His letter is below, and I’m surely not the only consumer-facing finance pro to parse that letter like it’s an FOMC statement.

My initial take: he’s got an incredibly political job. He does a nice job of personalizing his goal with a specific consumer loan-modification-gone-bad anecdote. Old political speech technique, but still: well executed.

But it’s curious that he chose loan modifications. This is an area of finance that has only risen to prominence with the housing bust. There were never any rules written on disclosures, fees, etc. for loan mods because Notes and Deeds of Trust spelled out terms clearly.

The result: negotiating a loan mod is like the wild West. No bank evaluates it the same because it’s a case-by-case decision. Clouding it more is the fact that everyone from former loan agents to former escrow officers to attorneys stepped in to capture loan mod business, and there’s no two loan mod fee models that look exactly alike.

So it’ll be interesting to see if loan mods are a pet topic. I hope not—at least to start—because the CFPB needs to keep its eye on their current initiative of revising mortgage Good Faith Estimate disclosures.

I’ve said repeatedly the three-page GFE implemented January 2010 (after receiving OMB approval under Orszag’s rule) is a joke. For example, it combines fees into groups instead of showing each line item, and disclosure rules require it to show seller-paid fees (like transfer tax) as buyer-paid.

This afternoon, I spent 90 minutes explaining it to new clients buying a home (that I’d categorize as astute consumers), and they’re still dubious about the terms I’m presenting—which are incredibly straightforward when not displayed in this form. All because I’m forced to use a form written by people who have never originated a consumer mortgage.

So Richard, please keep your eye on the ball and finish the new GFE that the CFPB has been working on since May 2011.

Naturally, the fourth draft you recently released is less clear than the first, but it’s still worlds better than the existing form that makes people in my profession look like we’re trying to hide something.

I’ll say that again: The disclosures that mortgage loan agents have been required by Federal law to use since January 2010 make us look like we’re trying to hide fees.

Please fix this, and please let me know how I can help. I put those forms in front of clients every single day, and 80% are baffled, even the PhD’s.

You say you’re listening Richard. And as a lender whose whole life is centered around doing the right thing for my clients, I really hope you are.

And for everyone else reading this, here’s Richard’s letter to you. Click the links and go tell him your stories…

Happy New Year,

As the new Director of the Consumer Financial Protection Bureau, and as someone who has been helping to build the Bureau for about a year now, I can tell you it’s an extraordinary privilege to work on behalf of American consumers.

Consumers like you. Tell your story.
https://help.consumerfinance.gov/app/tellyourstory

In our first six months, our team at the Bureau has been answering calls and reading stories from hundreds of American consumers every week. Their stories illustrate the kinds of issues people are dealing with around the country.

These things can happen to anyone. We are not talking about some impersonal abstraction, not about somebody “else.” We are talking about each one of us. We’re talking about our mothers and fathers, our sisters and brothers, our sons and daughters. Regular people who are trying to make the right choices for themselves and their families.

We’ve heard from people like Rebecca from North Carolina. She told us she missed a mortgage payment nine months after her husband lost his job. In the two years since then, her mortgage servicer has increased her payments even though she entered a trial modification in an effort to lower her monthly payments. The servicer has charged her monthly fees for inspections and appraisals that she never asked for and she believes have never occurred, all while repeatedly threatening her with foreclosure unless she shells out more money in unexplained fees. Rebecca has frantically complied with all of these demands because she is afraid of foreclosure and so is doing whatever she can to stay in her home.

Tell us your story at https://help.consumerfinance.gov/app/tellyourstory

With the stakes so high, consumers need to be able to fully understand the costs and risks of borrowing on credit, and they need to be able to comparison shop for the best deal. Consumers deserve to have someone who will stand on their side, who will protect them against fraud, and who will ensure they are treated fairly. The new Consumer Bureau was created to make sure that these things are achieved for all Americans. The good news is that we have already gotten started.

Over time, we will judge the success of our efforts by considering whether consumers are treated more fairly and with more clarity and candor in the financial marketplace. We deeply believe that we must hear from Americans about their experiences.

Can you share your experience?
https://help.consumerfinance.gov/app/tellyourstory

Think about your own family members. Like all of us, they want to be able to use consumer credit to make their lives better, not worse. That is our goal as well. The financial marketplace can be a potent arena that helps people find and seize opportunity, not condemn them to bewildering failure. By working every day to protect consumers, we will help to fashion a more resilient economy and a stronger country. Join us; work with us; help us make it so.

Thank you,
Richard Cordray
Director
The Consumer Financial Protection Bureau

-New Government-Assisted Refi Program Coming (MarketWatch)
-CHART: Areas With Most-Underwater Homes (NewYorkTimes)
-The Eurozone Crisis Explained in Brief (RobertSinn)
-Kids With Huge Jobs At Treasury (BusinessWeek)
-UK Shifting from ARMs to 30yr Fixed? (FT)
-Is Teaching A Profession (Weakonomics)

-Europe Bailout Fund Will Have $6 Zillion Dollars – #sarcasm (iBankCoin)
-Can Govt Get Loan Modifications Right This Time? (MortgageReports)
-When Will The Bond Bears Be Right? (BiancoResearch)
-4% Mortgage: Good Luck Getting One (CNNMoney)
-Credit Scores To Get More Personal (RISmedia)
-GOP Candidates Duck Housing Debate (WSJ)

Experts say a backlog of distressed properties built up because of the numerous investigations into foreclosure and mortgage-servicing practices. And all of this in the middle of the negotiations between the state attorneys general and the large servicers.

Besides California, New York, Delaware, Nevada, Massachusetts, Kentucky and Minnesota have signaled that they were unhappy with the direction of negotiations because, they say, the legal release from liability being offered to banks is too broad. New York and Delaware have been cooperating in their own probes separate from the coalition.

Federal officials have been trying to broker a settlement with the five largest mortgage servicers: Ally, BofA, Citi, Chase, and Wells. There was a flurry of GOV.REFI news yesterday in the press, mostly centered on a plan to help some “underwater” borrowers get refinancing assistance. Apparently it sprang forth from the loins of a meeting last week between government negotiators and lenders as part of an effort to settle allegations of questionable foreclosure practices. Reports noted that:

“The plan under consideration would make refinancing available to some borrowers whose houses are worth less than their loans, so long as they are current on mortgage payments. The plan would apply only to mortgages owned by the banks. It isn’t clear how many of those borrowers would qualify for help. Around 20% of all U.S. mortgages are owned by U.S.-chartered commercial banks; the majority is held by investors in mortgage-backed securities.”

So now borrowers will become directly involved in knowing if their loan was placed into a security or not?

I can just hear someone in the servicing department explaining that to an underwater borrower! One report noted that there seemed to be nothing “progressive” out of the administration yet, just more “can kicking” strategies. And another noted that the FHFA wants nothing to do with additional credit risk or a larger portfolio. That won’t change until after the 2012 elections. That puts the onus on banks and investors to take a hair-cut.

The WSJ has the latest mortgage-settlement trial balloon: if (a) you’re underwater on your mortgage, and (b) you’re current on your mortgage payments, and (c) your mortgage is owned by the bank outright, rather than having been securitized, then you would be given the opportunity to refinance your mortgage at prevailing market rates.

But of course any refinance program would be particularly costly for banks because they would be forced to give up expected interest income on loans for which borrowers are current on their loan payments and, given their payment histories, unlikely to default. Banks can’t reduce rates on loans they don’t own because the result would be a net loss to the investor. Under the new proposal, banks would refinance certain borrowers who are current on their loan payments, but can’t qualify for a traditional refinance because they owe more than their homes are worth. And of course there are all the issues with existing reps & warrants, along with MI questions.

One trader mentioned that

after HAMP and HARP the U.S. is now ready to launch a new program called Helping Underwater Mortgage Performance” and that the market “went toxic after it heard that Obama was getting “REFI.GOV” vanity plates for his new limo.

As one would expect, the prices of premium/older production are suffering compared to current/rate-sheet production. Yesterday, for example, Fannie 6′s (containing 6.25-6.625% 30-yr mortgages) were down .5 in price versus Fannie 4′s which improved nearly .250.

One proposal would allow millions of homeowners with government-backed mortgages to refinance them at today’s lower interest rates, which in turn would lower their mortgage bills and, in theory, help the economy since they’ll take the money and spend it elsewhere. Homeowners who have been unable to refinance their loans either because they owe more than their houses are now worth or because of bad credit. Other suggestions include a large-scale home rental program that would keep foreclosures off the market. What is lacking, of course, are any concrete details about any of this. Items such as how delinquent borrowers would be treated versus on-time borrowers, who would administer the program, and how would investors be made whole are immense issues.

In the meanwhile teams of researchers at all the investment banks are sending out educated guesses as to the pros and cons of various plans. (I bet this is what they really live for!) How are reps and warrants for existing loans handled? What about non-government loan borrowers? If borrowers who have their loans modified, or refinanced, stop making their payments, can investors go back to originators under buy back provisions? When did HARP become a verb? (“If you HARP these seasoned loans you are exposed to new put-back risk. If these borrowers default in their current form, it is very difficult for the agencies to put them back given servicers can argue the loans have been paying for 3+ years and therefore were issued as clean loans. However, once its HARPed that argument is no longer applicable and they are exposed to new put-back risk.”) And with Republican control, what are the odds of anything like this happening?

It seems that conjecture is focusing on basic plans. One is to make a low mortgage rate available to all borrowers. Another is a blanket settlement between originators and FHFA that settles all existing and future reps and warranties liabilities, and the originators will just be agents for the GSEs and will not be responsible for the credit performance of HARP refied loans. Another option is an expansion of HARP which will remove the origination date restriction for HARP eligible loans, thus allowing borrowers to do HARP multiple times and will make recent production HARP eligible. And the last seems to be implementing parts or all of the changes in Senator Boxer’s bill.

An analyst wrote:

I’m not sure I understand the economics/logic of a streamline refinance program. Assume for the moment that borrowers with high LTV’s, i.e., LTV’s >100%, a result of home price decline, could do a rate and term refinance from say 6% to 4.25%. Assuming an average remaining term of 25 years, the monthly P&I payment would drop by 16%. So, in real economic terms, how worse off is FNMA or Freddie? Before the rate/payment drop, the lender/investor has a loan on the books that is underwater and at high risk of default. After the drop, while the loan is underwater by the same amount, cash flow has dropped but the probability of default has arguably declined. Now I know that studies show that negative equity is the key driver of default, but I would argue that although the borrower’s equity position has not change the borrower’s perception of the situation has. Once a borrower is in a deep negative equity position, they probably view their monthly payments (after tax) as rent, not as payments on an investment. So, a drop in monthly payments is like a drop in rent which improves their likelihood of continuing the lease. Does the reduced likelihood of default compensate for the reduced cash flow? I haven’t analyzed this but I bet it’s significant and for some borrowers actually increases the economic value of the loan. And, the same argument would apply to loans in securities.

Brian Collins with National Mortgage News seems to be the source of the latest chatter, although “industry officials” are quoted. But “at this point in time there are few specifics on the table regarding the plan.” The story goes on to say:

Mortgage executives say the White House is finally realizing they cannot get the economy rolling again until they provide some payment relief for the estimated 11 million under water borrowers…’My best guess is the administration will offer incentives to lenders to allow borrowers who are current, but under water, refinance,’ one source said. This source also added the refinancing program will focus on Fannie Mae and Freddie Mac guaranteed loans as well as mortgages in private-label securities. The GSEs already have a special refinancing program for borrowers with loan-to-value ratios above 105% — but the effort has not reached many underwater borrowers.

Tom Harmon, a mortgage trader with Cantor-Fitzgerald, quickly wrote,

The National Mortgage News ran a headline, ‘White House Contemplating Major Refinancing Program?’ Prior to today, I have not heard of the National Mortgage News. Their ‘sources’ offered no details. There is nothing new here. The administration and some in congress will continue to make headlines of home issues. As the administration has run out of economic bullets, this is likely to be a talking point ahead of the elections. Don’t be distracted. Focus on handicapping any major enhanced streamline refinancing program rolled out by Fannie or Freddie or one mandated by congress without substantial GSE reform/changes. Congress has had a few years to tackle the tough housing issues we face. None may be tougher than the ultimate fate of the GSE’s and guidelines under which they operate. A national refinance program makes a nice headline; however, the implementation is not a simple flip of the switch. This is not a ‘no cost’ fiscal stimulus as many claim. Presuming the government is willing to let the private investment community take the hit on the trillions of 30-year Fannie & Freddie-issued MBS’s currently trading over a 109 dollar price, don’t forget the $542 billion agency MBS at the GSE’s. While one could argue that the GSE credit book would be in a better position, the GSE itself may not be. For the above reasons, we are unlikely to see an endemic large scale enhanced refinance program. Thus, we return to a congressional solution. The budget debate renews in the fall and will take the front and center position. While it is likely we will see continued focus and execution on HAMP/HARP type programs, do you think congress will introduce and pass a major GSE bill ahead of next year’s elections?

Well said.

Then the New York Times picked up on the article, and ran this piece.

Below are key remarks on rates, jobs, mortgages, and home prices he made throughout his post-FOMC press conference.

On ‘extended period’ language: We say rates will remain low ‘extended period’ because we don’t know how long rates must stay low. It’ll be at least 2-3 meetings (meaning November or December), or significantly longer before we change ‘extended period’ language.

On exiting from accommodative rate policy: There’s no alternative than to watch market data and determine when exit should begin and how quickly we will tighten.

On employment growth: We expect faster growth in second half of 2011 and healthier job creation numbers. (Remember this is a rough count of jobs created, not actual bodies. How To Read Jobs Reports). We project unemployment rate to come down painfully slowly: 5.5% “full employment” range is some years away.

On “transitory” inflation: we no longer have deflation risk. Inflation is above target and we expect it to fall. Notwithstanding bad news recently, labor market performing better than last year. We don’t know how much of current slowdown is temporary vs. permanent. We’ll adjust projections as new data come in.

On future Fed rate policies: We can do new securities purchases. We can cut interest paid on excess reserves. We can give guidance on the balance sheet. We can give a fixed date to define ‘extended period’. Each of these is untested and has their own costs. We can take additional action if market conditions are warranted.

Response to his previous criticisms of Japanese central bank policy: I’m a little more sympathetic to central bankers than I was 10 years ago.

On deflation vs. inflation debate: Persistent deflation can be a debilitating factor in economy, and we acted on that here in U.S. In August-September 2010, we could infer one-third chance of deflation from TIPs prices. That’s why we did QE2, and we succeeded. I realize that’s controversial.

On mortgage rates: We succeeded in lowering mortgage rates, so those who can get credit can get low rates. Credit tightening (FICOs and other factors) have eliminated bottom-third of borrowers from loan qualifying.

On housing: Monetary policy intended to help income which would help housing.

On mortgage industry practices: Fed’s goal is to improve mortgage servicing practices, and help banks improve management of foreclosed properties.

More on housing: Fed helps other agencies that have a hand in housing. I’m head of TARP oversight board, which looks after HAMP, the government’s loan modification program.

On loan modifications: We want to modify loans where appropriate, and speed process of foreclosure in order to clear the market and allow people to operate in a market where they’re more confident in stable rather than falling prices.

On home prices: Housing being sold in a non-distressed basis have much more stable pricing. Maybe 40% of home sales are distressed, and policies are aimed at reducing that amount so pricing will be more stable.

Full June 22 FOMC Rate Policy Statement

If a mortgage bank was trying to sell loans to an investor and thought the investor wouldn’t like delinquency rates, they can just make up their own delinquency rates, right? Not unless they want millions in fines. Which reminds me of the latest flurry of mortgage fraud headlines:

Miami leads the nation in loan modification fraud.

And the latest good old fashioned loan fraud is in Massachusetts.

Miami leads U.S. in fraud and Florida leads U.S. in foreclosures. Twenty-four percent of all U.S. mortgages foreclosing are in Florida—more than 22 other states combined. More than half the mortgages in foreclosure in the U.S. are concentrated in 5 states.