Frank Talk Fires Up the Homebuilders

Barney Frank has been talking about a FHA plan for months now, but the market chose to pay attention today, and Whitney Tilson's short position in the builders got clobbered.

The homebuilders remain crowded shorts, and moves like this are to be expected. But what did Frank have to say, exactly?

New legislation that would facilitate the buying up of distressed mortgages with the help of the Federal Housing Administration (FHA) was unveiled on Thursday by a key U.S. House of Representatives Democrat.

Frank said in a statement that his bill would allow the FHA "to insure and guarantee refinanced mortgages that have been significantly written down by mortgage holders and lenders."....In a draft, which he warned could change, the Massachusetts Democrat said his bill could refinance between 1 and 2 million distressed home loans by letting the FHA offer up to $300 billion in new loan guarantees.

It would also provide $10 billion in loans and grants to states to buy and fix distressed properties. Reuters

While the bears parse the proposal and trot out the usual arguments against it we are spending our time trying to figure out what was behind the move in the Russell 2000. The move from 10:30 AM violently tacked on roughly 4% to the index, which is notable even in this volatile tape.

Frank's plan seem to be getting more mindshare than anything Paulson is putting together.

Two weeks ago we mentioned…

February 29th
we should soon be halfway through the writedowns, depending whose numbers you are working with. ...until we get to the late innings of the writeoffs the market is unlikely to attempt to rally.

That type of thinking is starting to gain some currency.  This market has had a lot thrown at it and does not seem to want to die. Every trading day brings us closer to a new chapter in the market, and it seems everyone is leaning one way, against this tape. The bears have great arguments, but are likely getting as whipsawed as the longs. They might have time on their side, however, as it seems we have months of waiting ahead of us, at best.

And while Frank’s plan might not scare the bears into covering, he was his usual crusty self on CNBC today, explaining it and trying to clear up some of the confusion.

XHB Homebuilder ETF-One Week

U.S. House’s Frank seeks wider FHA role in mortgages
Reuters

Frank Announces New Economic, Mortgage and Housing Rescue Proposal
House of Representatives

Comments:

<< Back to main