BlackRock Inc. chairman Laurence Fink said Obama administration programs to help homeowners stave off foreclosure may hinder the mortgage market's recovery while benefiting the banks that own second loans on the properties.
"I am just very worried," Fink said last week. "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?"
Policies introduced this year are flawed because they do not require home equity loans to be wiped out before a mortgage is modified, Fink said. Instead, in a break with the intentions of contracts, the second loan's terms may also be revised, spreading the loss among lenders, he said.
"There is modification going on protecting our banks, protecting their balance sheets," he said. "If you really want to protect the homeowner, wipe out the second lien, modify the first lien."
Fink is the highest-profile investor to call attention to potential conflicts when servicers that own home equity loans handle mortgage modifications. Home equity loans would lose all value in a foreclosure.
JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup Inc., the four largest servicers, own almost $450 billion of home equity loans, according to Laurie Goodman, an analyst at Amherst Securities Group in New York.
