Mass Home Refinancing Rumor Rejected, And Why Even If It Was True It Would Not Help BAC

Tyler Durden's picture

Looking for a reason why the surge of BAC has been abruptly halted after hours? Look no further - as predicted earlier, when we commented on the periodic reincarnation of the always false global refi rumor which served among other things to push BAC higher by almost 10%, the rumor was found to be false... all over again. In other words no refi, no benefit to TBTF, and all of today's gains are based on what Bloomberg noted was a report issued yesterday by a Jaret Seiberg, who until recently was an employee of MF Global, and has since been acquired with his entire Washington Research Group by none other than Guggenheim partners, which just happens to be run by former Bear Stearns exec Alan Scwhartz. From Bloomberg, here is the official denial (which came literally seconds after market close):

  • White House Has No Plan for Mass Home Refinancing, Person Says

Incidentally, even if the rumor was true, here is JMP explaining why it would have no real impact on Bank of America

Bank of America (BAC, $6.28, Market Perform):  Market Overly Optimistic About the Impact of a Hypothetical $1 Tril. Refinance Program, in Our View


Shares of BAC were up 8% today as rumors swirled that President Obama may enact a $1 trillion refinance program.  Granted, BAC shares were trading at a big discount to book (0.4x), and the investment community--now with several months of runway--seems to be going "risk on". But the big upward move on this news seems more a grasp for "validation", and we don't believe it will stick.


We must point out that BAC is up big, while JPM and Citi are only up with the broader bank index.  This suggests that the market is focused on the mortgage-loss exposure specifically as this is uniquely troubling at BAC.  Were the market focused on the big potential one-time benefits of mortgage production fees (in our view, the lone positive), they would all be up big, but this is not the case.  Meanwhile, servicing revenue should obviously be a zero-sum game.


Thus, we focus our discussion on the loss exposure.  The key risk to BAC is the looming threat of material mortgage putbacks (reps and warranties).  These are not new losses but losses already locked in and incurred by others that are merely redistributed to BAC retroactively via the legal systemNo 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 efficiacy 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.


Many homeowners could already materially lower their payment (or avoid a looming balloon) via refinancing but can't do so because of the LTV.  Thus, we presume any big refinance program would have to include the U.S. government providing mortgage insurance to the lenders/investors, which creates incremental risk for the U.S.


We will leave it to the political analysts to opine about whether or not President Obama can even get away with enacting a $1 trillion program that incurs large amounts of financial risk to the U.S. government.  Our view is that, even if this comes to pass, the impact on BAC's putback risk is negligible, so the stock continues to deserve a steep discount and today's move is likely to prove fleeting.

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lolmao500's picture

Right... it was just leaked too early. The election is in November you see, and the average joe has the attention span of a redfish.

trav7777's picture

All I read was "White House has no plan"


theMAXILOPEZpsycho's picture

The only way to regenerate the economy is to reinvigorate the housing market. We all know that. The problem is buyers lack confidence, certainty, the feel good factor. Thus housing needs to be protected from market forces. Why not guarentee 15% compounded increases in house prices? Sure that may be inflationary, but we could counteract this by capping commodity prices to more fair levels - where they would be if it wasn't for the preditory speculators. Tougher crackdowns on speculators would be welcome too.

ucsbcanuck's picture

(sarc on)

And while we're there, let's make this the national anthem of US/Canada/Europe:

If you think this is a good idea, why was it rejected in Eastern Europe and USSR all those years ago?

(sarc off)

theMAXILOPEZpsycho's picture

you may laugh, but Russia has some of the finest women in the world! Look at what western decadence and mcdonalds and coca cola fulled capitalism have done to your western women!

ucsbcanuck's picture

Look what communism did to your economies. People loved it sooo much they wanted to get rid of it. Just ask China how much better it's doing after shifting to a capitalist-based economy.

theMAXILOPEZpsycho's picture

And look how that worked out for you decadent westerners! You've left yourself pray to the predetory capitalists, they took everything. Now young people are flocking to wall street in an attempt to reverse the trend. May God send them stregth, we need to get back to order and proper government controls.

DeadFred's picture

It looks like someone got off the hyperspace bypass at the wrong planet again. A novel concept though, if you think about it, governments that can control the banks instead of the other way around. Hmmm.

Central Bankster's picture

Only if government determines who gets to live and who gets to die and who gets what resources and which women.  Also, I should be in charge.  /sarcasm

homersimpson's picture

Anyone hear the Canadian anthem right now? Or whatever anthem of a heavily socialized country..?

ucsbcanuck's picture

Dude, even we're not that stupid. Guaranteed 15% a year appreciation - what a load of crock.

FEDbuster's picture

When they open the fiat floodgates, 15% a day won't keep up with the cost of living.  Just waiting for Uncle Ben to get a fat finger on his zero key. 

2012 the year all my rental properties will go to month to month leases, and maybe week to week?  Long term leases are like 30 yr. fixed rate mortages, foolish.

Ragnar24's picture

I must just be missing the sarcasm -- otherwise I can only assume that Simple Jack is responsible for your post.

thewhitelion's picture

And make everyone above average in looks and intelligence!

Central Bankster's picture

As long as everyone has equal living standards as decided by a bureaucrat who can than make decisions for said parties to equalize any inequalities.  Now that comrades, is humanity.

Buck Johnson's picture

Here's something to consider, if they did do something like this refinancing how much you want to bet that they would have language in that govt. refinancing that would make you liable for the mortgage if you decided to walk away or can't even afford the refinacing.  

Larry Dallas's picture

Exactly: you beat me to it.

These loans would be structured identically to student loans from a personal liability standpoint. However, the smokescreen it would cast would be that it would reinvigorate the secondary mortgage market, and the candidates running in 2016/2020 would have to promise debt forgiveness to get re-elected. In the meantime, Congress would be able to wipe their brow ensuring a debt driven housing price increase (read: not bubble), and re-election.

How else would you encourage the TBTF to make loans without this lifetime guarantee.

Going out on a limb here, considering it would be mostly the baby boomers refinancing to live off of their equity, expect a "dynasty-guarantee", meaning their heirs would be liable. And yes, I'm surprised they haven't done it yet with reverse mortgages.

They could say that Fannie, Freddie and all other GSE's are in good operating shape and focus would shift from them.

StychoKiller's picture

So, throwing out 500 years of Common Law re: Property Title carries no weight with you?  The more you look under the Fraudclosure rock, the scarier (and bigger!) the creatures get!

vintageyz's picture

There's no reason to insult a redfish.

andrewp111's picture

The President's bold test of his recess appointment powers is the prelude for replacing the director of the FHFA. He needs to structure the program so the refis are applied for in the summer and fall, but are actually completed AFTER the election. That way the voter has no choice but to vote for Obama. He is already doing the same thing with mass student loan forgiveness (apply now, actually happens in 2013-2014), and will do te same thing for illegal alien amnesty.

JR's picture

“Giving debt relief to people that really need it, that’s what foreclosure is…” – Jamie Dimon

valley chick's picture

is this the first official rumor of 2012?

Dr. Engali's picture

Wow the inbreading at Wall street never stops.

knukles's picture

Nope.  Can't mess with them credentials.  Like Triple Crown thoroughbred horses, they be.  Amazing.
Surprised they all don't work for BoA.

SimpleandConfused's picture


What's that?  Are they mixing cookie dough and marble rye over there on Wall Street?

Just joking; I hate the grammer police as well ;)

But BAC lost its 4 handle and bumped, now it must learn the lesson of the immortal Joe Tex:

"Ain't gonna bump no more with no big fat woman..."

jcaz's picture

Actually, would be the spelling police.....

SimpleandConfused's picture

I stand corrected.  So, at least I stand for something:)

GMadScientist's picture

No, you don't.

Ya screwed up both (he's a natural!).

Jlmadyson's picture

What a bullshit market we live in. Where the heck are you S&P. Don't wait for Friday close.

lolmao500's picture

SP will wait till close. And what's more, they won't even downgrade France by two notches.

LawsofPhysics's picture

This should make for some friday fun.

ZeroPoint's picture

And what about those of us who didn't take out a loan they couldn't afford, didn't try to buy a house that was only worth 50% of it asking price? Some of us rented, and we did it on the wrong side of the tracks so we could save. What do we get? Is that tumbleweeds I hear?


Osmium's picture

Don't forget about those who bought a house in need of repair, spent many long hours fixing it, and mangaged to pay off the loan.  We wouldn't get squat either.

And I think those are crickets you hear.


DeadFred's picture

Did you vote for Obama? I didn't think so.

Central Bankster's picture

Think about it this way- you are right, but the central planners have decided you are wrong.  it's like shorting the stock market.  Sure, it's all lies and it should crash because many of the components have little or no real book values, but the central planning authorities have decided it must go higher and so you lose!  Free markets be damned!

justanothernerd's picture

So -- all of these swings up giving shorts a way to profit when it comes back down? Whatever, I'll take it. 

AldoHux_IV's picture

Here we go again with more bullshit rumors to entice risk and lull investors/traders (if any left other than the momo crowd) into thinking all is right again with the ponzi... until the reality of one of the biggest reversions to the mean in socio-economic and political influences is going to ensue.

Cdad's picture

There are no "investors" left in the US.  There are terminators...and the sheeple who have yet to get the memo that the capital markets in this country are in ruins.

StychoKiller's picture

I prefer to call them the Ignorati, but yer right, investors have turned into these:

NOTW777's picture

yes, but it helped uncle warren - look at sale on close

SheepDog-One's picture

Well if a 'person' said it, then it must be true. SO! Back to 'carrot and stick' market moving method for a while....tomorrow it will probably be murmurings of 'QE' around open, to be rejected sometime after close.

StychoKiller's picture

Why does everyone ignore it when a Robot sez it?  Stupid meatbags...bite my splintery, wooden @ss!

apberusdisvet's picture

Martin Armstrong, in one of his last commentaries from Ft Dix, wrote that the final housing turnaround might be in 2032.

Looking at all the MSM false hopium and the government lies on economic statistics, this might be the most prescient comment ever made about the housing bubble.

CrashisOptimistic's picture

People are completely oblivious to the reality of oil and how is MUST inform every comment and every thought.

No one in the entire world should be talking about anything in 2032.

Cdad's picture

Yeah...sure...we will rumour, lie, and print dollars to....prosperity.  Every single day in our clearly failing Republic is just another adventure into the surreal.  Despite how equities can continue to disconnect from reality and float, there is simply NOTHING to buy here.  

That move on BAC stunk from the very first morning trades, and the sympathy trades in WFC and such smelled even worse.  There was simply never a moment when that move was believable or justified.

We are well beyond that point when even I can believe that all of this lying and rumoring is designed to actually create a false confidence in markets.  Clearly, these things are being done to destroy confidence...a plan that is working quite well considering fund flows out of the markets.

And comes next...the jack booted thugs, I expect.  The next much needed fund intervention as the markets implode again...or whatever version of this is yours.

It is truly sad to see this once great nation, on its knees, gasping for air, swarmed upon by banking and political and crony capitalistic thieves.  

We are lost.