Geithner’s Mo Mod Mojo

Story originally published in The New York Post

February 8, 2009

The Obama administration’s plan to stop the slide in US housing by establishing baseline prices for millions of foreclosed homes has an added benefit – new jobs for an army of contractors to spruce up the properties.

Treasury Secretary Tim Geithner is expected to unleash as much as $150 billion in TARP funds on the “Mo Mod” plan, for mortgage modification, which entails hiring local home appraisers to do boots-on-the-ground inspections to establish the real values of the homes.

Under the Mo-Mod plan, which has been used for roughly 20 years by real estate consultant firm Smithfield & Wainwright, of Ponte Vedre Beach, Fla., , banks take a hit of anywhere from 5 percent to more than 20 percent from their original loans.

But after spending a modest amount on repairs, the lenders should be able to put at least some cash back on their balance sheets. The plan, which may be unveiled in Geithner’s much-anticipated speech tomorrow, could, on a massive scale, provide open and honest values on the millions of bank-owned homes now sitting vacant across the country – which have led to quick sales when used on a smaller scale over the past two decades.

One Jacksonville, Fla., home assessed by the Mo-Mod system was re-priced to $122,000 from $160,000 – after $36,000 of repairs were done. It then quickly sold for $126,000, thus supporting the earlier Mo-Mod value.

The Mo-Mod method employs a nationwide network of home-appraisers who all follow the same play-book at determining value – as opposed to using solely area-comparable sales, a system that can yield wildly inflated home prices. Each appraiser knows how much it costs to fix up the house in that area.

Contractors are then hired, the home repaired and then it goes on the market. “One thing is for sure after two years of spin, absolutely opaqueness by the banks and mind-blowing losses, the last thing that can be good for this market is to allow the perpetrators to revert to the behavior that got us here in the first place,” said Mark Hanson, Field Check Group’s real-estate analyst.

“Marking assets to mythical price points in order to manipulate a balance sheet is not something that instills confidence in investors The Mo-Mod system helps banks by transforming non-performing assets, which may have been written down already, into performing and saleable assets, and by allowing the bank to securitize the new mortgage and sell it – thereby providing funds for future mortgages.

Neither the Treasury Dept. nor executives at Smithfield & Wainwright would comment on the proposal and there is no guarantee the specific Mo-Mod plan will be used. However, Treasury has been discussing the system at least since September.

The anticipation of an aggressive plan to aid the ailing housing market buoyed financial-sector stocks on Friday. Bank of America was up 26.7 percent, Citigroup rose 10.8 percent, Wells Fargo advanced 17.6 percent, JPMorgan Chase gained 12.6 percent and regional powerhouse Fifth Third Bank soared 60.4 percent.

The Mo Mod 21-day process can determine the underlying asset value of up to 750,000 homes a month, which means it will be able to set a floor on most of the existing housing inventory sitting on bank balance sheets in short order. While Mo Mod has been used in the past solely on bank-owned, vacant homes, it can also be a valuable tool for homeowners struggling with higher payments thanks to Option-ARM re-sets, or fighting home values that have sunk below what they owe on their home.

That’s because, once completed, the Mo Mod values will provide banks with real-time asset values to compare to those of struggling homeowners.

mgray@nypost.com

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