This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

A Bitter Pill For Mortgage Borrowers

NEW YORK ( TheStreet) -- Top banking executives said this week that it may take years for the country to see a full-fledged housing recovery -- and that a government rescue program may actually be hindering progress.

The housing market recently began another leg down, despite hopeful signs last year after the Obama administration rolled out its "Making Home Affordable" program. Home sales have dropped dramatically since some incentives expired in April. Despite homes being more affordable than ever, demand has been feeble, prices remain soft and there's more than a year of supply on the market.
Name Your Price

The latest sign of weakness came Wednesday, when the Mortgage Bankers Association said applications had fallen for the second week in a row. Though mortgage rates remain at historic lows, refinancing requests dropped 11%. Though home prices are still deeply discounted in many regions, applications for new purchases also fell marginally.

At an event this week, Bank of America (BAC - Get Report) CEO Brian Moynihan estimated that it will take the bank another three years to work through its 1.5 million "seriously delinquent" borrowers. Jamie Dimon, who heads rival mortgage lender JPMorgan Chase (JPM - Get Report), said federal initiatives have simply delayed the inevitable for many borrowers.

"We have been writing off foreclosures that are delayed because of HAMP," said Dimon, referring to the government's Home Affordable Modification Program. While the initiative has "reduced [foreclosures] a little bit," he added, "we think it is going to go back up to where it was."

The federal government has been attacking the mortgage crisis on several fronts -- targeting an interest rate of zero; extending $75 billion in workout-plan incentives; funneling special money to the "hardest hit" states; and encouraging more "dignified" means of exiting unsustainable mortgage debt -- such as short sales or deed-in-lieu transactions -- since a foreclosure moratorium was lifted earlier this year.

But while homes have become more affordable and more available than ever before, only a select group of borrowers have benefited from the enormous amount of federal spending.

Banks have been targeting affluent borrowers for new loan originations, while low funding costs have helped pad their bottom lines. Meanwhile, the troubled borrowers targeted by the rescue initiatives have become a cost burden that the industry can't shake and the government can't seem to help.

Moynihan described the mortgage business as "a tale of two areas."

Bank of America has hired over 20,000 associates, as well as outside contractors, at a great expense to manage through the rest of its troubled mortgage debt. The bank is largely grappling with troubles from vintage loans originated by Countrywide in 2005 to 2007. Moynihan said that that BofA has made progress on working through a tidal wave of modification requests and customer complaints, but predicted more pain ahead.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BAC $15.69 2.02%
C $51.11 2.50%
JPM $62.00 2.00%
WFC $52.38 2.20%
AAPL $110.78 0.36%


Chart of I:DJI
DOW 16,776.43 +304.06 1.85%
S&P 500 1,987.05 +35.69 1.83%
NASDAQ 4,781.2640 +73.4890 1.56%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs