Bloomberg News

BofA Surges on Speculation of U.S. Mortgage Refinance Plan

January 09, 2012

(Updates with bank leading Dow Jones Industrial Average in the fifth paragraph.)

Jan. 5 (Bloomberg) -- Bank of America Corp., the second- biggest U.S. lender, surged the most in two months of trading amid speculation that the U.S. may introduce a new mortgage refinancing program.

The bank rose 50 cents, or 8.6 percent, to $6.31 at 4:15 p.m. in New York, then forfeited some of the gain in late trading after an Obama administration official who asked for anonymity denied speculation that the White House is considering a trillion-dollar plan to refinance home loans.

“There’s a lot of speculation about the big refinance wave coming from Washington,” said Todd Hagerman, an analyst in New York with Sterne Agee Group Inc., in a telephone interview. “That being said, there are a lot of existing roadblocks to the refinance boom occurring in the near future.” For now, even if there is a change in public policy, “you’re not going to see any impact whatsoever on the banks,” he said.

Lenders are grappling with costs stemming from loose lending practices that led to the housing market’s collapse. Bank of America, which acquired subprime lender Countrywide Financial Corp. in 2008, plunged 58 percent last year as refunds and settlements tied to faulty mortgages mounted at the Charlotte, North Carolina-based company.

Regions Financial Corp. and SunTrust Banks Inc. also rose more than 4 percent in trading today, and the 24-company KBW Bank Index added 2.2 percent. Bank of America sold for less than $5 on Dec. 19. Measured at the close, today’s gain was the company’s biggest advance since Oct. 27 and the best showing in the Dow Jones Industrial Average. The stock retreated 2.4 percent to $6.16 at 4:35 p.m. New York time.

Refinancing Program

The speculation was fueled in part by a Jan. 4 note from Jaret Seiberg, a policy analyst at the Washington Research Group. He theorized that President Barack Obama could install a housing advocate at the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac.

“That could lead to a mass refinancing program for agency- backed mortgages that would go well beyond the existing HARP program,” Seiberg wrote, referring to the Home Affordable Refinance Program, a federal effort to help distressed borrowers. “That could hurt agency mortgage-backed securities pricing and result in higher financing costs going forward. Yet it also could be a big boost for the economy and housing going into the election.”

HARP helps borrowers refinance mortgages that don’t qualify under traditional criteria because the property value has dropped. Seiberg didn’t respond to phone calls and e-mails requesting comment.

James Pethokoukis, a blogger from the American Enterprise Institute, a free-market think tank in Washington, picked up on the Seiberg report, predicting a “January surprise” from the White House. He estimated that such a program could cost $1 trillion over the next decade.

--With assistance from Ksenia Galouchko in New York. Editors: Rick Green, William Ahearn

To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; Lorraine Woellert in Washington at lwoellert@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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