FHFA, the GSEs and HAMP

FHFA, the GSEs and HAMP:

In our view, the biggest obstacle to broader participation in the FHA “short refi” program and in the HAMP program is the unwillingness of the Administration to address the large number of second liens that are currently valued at unsustainably high current values on the books of several large banks. While accounting conventions allow these to be carried as “current” the reality is, if there is no equity in the first mortgage how can there honestly be any value in the second – other than as a retained call option on housing recovery. Perhaps before seeking to use the GSEs’ as a slush fund, Washington might consider first tackling the conflicts inherent in the servicing of first liens on behalf of MBS certificate holders by servicers who also service second liens on behalf of their own affiliated banks. If servicers were required to either divest the servicing of mortgages in which they have such a conflict or to divest their servicing businesses (which have failed to show any meaningful economies by being integrated anyway), we would expect to see a greater willingness to write down the value of second liens and, as a result, a greater participation in both HAMP and the FHA “short refi” program.