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Will outing spotty loan servicers work?

Marketplace Staff Aug 4, 2009

Will outing spotty loan servicers work?

Marketplace Staff Aug 4, 2009


Bill Radke: The Obama administration has been trying to get mortgage lenders to help homeowners avoid foreclosure. This morning, they’re trying a little public shame. The government lenders have offered help to only 15 percent of homeowners eligible for the administration’s loan modification program, and the report names names of loan-servicing companies that the government says are not doing enough to help.

The names include American Home Mortgage Servicing, National City Bank — the report says neither of those companies have modified a single loan. Is this public outing fair, and will it work? Joining us live is Chris Mayer. Senior vice dean and a real estate professor with the Columbia Business School. Good morning.

Chris Mayer: Hi Bill.

RADKE: So, start with the first question. Is it fair to name lenders and servicers who allegedly aren’t doing enough on foreclosures?

MAYER: Well I think the idea of sort of a public outing is not my favorite way to conduct government. You know, these are complicated programs and the government hasn’t made it easy to participate all the time. But no, I don’t think it’s fair to call people out. I prefer other methods.

RADKE: Well the administration says some of these servicers have been outright fraudulent — not telling homeowners about their status or their options.

MAYER: Well, are all servicers doing a good job? Absolutely not. There are servicers who are really pursuing things that are a serious problem. But there is recourse to get rid of the servicers, including by some investors and my sort of preferred approach would be to work with investors to get rid of the servicers who are being ineffective at this.

RADKE: OK. So next question, whether it’s fair or not, Chris, do you think this naming names might be effective?

MAYER: I think it’s always effective in the short run, but the news cycles are short. And what are you going to do? Call somebody up on the phone and say, ‘hey, by the way, I just read your name on the list of shame, the wall of shame.’ And then what? So I think that yes, this will get headlines for a day. But if we really want to work with and kind of get this going, we’re going to have to work with investors to continue to move the process.

RADKE: And just in a few seconds Chris, some people have pointed out that some of the big companies — Bank of America, Citigroup, etc. — that have gotten bailout money might be sensitive to bad publicity, but that a lot of these little loan sercivers are not.

MAYER: I completely agree. The big companies are already working incredibly hard. That does not mean that they get an A for their successes. But this is an unprecedented scale and it’s an unprecedented problem and we’re not going to snap our fingers and get immediate answers.

RADKE: Professor Chris Mayer at Columbia Business School. Thank you.

MAYER: Good to join you, Bill.

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