WASHINGTON — Nearly a week after Treasury Secretary Henry Paulson pledged that servicers working to modify loans have committed to transparent and monthly reports on their efforts, key details on the reporting effort remain almost entirely up in the air.
Industry participants said they may eventually report monthly data, but they have yet to sort out who is reporting what to whom and how it is supposed to take place. Only one thing appears certain: any reporting will be voluntary and may not present a complete picture of modification efforts.
That could further undermine the Treasury's loan modification plan, which was already under fire for being too narrow.
"The political ramifications will require significant transparency through a reporting process," said Andrew Sandler, a partner in the Washington office of Skadden, Arps, Slate, Meagher & Flom LLP. "It is not clear at this point how that will be accomplished or how the metrics of success will be defined."
For now, it appears likely that the Hope Now alliance — a Treasury-initiated group of lenders, servicers, and loan counselors — will take the lead in collecting loan modification data, not the Treasury itself.
William Longbrake, a policy adviser to the Financial Services Roundtable and vice chairman of Washington Mutual Inc., said data on the progress of the Treasury's loan modification plan will be public and is expected to be released at the end of January. Still, he said, what institutions are supposed to report remains to be worked out.
The Treasury plan calls for a streamlined framework for all subprime hybrid adjustable-rate mortgages originated between Jan. 1, 2005, and July 31, 2007, and with interest rate resets between Jan. 1, 2008, and July 31, 2010. Servicers would fast-track five-year modifications on a fraction within that set, including borrowers with less than 3% equity in their homes and FICO scores below 660. Those who cannot afford their reset but do not have the requisite FICO score would be eligible for refinance, and those who can afford their reset would not qualify for any help.
Mr. Longbrake said the reason for the delay in reporting methodology is simple: the industry had to iron out details on the Treasury plan first. "We couldn't design anything in time until that came out," he said.
As the Treasury announced its plan, the American Securitization Forum recommended 28 metrics for servicers to report to investors on the progress of loan modifications, including the modified loan amount, forgiven principal, and forgiven interest amount. That data would not be made available to the general public, however.
The Hope Now alliance is said to be building off those 28 criteria, but the public data expected to be released is likely to be narrower in scope. Mr. Longbrake said reporting would probably focus on how many people received a fast-track modification, how many received no help, and what happened to those who did not get a modification.
"My experience in shepherding data collection is you want to balance between getting enough information but not so much information that the whole process bogs down in editing detail," he said. "So there's a trade-off in quality and speed of detail. So at this point we'll go to high-level questions and not get mired down in details."
Another sticking point yet to be determined is how the report will define modifications, refinances, and any other forms of work outs. The securitization forum has developed definitions for modification and criteria for the Treasury loan modification plan. However, securitizers and investors define modifications differently and their definitions must be coordinated to allow any consistent reporting, Mr. Longbrake said.
There is also a question of who would participate in the reporting. Any participation in the Treasury modification plan is voluntary, as is actual reporting on loan modifications. For the modification effort to be successful, however, Mr. Longbrake said Hope Now members are pushing for as many servicers as possible to participate.
"We'll encourage maximum participation," Mr. Longbrake said. "We can't coerce. We don't have legal authority to coerce. … I would expect a large number of them to do so, because it's in their interest."
Also unclear is how the information would be transmitted to the public — either a Web site database or press releases are being considered. Meetings are scheduled this week to decide the metrics, sources said.
Some observers said this lack of detail is yet another flaw in the Treasury's plan.
"The whole process has been telling," said Brian Gardner, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc. "It's very complex and legally challenging. I think we've seen in the last week that Treasury has a tough time getting this done and how tough it is and how tough it's going to be."
The industry has already learned the hard way the dangers of not having a good estimate of loan modifications. The Mortgage Bankers Association began work on its own study of modifications after Moody's Investors Service Inc. released a study in September that found servicers had only modified about 1% of loans that reset in the first half of the year. The industry disputed that figure, but the study fueled calls from regulators for more systematic loan modifications. The MBA's results are expected soon, as is another report by Moody's.
Jay Brinkmann, vice president of research and economics for the MBA, said industry representatives are deciding whether Hope Now's reporting effort should be in coordination with the MBA.
"The Paulson plan reporting is still up in the air whether it will be done with a mechanism set up by Hope Now or whether it should take a broader view. … We're tying to manage reporting mechanisms on companies that I think are already too great," Mr. Brinkmann said.
Mr. Brinkmann said he doubted January was a reasonable time frame for the industry to report on modification efforts, as Hope Now plans. "We are making this up as we go along, because we haven't done these reports in the past," he said.
Some observers say the administration and the industry will be under political pressure to show signs of increased modifications.
"They need to get data by early February, because that's the point where Congress is likely to return to legislative solutions such as bankruptcy," said Jaret Seiberg, an analyst with Stanford Group Co.
"If the industry wants to forestall legislative action, they need to be able to show that there's substance behind this announcement — that individuals are getting loan modifications and refinancing. And the only way to do that is to have a data collection system in place and running from day one."
