CAP’s Michael Ettlinger, Andrew Jakabovics, and David Min have put together a set of recommendations for improving Treasury Secretary Timothy Geithner’s public-private investment fund (PPIP), which aims to clear banks of their toxic assets. They raise one question, in particular, that definitely needs to be addressed: Will investors who purchase mortgage-backed assets have any responsibility to participate in the administration’s mortgage modification program?:
Of specific concern is that the administration’s new mortgage modification program could be undercut by the PPIP’s Legacy Loans Program. The administration’s new Home Affordable Modification Program, or HAMP, requires participating loan servicers — including all future recipients of funding from the $700 billion Troubled Asset Relief Program approved by Congress late last year…to work with at-risk homeowners to modify their loans in cases where modification preserves more value for the mortgages in the lenders’ portfolio than proceeding to foreclosure. Under the LLP, however, many of those loans are destined to be sold to investors who currently are under no such obligation to make mortgage modifications.
This really needs to be sorted out. One potential solution is to simply have the loan purchasers “play by the rules” of the modification program, and receive the same benefits for successful modifications. That sounds reasonable, as it would be a shame if the bank plan stepped all over the administration’s extensive efforts to halt foreclosures.