New fed plan to slow foreclosures

December 05, 2007 By: User Image

Arohan Category: CFC, WM

New fed plan to slow foreclosures will be announced tomorrow. It is reported that the deal has already been reached between the feds and the mortgage industry. I view this as a net positive for the mortgage industry

The worst situation a lender finds itself in is to foreclose on a loan. It is much better for the lender and the lendee to compromise and continue the loan even if it means the lender loses revenue in terms of a reset mortgage. A lender like Countrywide can do this adjustment on their own (and many have been doing it) but the fed intervention provides a real guideline on what can be done. It is also a strong signal that the feds are not going to let the sub prime fiasco affect other parts of the economy and they will do all they can to bring the liquidity back in the market

As I sit here today I feel more comfortable about my position in CFC and WM that I took a few days ago. When the industry rebounds, these companies will come back stronger with greater market share (as many weak players have fallen). Also the feds injecting some calm/stability in these markets should help bring in some industry consolidation

Any further rate cuts at the upcoming fed meeting would just be another support for the industry and should help the stocks of the lenders

I am happy to wait out on these positions for long term