US Housing Plans Worsening The Situation

Why do I remain overall bearish on housing?

All reports to the contrary, the pace of delinquencies will continue to steadily pressure housing - especially in selected markets.

While the Obama administration is dogged by the issues within housing, I continue to believe that their approach is more exacerbating the situation than improving it. What is the crux of the problem within housing? The law of unintended consequences which changes the behaviors of some, given the engagement with others.

Bloomberg provides some insights on Obama’s new proposals toward housing in writing, Obama May Prohibit Home-Loan Foreclosures Without Preview:

The Obama administration may expand efforts to ease the housing crisis by banning all foreclosures on home loans unless they have been screened and rejected by the government’s Home Affordable Modification Program.

The proposal, reviewed by lenders last week on a White House conference call, “prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed,” according to a Treasury Department document outlining the plan.

I fully empathize with those homeowners in our country who are struggling to stay in their homes. That said, it seems plainly evident that programs to date have not only had limited overall benefits, but have changed behaviors of others. These changed behaviors will likely be further heightened under this new program as well.

How would I define these changed behaviors? High five to a friend who shared insights from an analyst at a very highly regarded money management firm. The gist of the analyst’s view can be simplified by his comment that under this program, more and more homeowners on the margin (that is, the edge of delinquency) will actually choose to become delinquent under the guise that “I want the deal, too.”

As the bucket of newly delinquent homeowners grows (by those who otherwise may not have strategically made that decision), the pressure on housing will not abate.