Bank Lawsuits Mask Good News About Mortgages

Will the rain of lawsuits and investigations on the nation's big banks ever stop? It doesn't seem likely, a factor that's contributing to their share price slumps today. But that bearishness might be ignoring a promising trend in the home-lending sphere.

At the moment, it's Bank of America's (NYSE: BAC  ) turn in the glare of the legal spotlight. The company revealed in a filing yesterday that the U.S. Attorney's office aims to recommend that the Department of Justice file a civil suit against it related to the sale of -- you guessed it -- mortgage bonds. At least the bank is well prepared for this -- it's currently battling another DoJ suit alleging that it misled buyers of mortgage-backed securities during the dark days of 2008.

Elsewhere in legal news, MBS queen Fannie Mae  (NASDAQOTCBB: FNMA  ) has decided it wants its day in court too. It filed suit today against nine lenders, claiming that their manipulations of LIBOR (a benchmark rate for financials) cost it around $800 million. The bad guys include the usual suspects -- Bank of America, Citigroup (NYSE: C  )  and, naturally, everyone's favorite lawsuit target, JPMorgan Chase (NYSE: JPM  ) .

The latter's stock is down more than its big-name peers; the new haggling over its multi-billion dollar settlement with the Feds isn't helping. Although, on one hand, this could be seen as good news, indicating that the bank is willing to push back at least a bit against the government's position, on the other, it might be annoying investors who want to see this fight end, already. JPMorgan Chase stock is trading down by around 2% on the day, compared to the Dow's slump of 0.50%.

The news hasn't been all bad today, though. Freddie Mac weighed in with its weekly primary mortgage market rate survey, and it shows that that home lending numbers are trending down for the second week in a row. The thirty-year fixed stands at 4.10%, three basis points below that of last week, and 18 under the October 17 number. Hardly to be outdone, the rate's 15-year brother fell to 3.20%, from the previous 3.24%, and the 3.33% of two weeks ago.

Lower rates should help bring in more buyers, not to mention existing mortgage holders looking to refinance. This (hopefully) means fatter business for the big mortgage players. The most obvious of those candidates is Wells Fargo (NYSE: WFC  ) , as it's far and away the top lender in the space. The bank could use the sentiment that comes with that kind of good news, as its origination volume dropped by nearly 30% on a quarter-over-quarter basis in Q3.

Could mortgage optimism be spreading? It's far too early to say, but an interesting news item crossing the wires today is a planned debt issue from Citigroup. The giant financial will be floating the first mortgage bond issue tied to new home loans it's offered since the crisis. All told, the bank is looking to raise a little over $400 million from the issue, the main tranches of which have garnered AAA grades from ratings agency DBRS.

That's cause for optimism, but only of the guarded sort. That storm of lawsuits isn't drifting away anytime soon, and the big financials are all getting wet.


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