Mortgage Plan Props Up Stocks

Updated from 4:07 p.m. EST

Stocks in the U.S. closed sharply higher Thursday as investors hoped a government plan to help struggling homeowners would also allow lenders to get a handle on the damage being done to their earnings by the subprime meltdown.

The Dow Jones Industrial Average rose 174.93 points, or 1.3%, to 13,619.89, and the S&P 500 added 22.33 points, or 1.5%, to 1507.34. The Nasdaq Composite gained 42.67 points, or 1.6%, to 2709.03.

Breadth was strong, and on the New York Stock Exchange advancers topped decliners by nearly a 4-to-1 margin as 3.38 billion shares changed hands. Volume on the Nasdaq reached 1.97 billion shares, with winners beating losers 7 to 3.

The market climbed after President Bush endorsed a much-anticipated proposal to aid troubled borrowers in saving their houses from foreclosure. Treasury Secretary Henry Paulson outlined the plan, characterizing it as "not a silver bullet" or a bailout.

Countrywide (CFC Quote - Cramer on CFC - Stock Picks), the nation's biggest mortgage lender, jumped 16.1% after the proposal's official unveiling. Government-sponsored mortgage buyer Freddie Mac (FRE Quote - Cramer on FRE - Stock Picks) closed 7% higher, and Fannie Mae (FNM Quote - Cramer on FNM - Stock Picks) added 7.2%.

The plan was revealed on the same day that homebuilder Toll Brothers (TOL Quote - Cramer on TOL - Stock Picks) posted its first quarterly loss in more than two decades and said the just-completed fiscal year was in many ways its most challenging in 40 years of business. Still, Toll Brothers rallied by $2.70, or 13%, at $23.42.

Meanwhile, Federal Reserve Governor Randall Kroszner gave testimony before the U.S. House of Representatives on loan modifications and foreclosure prevention, saying that he and his colleagues are actively working to respond.

"Given the substantial number of resets expected from now through the end of 2008, it is in the interest of the industry to go further than it has historically to join together and explore collaborative, creative efforts to develop prudent loan-modification programs and other assistance to help large groups of borrowers systematically," he said.