At yesterdays Central bank conference on the mortgage market, Blackrock Solutions presented on international loan modifications and concluded with the following:
House prices are a significant driver of defaults in ‘non-recourse’ and recourse markets alike - negative equity matters in all markets which BlackRock has studied
The housing crisis in many countries is not over and requires policy response coordinated with implementation at a loan level basis
Little loan modification experience in Europe to draw from; much of it seems to be driven by accounting or capital preservation
Certain types of loan modifications seem to work better than others – the US experience suggests that principal forgiveness is more effective than other types of loan modifications
It is notable that the mortgage group did not consider principle forgiveness. Many consider this as leaning towards bankers interests in protecting their capital.
Is it not inevitable that principal forgiveness loan modifications will be needed to cram down loans to affordable levels?
House prices are a significant driver of defaults in ‘non-recourse’ and recourse markets alike - negative equity matters in all markets which BlackRock has studied
The housing crisis in many countries is not over and requires policy response coordinated with implementation at a loan level basis
Little loan modification experience in Europe to draw from; much of it seems to be driven by accounting or capital preservation
Certain types of loan modifications seem to work better than others – the US experience suggests that principal forgiveness is more effective than other types of loan modifications
It is notable that the mortgage group did not consider principle forgiveness. Many consider this as leaning towards bankers interests in protecting their capital.
Is it not inevitable that principal forgiveness loan modifications will be needed to cram down loans to affordable levels?