Saturday, October 16, 2010

Forclosure processing update - financial stocks take a hit

A week ago, I highlighted the issues related to potential home foreclosure processing problems in the US. Firms with potential exposure saw their stocks take a hit for the week: Bank of America Corp. (US: BAC) down 9.1%, Citigroup Inc. (US: C) down 5.7%, Goldman Sachs Group Inc. (US: GS) down 1.3%, J.P. Morgan Chase & Co. (US: JPM) down 5.5%, PNC Financial Services Group, Inc. (US: PNC) down 3.3%, and Wells Fargo & Co. (US: WFC) down 9.1%. It is being reported that the US Securities and Exchange Commission, the Department of Justice, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation are also joining the examination of the foreclosure issue.

MY TAKE: Most participants involved in this problem are hoping to both quickly resolve it and to minimize the financial impact to themselves and to the economy. The challenge is balancing the desire for expediency with “rule of law” processes. The concluding acts of the era of “no doc” mortgages and “no doc” foreclosures will likely involve modifying the terms of many mortgages and the settlement of many yet to be filed lawsuits. The price tag could be in the billions of dollars.

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