BlackRock Chairman Laurence Fink says Obama administration programs to help homeowners stave off foreclosure may hinder the recovery of the mortgage market while benefiting banks that own second loans on the properties.
“I am just very worried,” Fink said yesterday in an interview, Bloomberg reports.
“This to me is one of the biggest issues facing American capitalism.”
Fink believes the Obama administration’s policies are flawed because they don’t require home-equity loans to be wiped out before the mortgage is modified.
As a result, losses are spread among lenders by allowing second mortgages to be revised as well.
Fink says this could hamper recovery in the market for securities created from individual loans, including the almost $1.7 trillion in residential-mortgage bonds not backed by the United States.
“How do we get a vibrant securitization market back when we are doing these things in the short run that are good for the banking system and good for the homeowner but not as good as it should be?” he asks.
At its zenith, the securitization market funded $9 trillion in loans.
"The assembly line for loans is broken," Christopher Whalen, managing director of Institutional Risk Analytics, told The Associated Press.
Federal Reserve Chairman Ben Bernanke predicted this week the market "will come back" but probably not at the size it was.
The collapse of Lehman Brothers led panicked investors to pull their money out of the marketplace virtually overnight, wrecking the securitization business.
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