Why we’re in the dark about the mortgage market
By Ryan McCarthy
We have a severe shortage of information about a $10.5 trillion market.
Jesse Eisinger has a great column at ProPublica about just how inscrutable bank data is — if you havenâ€™t read it, you should. A short summary: even the simplest of big bank statements amount to â€śguesswork,â€ť Eisinger writes.
Eisingerâ€™s one of a precious few writers whoâ€™ve been frank about the banking industryâ€™s black box of data. Read enough of Eisinger or Bloombergâ€™s Jonathan Weil, you begin to suspect that if analysts, reporters and executives were to be honest, theyâ€™d admit there is no reasonable way for even trained investors to make an accurate judgement on the health of a large bank. Hereâ€™s Eisinger (and you can almost feel the strain from reading SEC documents):
Day after day, [banks] push out news releases that run to dozens of pages. They prepare reams of special presentations for investors, the most recent of which from Wells ran to 51 pages, on top of a 41-page news release. The SEC filing from the quarter was 162 pages.
The numbers and presentation differ slightly in all of them and often differ from other banksâ€™ presentations, stirring a struggle among outsiders to compare apples and bananas. No professional admits this publicly, but many investors and analysts privately acknowledge that they canâ€™t fully track the data gushing each quarter from the nationâ€™s banks.
And while bank disclosures are intelligible only for those versed in financial arcana, thereâ€™s one indicator of banking systemâ€™s health that may be even more inscrutable: mortgage servicing.
Bad mortgages and shoddy foreclosures have cost Americaâ€™s five biggest banks as much as $66 billion, according to a recent estimate by Bloomberg. Assuming weâ€™d be able to put aside concerns about the legality of foreclosures — and thatâ€™s a big if — youâ€™d be hard pressed to find recent and reliable specifics about how our banks are actually dealing with bad loans.
Whether you’re a prospective home buyer, a struggling mortgage borrower, or an investor, good luck finding any useful information about whether banks are changing mortgage terms, kicking homeowners out or stalling for time.
Take Fannie Mae, for example, which last week released the results of its â€śServicer Total Achievement and Rewardsâ€ť (STAR) program for the first half of the year. The program is designed to provide â€śclear expectations and specific, consistent measurements to help Fannie Mae servicers increase their focus on areas of critical importance to Fannie Mae,â€ť according to a release.
Fannie Mae, which has not made data behind its criteria STAR criteria public, has an odd way of describing banks’ mortgage servicing performance. There are 11 big banks in “Peer Group 1,” but Fannie Mae names only five — the ones that are performing at least at the median level. It doesn’t tell you whether any of those banks are particularly good, and it doesn’t even name the six banks which are below the median.
(Bloomberg, in this piece, did the easy deduction work that Bank of America and JPMorgan, Americaâ€™s two largest banks by assets, are on pace to flunk Fannieâ€™s test.)
More helpful are Fannie and Freddieâ€™s new mortgage servicing standards, which are set to go into effect on October 1 and were devised in coordination with FHFA. The agreements fine or reward servicers, according to how they perform. But again, Fannie Mae has no plans to release the names of banks that are being fined or rewarded.
And then newly-launched, Consumer Financial Protection Bureau is reportedly hoping to introduce its own mortgage servcing standards; how those might work is anybody’s guess.
Well, we havenâ€™t even gotten to the various state foreclosure rules or the Obama administrationâ€™s Home Affordable Mortgage Program (HAMP), which was intended to help 3-4 millon homeowners by 2012. To date approximately 800,000 homeowners have received permanent help from HAMP, and the program has been widely declared a failure.
In the Treasury Departmentâ€™s HAMP reports, you can see for example, that Bank of America only has 132,000 mortgages in that have received â€śActive Permanent Modificationsâ€ť through July. And you can see that Bank of America has historically some of the lowest conversion rates among major banks.
This could give us some useful information — but HAMP only accounts for only a fraction of bad mortgages. For context, there are some 4.38 million delinquent home loans in America and another 2 million or so in foreclosure process, according to Lender Processing Services.
There are other places to look for mortgage servicing data. The OCC releases a quarterly mortgage metrics report, which doesnâ€™t break down performance by servicer. The credit rating agencies have their own reports. Or, if youâ€™ve got some cash on hand you can pay for reports from Lender Processing Services or other data providers. (A variety of state agencies and consumer groups also provide some of this data.)
What we need is a centralized repository for all mortgage servicing data — if we can’t see what the problem is, we’ll never find a solution. But as reports pile up that banks are still rubber-stamping possibly illegal foreclosures, if you want to get a sense of how the housing market is doing, youâ€™re probably better off asking your neighbor than consulting the public record.