Real estate and homebuilder-related exchange traded funds (ETFs) are left waiting in the wings while the implementation of a federal foreclosure-prevention program is worked out.
Disagreements on how to structure the program are complicating the details and most likely delaying any action at this time. The White House and the Federal Deposit Insurance Corp. (FDIC) are at odds over basic questions about the effort’s size and breadth, while the prospect that the new president will come in and re-draw the design and scope of the plan has added to the pause, reports Damian Paletta and Deborah Soloman for The Wall Street Journal.
Under the new plan, the government would cover roughly half the loss on reworked loans that went into foreclosure. The plan would use between $40 billion and $50 billion from the government’s $700 billion financial-market rescue fund to create these loss-sharing agreements between banks and the government.
The FDIC’s plan has been in the advanced stages, however, it is believed that the plan is strongly opposed by the White House. The proposal would touch down on two or three million homeowners and would encourage banks to rework troubled loans by providing a partial federal guarantee for losses on modified mortgages that meet specific criteria.
White House officials are consulting with industry groups. Meanwhile, ETFs in a holding pattern include:
- SPDR S&P Homebuilders (XHB), down 28.7% year-to-date
- iShares Dow Jones US Home Construction (ITB), down 30.5% year-to-date
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.