Earlier this week, a US Treasury presentation containing suggested alterations to the department’s Home Affordable Modification Program (Hamp) leaked to the media.
One of the central suggestions of the presentation was that lenders would no longer be able to start foreclosing on a delinquent borrower until they’d been screened and judged ineligible for the Hamp.
Note too that on Friday the FDIC, the organisation charged with insuring US bank desposits, is reportedly developing a programme of principal reduction for underwater borrowers. At the moment, Hamp is mainly aimed at keeping borrowers in their houses by lowering interest payments and delaying some principal.
This Friday, Gluskin Scheff’s David Rosenberg has picked up on the (first) development in his daily `Breakfast with Dave’ market summary. And you know he’s angry because he’s referring to his 2008 Merrill Lynch report “Capitalism Takes A Sabbatical.” Again. Only this time it’s worse.
Capitalism has left the building:
In March 2008, I published a report titled “Capitalism Takes a Sabbatical.” If only that were the case. I really can’t believe what I just read on Bloomberg News (Obama May Prohibit Home Loan Foreclosures Without HAMP Review). In a nutshell, the White House is considering a tactic that would prevent banks from foreclosing on defaulted homeowners unless they have been screened and rejected by the government’s Home Affordable Modification Program (HAMP). George Orwell must be rolling over in his grave.
To think that the government is at the same time pressuring banks to start extending credit again, but the question is why bother when you have absolutely no recourse. We’ve reached a stage in this crisis where lenders have no rights. The long-run distortions from such a heavy handed interventionist approach are too long to list right now, but suffice it to say, this will do more to exacerbate and prolong the deleveraging cycle than solve it.
But then, some would argue, that’s just what the government’s going for.
Related links:
US Housing Bubble v2.0 – FT Alphaville
Hamp, what is it good for? – FT Alphaville
Shadow bank losses – FT Alphaville