There’s been a lot of housing market activity in both the public and private sectors recently.
- Modifications to the HAMP and FHA programs to address loan modification failings and more negative equity
- Launch of the HAFA program to promote foreclosure alternatives including short sales and deeds-in-lieu of foreclosure
- Modifications to Bank of America’s National Home Ownership Program to extend coverage
- Citigroup, JPMorgan Chase, Wells Fargo, and Bank of America joining the 2MP program to address loan modifications for second mortgages
- Bank of America offering to forgive up to 30% of the principal in underwater mortgages
- The end of Federal Reserve purchase of mortgage-backed securities
- The coming end of tax credits for home buyers
When it comes to foreclosures, the latest news makes it seem as if the government and lenders are finally getting serious about the core problem, negative equity. As we’ve discussed here before, it is only through the elimination of negative equity that homeowners will escape their prisons of debt, allowing them to once again participate in our consumer-driven economy. Unfortunately, I don’t expect dramatic results from any of these programs because of another core problem. Our financial institutions can’t afford to forgive all the debt necessary to eliminate negative equity and remain solvent, and neither can the FDIC or, with this ballooning deficit, the federal government itself. Instead, I believe these programs will run into the same delays, oversights, and design failings that doomed their predecessors. Perhaps that is the point.
These announcements provide Wall St and politicians political cover while buying time. These failings combined with the Fed’s exit from purchasing Mortgage-Backed Securities and the coming end of the homebuyer tax credits is leading some to predict the worst for housing in the coming months.
While I believe we are far from the return of a truly healthy housing market, supported by reasonable equity levels and manageable debt, I don’t personally think housing we’ll see a dramatic double-dip, especially in those areas that have already seen a significant correction.
My reasoning is simple. If there is anything we’ve learned over the last couple of years, it’s that our elected officials, and their appointees at the FDIC, Federal Reserve, etc, will do whatever it takes to limit foreclosures and stimulate housing.