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Pay for (Loan) Performance

GMAC Inc. is getting tough on mortgage loan officer compensation.

Beginning this month, loan officers at the auto finance company's Residential Capital LLC unit will have some of their compensation tied to the performance of the mortgages they originate rather than being paid solely on the basis of volume, said a GMAC spokeswoman, Gina Proia.

"We believe this new structure will drive more efficiency in our loan origination business," Proia said Wednesday. She did not provide further details.

Many industry experts believe that perverse compensation policies were partly responsible for high default rates that contributed to the meltdown of the housing market. For years, loan officers were rewarded for originating high-cost loans with no penalty if the borrower ended up defaulting. The setup also provided an incentive to help borrowers falsify their incomes and obtain loans they could not afford.

David Lykken, the president of the Austin consulting firm Mortgage Banking Solutions, said GMAC may be "ahead of the curve" in tying compensation to performance.

"There needs to be a realigning of compensation because it's been out of balance for years," Lykken said. "Loan officers will be frustrated but this is a contracting market and it's time for the industry to retool."

Matchmaker for Muckrakers

ProPublica is trying to make it easier for journalists to expose the trials and tribulations of the loan modification process.

The nonprofit investigative news organization funded by former bank honchos Herb and Marion Sandler has launched a matchmaking service of sorts, offering to connect reporters with borrowers who have applied to the government's Making Home Affordable program.

"Often, the media can be the most effective recourse for homeowners who have nowhere else to turn," ProPublica said.

Homeowners that want to participate give ProPublica permission to share their e-mail or phone numbers with local journalists. ProPublica then sends their names and contact information to journalists in their area who sign up for the service, which is free. Journalists are asked to cite and link to the organization's Web site in their story.

Since its launch last week, 138 journalists and 117 homeowners have signed up for the service.

Before they became ProPublica's benefactors, the Sandlers were co-chairmen and co-chief executives of Golden West Financial Corp., which they sold before the housing market went bust to Wachovia Corp., the Charlotte banking company that is now part of Wells Fargo & Co.

Golden West was a prominent originator of option adjustable-rate mortgages, or Pick-a-Pay loans. Problems with this portfolio contributed to Wachovia's downfall, although many of the worst-performing loans were written after Wachovia took it over.

Quotable …

"Our loans were sold before we even made them, which put more pressure on the production groups to get loans closed. … The process was so convoluted it was nearly impossible to get a fraud[ulent] loan pulled out of the entanglement to repurchase it. I actually had a Wall Street investment banker chastise me for trying to buy a fraud loan back. This particular loan was back in 2002 or 2003 when there were hardly any loans coming back from investors. His comment was, 'You want me to pull this one loan out of this security? Do you know what I have to do?'"

Patricia Lindsay, the former vice president of corporate risk at New Century Financial Corp., at the Financial Crisis Inquiry Commission hearing Wednesday.

"Total Wall Street channel volumes grew 40% in 2006, and it was announced that greater growth was expected in 2007. Most of the growth was to be in the subprime mortgage business. … The term 'nonprime' was the preferred term to use instead of 'subprime.'"

Richard Bowen, former business chief underwriter at Citigroup Inc.'s CitiMortgage Inc., at the hearing.

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