Wednesday, January 31, 2007

More Road Home Math

The Po Boy has some interesting information about the Road Home. I agree with Bayou St John David at moldy city that the press is not paying close attention but the TP is also right about Road Home. The Gov. wants her name attached to it but wasn't proactive about setting it up.

The state could have issued RFP's for implementation and began setting up to operate the program even before there money was approved. Mississippi's had already been approved and we all knew that something was going to be approved, even if the details weren't final.

I think the ICF contract was a mistake and other more efficient means could have been found but perhaps the Feds were driving that part. State Treasurer John Kennedy (and presumptive candidate for Governor), suggested early on that the Louisiana Housing Finance Agency run the program. I don't know if they could have handled it or not, they couldn't have been any worse than ICF.

I don't, for example, see why local savings and loans, title companies, appraisers and lawyers couldn't have been used to process the grants, much like a mortgage. There would have been a need for someone to do the inspection and valuation, although local insurance adjusters have the necessary training for that as well.

If 110,000 applications are processed and ICF gets $756,000,000. That works out to $6,800 per application. I think you can process a mortgage for a lot less than that. If the average grant remains around $80,000 then their fee will be about 8.5% of the typical grant. A typical house closing costs 2-3%.

As I written before, In most of the country you can refinance an existing mortgage in a week. She recently purchased a condo as temporary quarters for us. The cost fell within the general range of the Road Home grants. It cost around $1,200 to close that loan. It took a little more than a month, primarily due to a title issue with the seller but also partly due to the current insurance problems. Neither issue is likely to affect the Road Home, which as far as I can tell is not doing a title search. I wonder how many grants are being made to people without clear title to the property? Or without current property insurance? They don't seem to be checking that either.

I don't see what's so different from a typical real estate or mortgage transaction.

The parts are pretty much the same;
  1. Verify the value of the property - This is what appraisers do.
  2. Verify the ownership of the property - This is what title companies do.
  3. Verify the loss and estimate the cost of repair - This is what adjusters do.
  4. Verify the payments already made.
    • This is an additional step.
  5. Calculate the Grant. - This should take no more than a few seconds.
    • This is an additional step plus there are the grants for elevation and mitigation
  6. Send out a determination and option letter.
  7. Close the grant. - This is what lawyers do.
  8. Cut a check. - I don't understand why checks can't be given at the closing, just like a sale.
I'm probably missing something. For one thing they don't need to verify the income of the applicant, unless they are going for one of the forgivable low interest loans. I don't understand why can the federal government can process trillions of dollars in home mortgages through Fannie Mae and Freddie Mac with relatively little effort and this Road Home thing takes so much effort.


Anonymous said...

I am not cheerleading for our Mayor, but he has claimed that he urged the state to process the Road Home Loans through existing banks instead of setting up yet another bureaucracy. As you point out we have an entire industry that routinely does these exact functions and we ended up with ICF. Had ICF actually been up to the task, the story would be different, but the same questions would still linger.

I believe it was a fear of corruption in these private industries that put us on the ICF path. As you work down the chain, the ease of fraud becomes apparent. The fly-by-night companies swooping in for their share could have easily been a nightmare: appraisers who will keep their thumb on the scale, and considering what we know of adjustors, I’ll take the word of a used car salesman. The veracity of the banking aint the Baily Building and Loan on the corner anymore, it is national mega -corporations.

And that may be why we don't have banks as a part of it, and Feds could be behind some of the insistence. After all, they have been consistently “forgetting” the most fundamental of banking and financial regulations in the past decades and gutting their own investigatory arm.

But somehow there had to have been a way to balance all that. Why everything had to route through one untried, untested system run by a single company, I don’t get either. I suppose to do otherwise would have required competence of our leadership.

mominem said...

Almost all of the links in the chain are regulated or licensed. You could eliminate the fly by night by requiring that they companies be in existence prior to September 1 2005.

I suppose that somewhere along the way someone might get an overly generous grant, but hows that different from the Flood Insurance Program where the insurance companies are collecting a fee to hand out checks?

Its hard to see how it could have been much worse.

Tim said...

Everything you write here is logical, rational and completely above board.

That's why it'll never happen.