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There's a knock at the door. The FedEx carrier drops off a package of loan modification documents. Within minutes, the phone rings.
The caller asks the homeowner to confirm she received the package and urges her to return the documents as quickly as possible.
Is Big Brother watching?
"We do get a lot of joking, like, 'Do you have a camera watching me?' " said Jason Nadeau, the president of Home Retention Services Inc., a unit of Stewart Information Services Corp. of Houston.
His company, which Freddie Mac hired this week to help servicers contact and gather documents from borrowers, is using technology to get the homeowners to respond.
When a homeowner signs for a package, the FedEx carrier's handheld device sends a message by satellite to Home Retention's call center, triggering the call to the borrower. (A rival company owned by First American Corp. of Santa Ana, Calif., has a similar arrangement with Fedex Corp.)
Reaching troubled borrowers, who are often reluctant to talk to their servicers, has been a challenge for the industry throughout the crisis.
Two years ago Quantum Servicing Corp. tried a creative approach to the problem: it mailed prepaid cell phones, free of charge, to delinquent borrowers. The phones came loaded with about 50 minutes' call time, but only after the recipient contacted Quantum could a phone be activated for broader use.
In his line of work, Nadeau has observed a grim reality of the housing crisis.
He estimated that as many as 10% of borrowers who call Home Retention asking for a loan modification have inherited a property from their parents and are unable to continue making mortgage payments.
"We are getting inquiries from borrowers where the parents have passed away, the house has declined in value and they can't make payments on it," he said.
Many of the properties are vacant, so the heirs do not qualify for a loan mod, which Nadeau called "a hole in the system."
While surviving family members are not on the hook to repay the balance of a mortgage, they are nonetheless caught in a tough situation, particularly with unemployment on the rise.
"The underlying problem is people are losing their jobs and they can't sell a home within 90 to 180 days," he said. "Now the collateral doesn't cover the loan and the house won't sell."
IOUs for Sale
SecondMarket Inc., which auctions illiquid assets online, has set up a secondary market for IOUs issued by California — and, potentially, those of other municipalities.
Banks that have reluctantly deposited the Golden State's so-called registered warrants for their customers are welcome to list the IOUs on the market, the New York company said.
The market was designed, however, for recipients of the IOUs whose banks are not accepting them. "The original intent is to give those people … an avenue for liquidity," said Jeremy Smith, SecondMarket's chief strategy officer.
Sellers might need the cash before Oct. 2, when California has said it will repay the warrants, "or maybe they don't have confidence that California will hit the Oct. 2 redemption date," he said.
A handful of IOUs have been listed for sale since the market was launched two weeks ago, and more than 200 investors have expressed interest in buying the paper. However, no trades have been consummated, Smith said, and that may remain the case until there is more clarity about California's ability to make the deadline.
If the state says it will redeem the IOUs on time, or sooner, there will be little need for the market. But if California defers payment, "you'll likely start to see some pickup in activity," Smith said.
"We are hoping this marketplace is never needed," he said. But SecondMarket will keep the market "warm" because given the economic crisis, a number of other states and municipalities soon may be issuing IOUs.
Through Monday, California had issued more than $1.08 billion in IOUs, according to The Bond Buyer.
Banking's 'Weird Al'
Moseying on to computer screens across the nation through viral videos on YouTube, Merle Hazard may be America's first and only country music star to sing the mortgage-backed-securities-and-derivatives blues.
"Merle" is Jon Shayne, a 46-year-old money manager who runs Shayne & Co., a Nashville firm overseeing assets of more than $120 million.
His stage name is a play on that of his hero, the country legend Merle Haggard, and the term "moral hazard," which refers to the idea that a party insulated from risk may behave differently than if it were fully exposed to that risk.
Merle Hazard explores this subject in "Bailout." Heavily influenced by "Convoy" from the one-hit wonder C.W. McCall, the song japes the Federal Reserve Board's willingness to rescue troubled banks. Earlier Hazard parodies include "H-E-D-G-E," a loose takeoff of Tammy Wynette's "D-I-V-O-R-C-E," and "In the Hamptons," a spoof of Elvis Presley's "In the Ghetto."