-- Posted Friday, 26 March 2010 | Digg This Article | | Source: GoldSeek.com

Rick’s Picks

Friday, March 26, 2010

“Phenomenally accurate forecasts”

The mortgage relief plan just announced by B of A is the most consumer-oriented idea to come out of the banking sector since real estate prices began to implode in 2007.  The goal of the program is to allow individual mortgages to fall to a level where they approximate the market value of homes whose value has fallen underwater.  B of A, the nation’s largest mortgage lender since acquiring Countrywide in a shotgun wedding, estimates that about 45,000 customers will qualify. However, because other banks will be under pressure to match the offer, the number of beleaguered homeowners who could get some relief could eventually be ten times that. We doubt that would suffice to stabilize prices throughout the country, but it would be a step in the right direction.  In any event, it would at least slow the pace of foreclosures, since homeowners would have an incentive to stay in their homes rather than leaving their keys in the mailbox and renting a place down the street.

To qualify, borrowers must have missed a least two payments and owe at least 20 percent more than their homes are currently worth. The limit of forgiveness would be 30% of a customers’ total mortgage balance. This suggests that, far from being an empty gesture or a public relations ploy, B of A and its shareholders will face actual risk. That’s because homeowners whose monthly payments are current could deliberately withhold a couple of payments just to qualify.  There is also a moral calculation at work that could rile those who have borrowed responsibly and need no relief.  Indeed, there is every likelihood that debt forgiveness will send the wrong message to at least some borrowers who got in trouble because of recklessness rather than misfortune.

Wall Street’s Reaction

The Treasury Department already has a mortgage modification program in place, and borrowers will need to qualify for that program in order to get a break from B of A. However, the fact that a program similar to the government’s has spread into the private sector is the most encouraging news that financially troubled households have gotten sense the housing crisis began. For B of A, it will make good on an agreement with state attorneys general made 18 months ago to settle charges over high-risk loans made by Countrywide.  While it’s tempting to portray anything the banks do these days in a cynical light, Wall Street’s reaction so far is heartening. B of A’s shares have risen nearly seven percent in the last three days, suggesting that usually hard-hearted investors may have accepted the idea that it’s possible to do right by doing good.

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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. There is a substantial risk of loss in futures and option trading, and even experts can, and sometimes do, lose their proverbial shirts.  Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2009, Rick Ackerman. All Rights Reserved. www.rickackerman.com 

-- Posted Friday, 26 March 2010 | Digg This Article | Source: GoldSeek.com

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