Rounding the Hope of Good Cape
A cause celebre of the moment, now that a lame-duck Congress and the Administration have determined that the economic and housing crisis will respond to the “Pause” button until the presidential transition is complete? Loan modification. We’re seeing more and more signs of it on the home mortgage side, but what happens as commercial default proliferation adds even more strain to banks’ capital structure.
We’re seeing re-terming of mortgages, and the intended outcome of modifications–slowing and/or suspending foreclosures–in various and sundry iterations, among banks themselves, the GSEs, and government agencies like the Federal Deposit Insurance Corp.
FDIC chair Sheila Bair’s mortgage modification crusade, being piloted among IndyMac bank customers on the brink, is regarded as one of the least flawed models yet offered to stanch hemmorhaging foreclosures–whether they be among those who are incapable of meeting monthly payment obligations or those who are capable but unwilling, given the dis-incentive to keep paying for a house under water on its loan.
Her plan centers on getting the monthly payment to a manageable level so that a struggling homeowner can stay in the home–for a price to the government, the lender, and the buyer. Weighing in the balance is what is more expedient in the present [it's technically easier to foreclose] with what is less expensive in for the future [the cost of houses rotting unoccupied and dragging down the comps in the neighborhood].
At the same time Bair may be regarded as a hero for her efforts to stem the tide of REO home properties inundating the system and enlarging an already bloated inventory of for-sale residences, Bair’s getting blasted by home builders and their building materials suppliers as a goat when it comes to many of those same banks’ commercial real estate deals.
ProSales editor Craig Webb reports on National Association of Home Builders’ president and CEO Jerry Howard’s lament to Bair about how her regulatory heavy hand is snuffing out whatever feint access to capital builders had up to the last few weeks.
NAHB's Howard
“Builders with outstanding loans that are placed under FDIC control are frequently unable to contact a decision maker to deal with routine but time-sensitive matters related to loan draws or extensions,” NAHB president and CEO Jerry Howard wrote in his letter. ”Some builders have encountered what seem to be arbitrary criteria on whether or not loans receive continued funding. Again, these developments are unnecessarily turning good loans into problem assets that will significantly exacerbate the losses that must be absorbed by the FDIC and the building and banking industries.”
At Construction Pulse, we’ve been hearing from more and more home builders who corroborate that they’re unable to contact an actual decision-maker at their lending institution, but we chalk that up less as a result of FDIC take-overs and more to the Ice-nine credit funk that has paralyzed commercial real estate lending, period.
Still, if Bair’s logic as regards incentiving lenders to work out home loans, saving home buyers from losing their homes to foreclosure, could apply as well to home builders and developers, her status might again revert from Bair the goat to Bair the hero on both the mortgage and commercial real estate counts.
Higher up the policy food chain, policy makers and elected officials face having to try to quantitatively analyze the cost to taxpayers, private, and public organizations of resetting the principle owed on both home and commercial real estate loans to reflect real estate’s correction.
Galbraith on Housing
The massiveness of such an initiative is the subject of discussion on a segment of CNBC’s Squawk Box this morning, guest-hosted by former General Electric CEO Jack Welch. Texas economics professor James Galbraith believes a multi-dimensional economic program would address housing in such a way as to fully recognize the need to put a floor under residential investment as a foundation for all the other fiscal and monetary stabilization initiatives that might occur.
- See the WSJ coverage of Fannie and Freddie’s plans to cease foreclosures through the New Year.
- Via Seeking Alpha, commentator Anthony Freed provides analysis and opinion on the prudence and effectiveness (or lack thereof) of initiatives to forestall foreclosures.
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