Inquiring minds are digging into a Fed white paper regarding The U.S. Housing Market: Current Conditions and Policy Considerations.

Here are a couple of key snips. The bold headings are mine.

Overriding Private Contract Rights

Broadly speaking, HAMP emphasizes modifications in which the net present value to the lender of the modification exceeds the net present value of pursuing a foreclosure. It should be recognized that other types of loan modifications may be socially beneficial, even if not in the best interest of the lender, because of the costs that foreclosures place on communities, the housing market, and the broader economy. However, although policymakers might very well decide that the social costs–while obviously difficult to gauge–are great enough to justify additional loan modifications, lenders are unlikely to be willing to make such modifications on their own. Moving further in this direction is thus likely to involve additional taxpayer funding, the overriding of private contract rights, or both, which raises difficult public policy issues and tradeoffs.

REO to Rental Program

REO to Rental Program Design The data cited earlier suggest that a government-facilitated REO-to-rental program has the potential to help the housing market and improve loss recoveries on REO portfolios. The FHFA released a request for information on August 10, 2011, to collect information from market participants on possible ways to accomplish this objective and received more than 4,000 responses. An interagency group in which the Federal Reserve is participating is considering issues related to the design of a program that would facilitate REO-to-rental conversions. As no such program currently exists, predicting its success or efficacy is difficult. Ongoing experimentation and analysis will be a crucial component of developing such a program.

Jan. 5 (Bloomberg) — Fed’s White Paper released yesterday suggests that further HAMP loan modifications “likely to involve taxpayer funding, overriding of private contract rights”.

  • Fed concerned about moribund housing market as “barriers to refinancing blunt the transmission of monetary policy to the household sector”; falling home prices increase “the loss in aggregate housing wealth”
  • Fed states that “this paper does not discuss alternatives for longer-term restructuring of the housing finance market”
  • Adds “there is bound to be some tension between minimizing the GSE’s near-term losses and risk exposure and taking actions that might promote a faster recovery in the housing market”

I have the article but cannot find a link. Will update with a link when I have it. I am not in favor of REO rental programs at taxpayer expense (or any other programs at taxpayer expense). Moreover,  I certainly am against trampling of property rights at any time, regardless of the reason.

Mike “Mish” Shedlock
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