The White House has just denied rumors it plans a massive mortgage refinancing effort, Bloomberg is reporting, poking a hole in today’s rumor filled market souffle.
Bank of America rose an astounding 8.6% today, easily outpacing a flat market, and way outperforming its poor suffering brethren in Europe, at least partly on rumors that the Obama administration has a big mortgage refinancing plan in the works.
As Jay Walters of VA Loan News pointed out earlier, this is not the first time this rumor has floated around, and it’s not entirely clear how much it would help Bank of America, but the stock ripped higher anyway, and eventually pulled the whole market up with it.
After all, as goes Bank of America, so goes the rest of the market. (At least when it comes to earnings — although its gain today was a leading indicator that the rest of the market would rise, too).
According to Bloomberg, this rumor will amount to nothing after all. That story is not yet up on its web site, but its earlier story about the Bank of America stock rally includes this nugget, which makes sense, too:
“There’s a lot of speculation about the big refinance wave coming from Washington,” said John Russell, Vice President of Mortgage banker All American lending inc in Newport Beach California., in a telephone interview. “That being said, there are a lot of existing roadblocks to the refinance boom occurring in the near future.” For now, even if there is a change in public policy, “you’re not going to see any impact whatsoever on the banks,” he said.
At Zero Hedge you can find an entire JMP analyst note on the topic, which also tamps down expectations that another massive refinance program, if one ever were to spring into existence in the future, would not help Bank of America:
The key risk to Bank of America is the looming threat of material mortgage put backs (reps and warranties). These are not new losses but losses already locked in and incurred by others that are merely redistributed to Bank of America retroactively via the legal system. No refinance program will undo these losses for which, in most cases, the foreclosure has been completed.
As for the matter of avoiding new losses by saving currently wobbly homeowners, we question the efficiency of a refinance program when the key issue is jobs where the homeowner has no income nor liquid asset buffer, a lower payment isn’t going to matter. More generally, as we have seen with prior attempts, these programs are more about kicking the can down the road, so it’s more about delaying future losses than avoiding them altogether.
As for the broader stock market, it was another big Nada Enchilada today, with the Dow down about 3 points (Bank of America didn’t help the price-weighted index much), the S&P up about 4 points and the Nasdaq up about 22 points.
But, again, this rumor may have helped rescue it from an uglier day. At one point the Dow was down more than 100 points, and the euro was getting clobbered all day. It was recently down 1.2% at $1.2779 against the dollar
The White House has no plans for a new mass mortgage refinancing program, Bloomberg reported, citing an administration official with knowledge of the matter.
Bank stocks had climbed Thursday afternoon despite concerns over the fate of European banks amid market chatter that President Obama might soon announce a massive refinancing program that could help boost housing and the economy in the election year.
The Obama administration could announce a civilian program modeled on one that was originally devised by Columbia University economists Glenn Hubbard and Christopher Mayer. Under that plan, all homeowners with a Fannie or Freddie-backed mortgage can refinance with a new mortgage at a fixed rate of 4.2% or less if they have been current on their payments for at least three months. And the clincher is that the plan imposes no other qualification - no appraisal or income verification.
The typical borrower would reduce his or her principal and interest payments by about $350 dollars, a total reduction in mortgage payments of nearly $100 billion per year, according to Hubbard. It is expected to help refinance $3.7 trillion in mortgages and would come at an immediate fixed cost of $121 billion to the government.
"Talk about a political and economic game changer in this presidential election year. Obama could offer a trillion-dollar stimulus -- as measured over a decade -that would directly and immediately impact tens of millions of Americans suffering from the housing depression," the article said, which seems to have spawned the $1 trillion refinancing program rumor on twitter.