see here is a second quarter of '10, was the
peak in which the federal government was providing support through loan
modification. It also is giving you a distribution within the graphic of
the amount of loan modifications that came from HAMP versus those that
are done by the GSE's Fanny Mae and Freddie Mac, FHA and VA. And what
you'll see in this graphic is that HAMP is the largest of the federal
efforts. It's important to note that over half of those HAMP
modifications were actually done by the GSEs. And then the last graphic
is a map which is giving you a sense of where at-risk borrowers are
located or the proportion of borrowers within each State that we
estimate were at risk of foreclosure. And here we used a national
dataset and we were looking at characteristics such as whether or not
the loan was 60 days or more past due, or if it were not 60 days past
due whether it had 2 or more other characteristics such as high LTV
ratios, it's Loan to Value ratio, or had high interest rates or had
certain features at origination which were risky. So the thing to take
out of this graphic is, you know, there's some states really standout
here: Nevada, Florida as you might expect had high proportions of
borrowers who are at risk of foreclosure. Nevada 40%, Florida 29%,
Michigan was also high at 22%. So again, all 3 of these graphics are in
the report.

>> Jeremy: Great thanks a lot Matt. Hopefully the resolution on the
images was alright that you could see the numbers, but as Matt
mentioned, GAO-12-296 on our homepage contains all these figures and
others. So with that introduction, we're going to open it up to any
questions you may have, and we have one here to start. Matt, this
question came in via e-mail, and the person asked, "What are the key
differences between a loan modification and loan refinance?"

>> Matt Scire: Well, so, a loan modification does not require the
creation of a whole new loan; whereas, a refinance does. That's the
principle difference. And the loan modifications that are being done
today generally are looking to reduce the payment on the mortgage, but
it does this through modifying certain terms and conditions in the
existing mortgage. The existing mortgage stands. With a refinance, the
objective there also is to reduce the borrower's monthly mortgage
payment, but it's with a whole new mortgage.

>> Jeremy: Thanks for that, is there one between the two that the
federal programs that you looked at are doing more of?

>> Matt Scire: Well, right now, I think you're seeing more activity in
the loan modification space, although refinance is really picking up.
There's one program in particular in the refinance area which has had a
lot of activity and that's the Home Affordable Refinance Program. This
is one that's undertaken by the GSEs, Fanny Mae and Freddie Mac and it's
had a considerable amount of activity.

>> Jeremy: Thanks. This next question also came in via e-mail from
Steven, and he asks, "Was everyone who asked for help from the federal
government given help?"

>> Matt Scire: No. So, there are certain eligibility requirements that a
borrower must meet. In addition to that, there's a decision tool that
used to determine whether or not modification makes economic sense. And
so, no, not all borrowers who would apply for HAMP modification, for
example, or for any of these modifications, would necessarily receive
it. I think that the numbers, that there are closer to 3 million
borrowers who had either applied for, and were not provided a HAMP
modification. Where if they got one, they subsequently had the
modification cancelled. So you consider that number versus the number of
currently permanent HAMP modifications which is about 900,000. That will
give you the sense of the numbers of people that might have applied and
not been approved or have been approved and been cancelled.

>> Jeremy: Thanks a lot. Let's see, we have a question here via e-mail.
This comes from Peggy Lee, and Peggy asks, "How much effect do you
foresee the aging servicing guidelines having on modifications,
etcetera."

>> Matt Scire: Well, that should have some beneficial effect. There has
already been a movement toward standardization of modification, but the
idea of having a single point of contact, for example, I think is a
really important feature. I know that one of the reasons that you hear
for modifications not going through or for cancellations is difficulty
in the first place, difficulty in contacting borrowers. You also hear a
lot about lost documentation. A single point of contact should help with
that particular issue.

>> Jeremy: Thanks and thank you for that question, Peggy. Our next
question here also via e-mail, this person asks, "How did GAO determine
whether a loan modification was successful?"

>> Matt Scire: So we were looking at re-default rates. And so we looked
at it in our econometric modeling, we generally were looking at a
re-default at 6 months. So that would be that the borrower had--was 90
days or more delinquent 6 months after the modification became
permanent. We also, in our modeling looked again at 12 months and 18
months, and so the relationships that we reported on in this report held
true whether you're measuring re-default at the 6-month point in time,
12-month, or 18-month. But, we're measuring success by not
re-defaulting.

>> Jeremy: Thanks. This next question also via e-mail; this person asks,
"I'm hearing news here and there about improvements in the housing
market, but I'm not really seeing it myself. Can you talk about what you
found with respect to the current state of the housing market?"

>> Matt Scire: Well the way I would describe it, and by the way we have
a graphic in our report that shows where home post prices have gone
using private data, and essentially you see a real drop-off in house
prices, and it sort of recovers a little bit, then comes back down. And
we've seen this 3 times now. So you might be seeing some recent data
that's showing improvements in house prices. We won't know whether we've
hit the bottom until it's long past, so what it looks like is as if
we're sort of skipping along the bottom right now.

>> Jeremy: All right. What about principal forgiveness? How are federal
agencies using it and what does it mean?

>> Matt Scire: Well, federal agencies really aren't using principal
forgiveness. They're prohibited from doing so in some cases. And they'll
use something a little bit different. So FHA, for example, will do what
it calls a partial claim. And what that means is that if there's a
back-due amount, it would be added to the end of the mortgage, so that
when the mortgage is paid-off, the house is sold, then that amount would
be due. So, that's what FHA does. They're focusing more on repayment
plans and partial claims. Neither VA nor USDA does principal
forgiveness. We also took a look at the GSEs are considering principal
forgiveness. That is, their regulators taking a look at that
possibility. It requires some analysis to see what the potential
benefits might be in doing principal forgiveness. It's important to know
that right now, the data, there just isn't enough experience, I guess,
with principal forgiveness, to have conclusive evidence of that
principal forgiveness works. There's a lot of evidence, I would suggest,
that it should work, and that it should be more effective than, say,
principal forbearance and more effective than rate reduction or other
methods, but there're just too few observations right now to conclude
that conclusively.

>> Jeremy: Thanks for that. We have a question here via e-mail from
Carol. It's in two parts, so I'll ask the first where she is looking for
your comments. "It seems like federal foreclosure programs ignore
state-to-state differences in recourse laws and provide incentives to
lenders that are out-of-line with what the lenders could expect to
recover. They're paying lenders to forgive principal, which under many
state law, the lender would not have recourse against the homeowner to
collect. This seems like an overly broad structure and is a giveaway to
lenders. Do you have any comments on that?"

>> Matt Scire: That's something we really didn't take a look at is what
impact the variation and recourse laws or redemption periods or some of
these other state provisions in the foreclosure process, what impact
that might have.

>> Jeremy: All right so it was outside of the scope of this inquiry.

>> Matt Scire: Yes.

>> Jeremy: The second part of Carol's question is, "Are there federal
foreclosure programs whether administered by treasury or the states--are
the programs required to comply with laws that prohibit providing
federal, state, and local benefits to non-legal U.S. residents, and are
programs doing this, or is anyone checking on this?

>> Matt Scire: That's a good question. That's another thing that was not
part of our scope.

>> Jeremy: All right, then we'll move on to the next question which
comes from Catherine via e-mail. Catherine asks, "What parts of the
country may have started recovering significantly, if any, and which are
still showing problems?"

>> Matt Scire: I think our map helps in a way, so that's giving you a
sense of the proportion of mortgages in each of those states that we
consider to be at risk, and the problems are still in those states that
have had the greatest house price decline, for example. So, Florida and
Nevada lead the way.

>> Jeremy: I can pull that map back up too.

>> Matt Scire: You know, followed quickly by Michigan. But there are
some states which really did not suffer as much in terms of house price
decline, like North and South Dakota. I think that that there the
percent of loans at risk there are at 4% or for each, or something along
those lines.

>> Jeremy: Great, our next question came via e-mail as well. Have the
federal efforts been more or less successful than those of the banks and
private industry?

>> Matt Scire: So, we did take a look at, using some of the proprietary
data, at re-default rates. And one thing that does stand out is that the
re-default rate for FHA mortgages is significantly higher than
re-default rates for non-FHA mortgages. So, that's telling you something
about how effective, potentially, that program is. So far as the other
investors, that's something where the data was not particularly reliable
and us trying to link with the specific investor and to try to use our
econometric model to isolate the impact that the--who held a mortgage,
who was the investor might have had on re-default.

>> Jeremy: Thanks.

>> Matt Scire: So what we have there is simply descriptive statistics.

>> Jeremy: Sorry to interrupt you there. We do have another question
here, this one's from Abbey, came in via e-mail and Abbey asks, "Are
there certain groups, for example the military, more at risk for
foreclosures? Are there any laws in place to protect military from
foreclosures while they're deployed?"

>> Matt Scire: So we have separate work ongoing at GAO on this
particular issue. That's not something we could model. The data wasn't
there to tell us whether or not, for example, the borrower was an active
duty service member. I can tell you we have currently underway work
which is taking a look at protections for service members under the
Service Member Civil Relief Act, and there are protections if you're
active duty in terms of the foreclosure process. There's also
protections in terms of what the maximum interest rate is that a lender
may charge on your mortgage.

>> Jeremy: Thanks, and thanks for that question. The next question here,
"I keep hearing about borrowers being underwater. What does this mean
and is this a relatively new phenomenon?"

>> Matt Scire: It is a relatively new phenomenon. So underwater simply
means that the homeowner owes more on the mortgage than the property is
worth. And what has happened with house price declines of 32% nationally
over a 6-year period means that, for many borrowers, they now own a
house which is worth less than what they owe on the mortgage. For some
of these borrowers, they may have even put 20% down on their mortgage
when it was first made, and still be underwater, still owe more on the
mortgage than the property is worth.

>> Jeremy: Another question here, this person asks, "How much taxpayer
money has been invested in these programs so far?"

>> Matt Scire: I don't have a total number. So for the HAMP program,
which is the largest here, it was authorized, I think 45 billion
dollars, and it's now at I think 29. The CBO's estimates are that it
won't be using nearly that amount, so we really won't know for awhile
what the total cost is for the HAMP program. I think it's important to
note that in the other federal efforts like with FHA, and VA, and so
forth, the idea here is to try to--and in all these modification
programs--is to try to solve for what is an optimal solution in terms of
cost-to-taxpayers in the likelihood of a borrower staying current on the
mortgage. And this is where we think there's a lot more that FHA, VA,
and USDA could do to try to solve for that. It really doesn't make sense
to offer a solution which has a higher chance for the borrower to
re-default. You really are looking for solutions that will increase the
likelihood of re-default at the least cost to taxpayers.

>> Jeremy: Thanks. GAO makes a range of recommendations in this report
to a variety of different agencies. Can you talk a little bit about
those recommendations and why they were different for different
agencies?

>> Matt Scire: So, that's what I was just talking about a moment ago.
So, we think there's a lot more that FHA, VA and USDA could do in terms
of their data analysis and data collection. We have a strange situation
here. We have FHA does not collect certain information like borrower
income and expense data, or LTV data when a loan is modified. So, we
recommend that they do collect that information. VA requires servicers
to collect this information, but does not require them to report it to
VA. We think it would make sense for VA to require the servicers to
report it to VA, and USDA collects some of this information, but doesn't
analyze it, and has some difficulties with their systems and matching
data. So each one of them has sort of a little bit different problem
with their data, and so our recommendations are intended to get at the
particular problem that each faces. But the concept here is for each of
them to take this information and assess whether or not their current
policies and practices make sense; and if there's need for some
adjustment, to make those adjustments. We point out in the report that
FHA, for example, the last time they really did this kind of analysis
was in 1996. And as we all know, the world has changed quite a bit since
then. So we think there's far more that these agencies can do to
understand and rationalize their loan modification programs.

>> Jeremy: Thanks for that. We have a question here via e-mail from
Anne. She asks, "What could the federal government be doing differently
to better help struggling borrowers?" You may have touched on that with
the recommendations, a little bit there, but can you expand at all?

>> Matt Scire: Well, if they were to do this analysis, there could be a
lot of changes that they would make to their programs. You know, we
think it does make sense for it to be driven by what the analysis might
show. We also raise the question of whether or not principle forgiveness
makes sense, and there's ongoing analysis on that front right now. We
really, you know, we asked a lot of different folks who work this space
whether or not there was something that we need to begin anew that
hasn't been done before. And essentially what we got back was, "No. What
we need to do is, we don't need a new program; we need to find ways to
make these existing programs work better." And so, that's why our
recommendations are focused where they are and not to propose something
that hasn't already been tried.

>> Jeremy: We have a second question from Peggy who has followed-up.
She's asking about USDA's loss mitigation servicing practices. She's
asking whether GAO has any plans to review those practices and current
debt collection practices on delinquent mortgage loan accounts in a
future report.

>> Matt Scire: No, but it sounds, Peggy, like we probably should. That's
something that I'll take a look at. I see whether that makes sense.

>> Jeremy: Another question from Sarah. She asks, "How did the agencies
respond to GAO's recommendations?"

>> Matt Scire: So, they all agreed, with one potential exception. And
that has to do with USDA. And there, they provided us some additional
information, and so we clarified our recommendations. So otherwise, I
would say they all agreed with the recommendations.

>> Jeremy: And this question asks, "How does this work fit in with GAO's
work on duplicate and overlapping programs, if it does."

>> Matt Scire: So, we are, in fact that's other work that I'm doing
right now, looking at housing--duplication within housing programs. And
so there, we do point out that the federal government has a number of
efforts underway that provide support for mortgage finance, and so this
would be part of that. You know there's various tasks that each of these
agencies undertake as part of their mortgage finance programs, whether
it's in underwriting, whether it's monitoring their counterparties,
whether it's servicers or others. And then what to do, what policies
they have in place at the end when loans fail, or for that matter, when
they end up with, in most cases, with a property that they then need to
manage and market.

>> Jeremy: And one final question. After looking through all of these
programs, do you have any advice for struggling homeowners?

>> Matt Scire: Well there's a point of contact you can go to, and if you
go to the Making Home Affordable website for Treasury. So go to U.S.
Treasury website, and look for Making Home Affordable that will point
you in the right direction.

>> Jeremy: Great, thank you very much for that and thank you everyone
for tuning in; thanks to everyone who submitted questions. We really
appreciate it. We really value this opportunity to have this
conversation with you. We hope to do this again soon in the future.
Since this is kind of a new project for us, we are looking for any
feedback, any comments that you might have about the format or things
that we might consider. If you do have any thoughts, if you could please
e-mail them to askgaolive@GAO.gov, we'd really appreciate that. For more
information on this report and all the other GAO does, you can go to
GAO.gov. Our homepage always has the latest reports listed out front.
You can also follow us on Twitter or on Facebook. Twitter.com/usgao and
you can keep up with our newest reports and podcasts and that sort of
thing, and on Facebook, same thing, facebook.com/usgao. So, thank you
again Matt, for taking the time. Thank you all for tuning in again, and
we hope to see you next time.