All in all, that figure is still low by international standards, however. German banks as a whole are likewise lagging behind the international field – their aggregate return on equity, for example, languishes at just under 6%. What’s causing these problems? The diagnosis is relatively simple. Profitability is exceedingly weak among German credit institutions, and the persistent low-interest-rate environment is only making matters worse.
Recent changes to the Home Affordable Refinance Program, or HARP, will allow more of these borrowers to refinance and lower their payments, thus reducing the likelihood that they will become delinquent. But perhaps the most important solution that I am suggesting today is that policymakers move forward with the difficult decisions that will affect the future of the mortgage market.