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 "Let's be clear:" Just Kill Me Now - White House Press Briefing with HUD Secretary Shaun Donovan and FDIC Sheila Chairman Bair 2/18/09 — Thursday, February 19, 2009 —  Q You suggested that there would be help for people with non-conforming loans. I thought that there was not.SECRETARY DONOVAN: To be clear, the modification program that is being announced today will allow any servicer who -- whether that loan is a conforming loan with the GSEs, or it is held by a private label security -- any type of loan as long as the servicer and the investor are willing to step up, they have some skin in the game, so to speak, they're willing to bring the payments down to 38 percent what we call DTI -- debt to income ratio -- we will provide incentives. We will split 50/50 the reduction of those payments down from 38 percent to 31 percent. So any loan, whether it's a GSE loan or not, can participate in that program. And those homeowners who are underwater and also can't afford to pay their mortgages can participate. Q -- respect to the lender? SECRETARY DONOVAN: Just to be clear, we do have guidance -- as Secretary Geithner said earlier, we have guidance as part of TARP, that anyone receiving TARP funding must participate in this program. And we have a range of incentives that will make sure that servicers who have not been able to participate before can do so. Let's be clear: One of the problems is these securities that hold many of these loans are so complex -- they've been sliced and diced into so many pieces -- that they are lots of problems for servicers that have a financial incentive to modify, but they haven't been able to do that. So we're going to provide standardized guidance across all the mortgage market that defines what a reasonable modification is. That will provide a lot of comfort to these servicers who have been concerned about lawsuits. That's first of all. Second of all, we're going to provide the incentives that I talked about before, so there's a financial incentive to participate. And third, a program which really Sheila Bair has been a leader on -- we're going to provide this insurance pool -- the $10 billion insurance pool -- to make sure that future price declines aren't a reason for servicers to not participate. Right now, many are afraid if they modify and home prices fall further, that they're going to lose from that. We're going to help ensure against that so we get greater participation, as well. We think the combination of the carrots and the sticks will be effective in getting much greater participation. Sheila, do you want to add on this? MS. BAIR: Yes, I just need to clarify, there's a difference between a conforming loan and a loan under the conforming limit. So the loans, the modification, "do they have to be below the conforming limit?" That doesn't mean they have to be conforming loans. A lot of them are not. A lot of the high-risk mortgages are in these private label securitizations. And I guess to go back also to an earlier question about, well, why pay them for doing something that makes economic sense already. And I can assure you, our hands-on experience when we became conservator of IndyMac and we're dealing with the investors to try to get those loans modified in the servicing portfolio of IndyMac, and there were two key problems. One, is that investors have different interests. If you reduce the interest rate on these loans, some investors get hurt by that, some get help. If you foreclose, some get hurt, some get help. So the economic incentives are misaligned. The servicer has no skin in the game at all, right? So there's inertia there to begin with. The investors are pushing different ways, perhaps threatening lawsuits. So I think what we're trying to do is align economic incentives by saying, if you come this far for us, 38 percent, then we'll help with the interest deduction between 38 and 31. We'll also give you some protection. We know home prices are going down. We know that some of these loans will redefault -- may redefault later and you will have to take a loss because the foreclosure value will be less. So we're going to give you some additional insurance, guarantee against that. Those are the two huge issues that we've heard from investors over and over again. And we think -- it would be nice if it happened voluntarily. We tried voluntary. It didn't work. And we are woefully behind the curve. So I think this program is necessary. I think it does have the right incentives that should get the job done. These modifications, though, absolutely make business sense. At IndyMac, we -- even assuming a 40 percent redefault rate, which is very high, higher than we think -- we're still making $50,000 on average for every loan we modify, just because the value of a performing loan is so much higher than that of a foreclosed home. So this is -- this makes economic sense. It will help the economy. It will help stabilize home prices and prevent us from overshooting, which I think we are in a distinct danger of doing right now. Q It's my understanding that this only applies to first mortgages, so that if you had a second -- a first mortgage and you're not technically underwater with it, but you are with your first and second combined, you're not eligible for assistance, correct? And why not? SECRETARY DONOVAN: That's not correct, actually. We do have one element of the program that says if your total debt, including second lien but also credit card and other debt, is more -- your payments on all that debt is more than 55 percent of your income, then we think you're very unlikely to succeed. And therefore, we're going to require those families to go into counseling to try and reduce their other debts, and then they could become eligible for the program. Q (Inaudible.) SECRETARY DONOVAN: If they want to benefit from the program, we're going to have to do something to reduce their overall debt. What we don't want is to provide a modification that's set up for failure. We want to make sure that we're setting people up to succeed. So if their overall household debt is too high, that's going to be a requirement to be able to participate in the program, if they want to get the -- but on second liens, you are eligible to participate. And what we have generally seen is that the second liens on modifications are not a problem to participation, because no payments are made to the second liens whatsoever under this program. We're going to focus on getting affordability. Their payments have to get down to the 31 percent level. And we will not be making payments to those second liens, because, frankly, they're not -- they don't have a value in this case if the homeowner can't even afford to pay the first mortgage. So no payments will be made. We've been in extensive discussions with the servicing community; we don't believe that's going to be an issue for the program and they will be able to participate. Economy | FDIC | UUD | Press Briefing | White House Press Corps Labels: Economy, FDIC, HUD, Press Briefing, White House Press Corps >> Full Story
Posted by White House Press Corps @ 4:31:00 PM
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