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Adam Levitin: It’s My Fault You Can’t Get a Mortgage

Adam Levitin: It’s My Fault You Can’t Get a Mortgage

Can’t get a mortgage?  Turns out it’s my fault.  As in mine, personally.  Yup.  That’s the claim in a Housing Wire written by right-wing banking analyst R. Christopher Whalen.  Here is Whalen’s argument in a nutshell:  

Servicing regulations make banks really reluctant to deal with anyone but very good credit borrowers because it takes so long to foreclose on anyone anymore.  Servicing regulations are so onerous because of an article Tara Twomey and I wrote on mortgage servicing that said that servicers were doing bad things. The problem (in Whalen’s view) is that Tara and I had it totally wrong.

I’m flattered that Whalen credits the article with having inspired all of the subsequent foreclosure regulation, but it would be nice if Whalen would accurately characterize the article. (Has he even read it?)  It would also be nice if Whalen would acknowledge that servicers have done an awful lot of bad things over the past several years, which might just possibily have something to do with the current regulatory enviornment for servicing. But such an admission that might get in the way of Whalen grinding his political axe (two legs good, regulation ba-a-a-d).

Whalen claims that the basic thrust of our paper “is that mortgage lenders and services want to push home owners into foreclosure, gain control over the homes and thereby profit.”  

Nope.  Wrong.  First, Tara and I make no claims about lenders.  Our paper is about servicers.  Their incentives are distinct from lenders, and that’s part of the problem, we argue. Second, our argument is not about servicers wanting to push homeowners into foreclosure, nor is it about servicers wanting to gain control over the homes (via foreclosure sale purchases).  Some of that does happen, but that’s not our argument. Our article is about how servicers are compensated, and our argument is that servicers’ compensation structures mean that when a homeowner defaults, then the servicer is not incentivized to modify the loan. The servicer isn’t looking to trigger a default if the loan is performing in most cases.  And Tara and I barely mentioned the REO aftersale market in the article. So while I’m thrilled to be proclaimed the intellectual godfather of servicing regulation, I wish it would be on a more accurate basis.  (It would also be nice if Whalen could get basic details right, like how to spell either my name or Tara’s name correctly or the correct publication date of our article which is 2011, not 2010, although it was mainly written in 2009-10).  

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