Subprime standards out 'soon,' Paulson says
Government, industry working on plan for troubled borrowers
WASHINGTON (MarketWatch) -- Treasury Secretary Henry Paulson said Monday he's confident that a plan to help borrowers of subprime mortgages will be agreed upon soon.
The Bush administration has been working with mortgage servicers and investors to come up with a strategy to modify and refinance loans for certain subprime-mortgage borrowers.
As more such loans reset next year, "we will need an aggressive, systematic approach to fast-track able borrowers into a refinance or mortgage modification," Paulson said in a speech to an Office of Thrift Supervision conference.
In an interview later Monday on
Bloomberg TV,
Paulson also said that a plan to freeze interest rates on troubled
subprime home loans could be announced this week.
"I am optimistic we are going to have something to answer before the end of the week,
he commented.
In his speech, Paulson reiterated that the downturn in the housing market is "the biggest challenge to our economy," but said that the Treasury's plan to help out subprime borrowers doesn't include spending taxpayer money on funding or subsidies for either the industry or homeowners.
Speaking at the same housing conference on Monday, Washington Mutual Inc.
Chairman and Chief Executive Kerry Killinger said that the mortgage industry needs to find the "right safe harbor" for troubled borrowers.
"We just need to see if we can't get to a collective decision,"
he added.
On Monday,
Paulson called for state and local governments to temporarily broaden their tax-exempt bond programs to include mortgage
refinancings. If enacted, he said, the move would reduce the cost of some mortgage programs and allow the governments to reach more struggling homeowners.
Read Paulson's speech. The administration and Congress have been scrambling to address the woes in the subprime-mortgage market. Interest rates on about 2 million adjustable-rate mortgages are set to rise over the next two years, with many foreclosures a possible result.
Speaking at the same conference, Housing and Urban Development Secretary Alphonso Jackson urged Congress to pass a bill modernizing the Federal Housing Administration.
"With new legislation, refinancing and other FHA products, we will be able to help nearly half a million people next year buy and keep their homes," Jackson said. He added that his department has "exhausted our own administrative actions."
Analysts said the reported plan from Treasury could either help or hurt efforts to pass mortgage-reform legislation. "We believe failure to implement a comprehensive freeze -- or any freeze at all -- at this point will reinvigorate Democratic efforts to enact mortgage-bankruptcy reform," wrote Jaret Seiberg of the Stanford Group Company, in a note Monday morning.
However, according to Brian Gardner of Keefe, Bruyette & Woods, the Treasury plan could take pressure off of lawmakers to push through reforms.
In a note Monday, the analyst said that the chances for a reform bill would be less than 25% if Treasury succeeds in its negotiations with the mortgage industry and if the Fed announces changes to rules governing high-cost mortgages.
View from the Boston Fed
Meanwhile, earlier Monday, Boston Fed Bank President Eric Rosengren said research at the Boston Fed suggests that the foreclosure crisis in subprime mortgages will get worse before it gets better.
Just how much worse depends on the outlook for the economy and housing, he commented:
"Our forecast is quite dependent on how far home prices fall."
He urged community banks and states to focus on the 87% of subprime loans that are not seriously delinquent and where action may avoid future problems.
Rosengren said that he was not advocating any bailout, and wanted to use "existing programs for what they were designed to do." Some of the programs administered by the Federal Housing Administration could be modernized, he elaborated.
FHA lending is underutilized, falling to 2.8% of mortgages originations in 2006 from 16% in 2000. Many banks are not FHA-approved lenders, according to Rosengren.
Also Monday, Sen. Hillary Clinton called for a 90-day moratorium on home foreclosures, as well as a five-year freeze on the rates of adjustable mortgages.
Meanwhile, Senate Banking Committee Chairman Christopher Dodd, D-Conn., also a presidential candidate, called on the White House to push loan servicers to put in place broad-based and transparent loan modifications.
"Modifications also need to be made available to borrowers who have become delinquent because of loan resets, but who had been current prior to that. These homeowners should not be punished because of the abusive loans they were sold,"
Dodd said in a statement.
And to check what our good friends at Golman Sachs have to say about the volatile market and the fact that Hank's news didn't go over that well with investor's give this market manipulation a GOOD read .. think two clever by half as you read it... a DEPRESSION is coming and no one can fix it. They can merely buy time so the fizzles rather than CRASHES. Oh, I am just so fond of that word "tanks" as in the market is tanking. Such a good omnapotomia for it, doncha think??
Goldman's Cohen Sees S&P 500 Rising 14% by 2008's End (Update3) By Alexis Xydias and Eric Martin
Dec. 4 (Bloomberg) -- Goldman Sachs Group Inc.'s Chief Investment Strategist Abby Joseph Cohen said the Standard & Poor's 500 Index will rise 14 percent by the end of next year to a record 1,675 ``as recession fears fade.''
``U.S. stocks will offer moderate gains and will dramatically outperform bonds over a 12-month horizon,'' New York-based Cohen wrote in a report today. ``Recession will likely be avoided, due to strength in exports and capital spending by corporations and governments, and thanks to a vigilant and flexible Federal Reserve.''
Cohen was among the most bullish Wall Street strategists tracked by Bloomberg News with her estimate that the S&P 500 would surge to 1,600 by the end of 2007. Eight of 11 forecasters last month called for the benchmark for American equities to stage the biggest year-end rally since 1971. From yesterday's close, the measure would have to rise 8.7 percent to get there.
``Ongoing stresses'' on earnings stemming from turmoil in the financial system may be compensated by a ``competitive'' dollar, strong U.S. labor productivity and ``the favorable condition of corporate balance sheets,'' the strategist wrote.
The S&P 500 lost 0.5 percent to 1,465.22 as of 10:04 a.m. in New York.
Banks Fall Short
To account for profit shortfalls in the banking industry, Cohen, 55, and her New York-based colleagues Michael Moran and Michelle Kim cut their earnings estimates for S&P 500 companies.
Cohen said the Fed will ``stay friendly, if necessary'' in 2008. Traders unanimously expect the central bank to reduce its benchmark lending rate on Dec. 11, and have increased bets that the cut will be 0.5 percentage point, according to Fed fund futures.
Per-share operating profit this year is likely to grow 0.7 percent, down from a previous estimate of 4 percent growth, Cohen and her colleagues wrote in a separate report. They reduced their 2008 prediction to growth of 5.6 percent to $95 per share, from 7.5 percent to $100.
Cohen, who wasn't immediately available to comment, was known for her bullish calls during last decade's rally in U.S. stocks and was the top-ranked strategist in Institutional Investor magazine's surveys in 1998 and 1999.
She stayed bullish on computer-related stocks for too long as the S&P 500 suffered a bear market from March 2000 to October 2002. Cohen said in October 2000 that technology shares would be a good investment in 2001. The S&P 500 Information Technology Index tumbled 26 percent that year.
More Accurate
Her calls on the market in 2006 were more accurate. Cohen said on June 13, 2006, that stocks had fallen too far and the S&P 500 would rebound to 1,400 by year end. The index set its low for the year that day and has since risen 20 percent.
In December 2006, Cohen said the S&P 500 would climb to a record 1,550 this year. The index surpassed that level in July and went on to reach an all-time high of 1,565.15 in October. The S&P 500 then dropped 10.1 percent through Nov. 26, the steepest loss in four years, spurred by about $50 billion in subprime lending writedowns.
Separately, strategists at New York-based Merrill Lynch & Co. said today that they expect European stocks to rise 9.6 percent by the end of 2008. The Dow Jones Stoxx 600 Index may end next year at 406, up from 370.36 at the end of last week, Karen Olney and Charles Cara, London-based strategists at the U.S. bank, wrote in a report.
The forecast assumes corporate profits in the region will climb about 5 percent in 2008, while the price-earnings ratio for the European benchmark will reach 13.8 at the end of the year, the note said.
No comments:
Post a Comment