This Financial Times story is frustrating.
On the one hand, the paper is great to zero in on Goldman Sachs’s mortgage-servicing arm Litton Loan Servicing, which hasn’t gotten enough scrutiny from the press. On the other, it really exposes the limits of the FT‘s style of journalism. This story (or stories, I should say) could have used a bit more reporting. It just sort of skips along the surface.
But the editing is the main problem.
The paper publishes a package of stories on Litton and how its consumer track record looks pretty bad. The first piece, on the front page, is headlined “Subprime consumers hit at Goldman” (Goldman is an Audit funder, by the way):
Many complaints against Litton come from consumers who say they entered into “trial” mortgage modification programmes that reduced their payments, only to find out later that they had been denied a permanent modification and owed more money than they would have if they had not entered the programme.
The story doesn’t show us Litton in action, though. How do these numbers play out in the real world? For that you have to go to a second story, headlined “‘A quick fix’ that added more to debt.” Even this reads like a once-over-lightly effort. It does an okay job of looking at one family’s experience with Litton. But here’s the last graph:
The Baileys aren’t the only borrowers frustrated by their experience. Katie Adkins, 37, a mother of three in New Kent, Virginia, said that after she and her husband were denied a modification, they wound up owing Litton thousands of extra dollars.
All righty, then!
The FT headlines a third story “US consumers rage against Goldman unit.” It doesn’t back up this headline at all. This, in the last paragraph, is as close as it gets to a raging US consumer:
Many Litton customers did not realise the mortgage servicer was owned by Goldman. Marla Vasquez, a disgruntled customer in California, said she learnt about the SEC investigation from a radio broadcast. “It surprised me Goldman owns a company like this,” she said.
Woah! Hold on there, Marla Vasquez. Don’t blow a gasket!
Even when the piece does get close to the consumer problems, it still fumbles the ball:
“Litton has been more aggressive than some of the other servicers,” said Alan White, an assistant professor at the Valparaiso University School of Law. “It’s part of their culture.”
That approach has at times incurred the wrath of consumers. Concerned about rising complaints against the company, the Houston chapter of the Better Business Bureau conducted an investigation in 2005. “They were arrogant,” said Dan Parsons, president of the Houston chapter. “It was all about how much money they could make.”
The bureau voted to revoke the company’s membership but Litton resigned before it could act.
The “aggressive” quote is dropped into the story after some background paragraphs on how Litton, unlike most, retained the right to modify securitized mortgages. It’s not clear what that has to do with an aggressive culture that irks consumers.
That is, unless you’ve already read the first piece and remember some relevant info:
Litton’s loan modification application states borrowers are liable for past due amounts, including unpaid interest, if they are denied a permanent modification. Late fees are supposed to be waived if permanent modifications are granted. According to government data through April, Litton’s rate for converting loans from trial to permanent modifications was 29 per cent, compared with rates of more than 80 per cent for some competitors.
This info would have been great to have in the third “rage” story, which would suddenly make more sense. Readers shouldn’t have to splice and dice info from separate pieces. I don’t understand the editing here—at all.
Meantime, here’s another interesting piece of information, from the “rage” story (emphasis mine):
When C-Bass ran into financial trouble in 2007, Goldman snapped up Litton. Goldman said it has extensive procedures in place to ensure that information from Litton is not used inappropriately.
Huh? That’s just dropped in toward the bottom with no explanation. For more on that, we have to go to the fourth story, this one headlined “Other banks took on loan collection arms.”
Servicers earn fees by collecting monthly payments from borrowers. They also control valuable information about how loans are performing, since they serve as a link between the borrowers and either the lenders or the investment pools that own the loans. Consumers do not get to choose their servicer, which buys the rights to collect payments from the lender.
“When a default occurs, the servicer will know immediately,” says Chris Whalen, co-founder of Institutional Risk Analytics, a financial advisory firm. “They will have that information a month before it is available to the broader market.”
Aha!
So now we have some insight into why white-shoe Goldman Sachs would buy up a subprime mortgage servicer in December 2007. You just have to wade through three stories to figure it out.
And here’s more at the bottom of the fourth story (can you keep track of these? Probably not. That’s my point):
Investors, meanwhile, have privately raised concerns about potential conflicts of interest that arise when a bank that is selling securities backed by mortgages also has the ability to modify those loans when they go bad.
Bank executives say that Chinese walls exist between servicing units and the bank desks that package loans into bonds.
I don’t know about you, but whenever I hear a “bank executive say that Chinese walls exist,” I smell a story.
The FT does, too, but the execution here leaves much to be desired.
PS: It’s worth noting that I’m reading this on the Web, and navigating the package was difficult. If you happen upon the third and fourth stories, you get no link to the rest of the package. They just sort of float in the air, and none of these pieces work on their own (and there’s a fifth sidebar I didn’t even mention!)
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.