Mortgage settlement is a godsend

It's a breakthrough that will speed up short sales of housing, reduce inventory and lift home prices.

By Jim Cramer Feb 9, 2012 6:39PM

the streetImage: Home with foreclosure sign in front yard © Ariel Skelley/Stockbyte/Getty ImagesMost efforts to solve the housing glut have led to naught, largely because the banks and state and federal governments have been have so antagonistic to each other.


That's why this $25 billion settlement between the federal and state governments and five big banks and mortgage services, over the outrageous foreclosure procedures these institutions used during this period, is so important to the progress that's so needed for this incredibly important issue, the one that precipitated the U.S. downturn and remains at the epicenter of the tepid pace of the recovery.


What exactly will it do?


On the surface, it will provide aid from Bank of America (BAC), Citigroup (C), JPMorgan (JPM), Wells Fargo (WFC) and Ally Financial to states and to beleaguered homeowners for principal forgiveness and forbearance and refinancing.

What it will actually do is put cold, hard settlement money into millions of homeowners' pockets and reduce payments in many cases.

It will accelerate foreclosures to clean out inventory and speed up short sales to get past the big logjam for underwater home sales.

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And it will give the banks, like it or not, a real break in what had become a gigantic expense: legal fees. These have actually hurt the bottom line for years now.


I don't know if you have tried to buy property during this period, as I have. Here's what you have faced. Banks have demanded a huge down payment, even as you might obviously be able to afford the property. Banks have been unwilling to give you a refinance at these low rates that Fed Chief Ben Bernanke has made possible, unless you put down colossal amounts of money that most people don't have. And banks have been the big obstacle to buying short-sale property.


I know this. I have tried and given up buying short-sale property because of the banks' intransigence. I had to pay down a gigantic amount of money to refinance after going through dozens of banks to let me do so. I am in the process of buying property, and I know that I might as well buy it with cash.


I don't like to play the 1% card, but if I am having a problem with these issues, then everyone is having problems, and I can tell you that this settlement is a godsend.


Is it a reason to buy the bank stocks? You know, I have been a huge fan of Wells Fargo, and I have to tell you the answer is yes, absolutely, even as the bank stocks failed to react to the deal. I think banks will be able to free up a lot of a capital to do more to help homeowners, and I think you are going to begin to see a real dent in the inventory overhang and, yes, the beginning of a sustained rise in home prices.


We have all become too jaded about any government initiative to solve this brutal problem. This one is big. Recognize it. Take it as a sign that we are now over the hump of the housing issue, and be prepared to hear about much better numbers going forward.

Me? After giving up in 2011, I am going to search for short-sale opportunities to buy. I bet there some real bargains. With these low interest rates, I want them.


Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. 

Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.





Feb 10, 2012 8:18AM

how about some $$ for people who didnt mortgage themselves to the hilt and arent behind on their payments.

Feb 10, 2012 9:56AM
This is nothing but another Government / Bank scam. The "money" will be nothing more than bad mortgages the banks were going to have to write off as losses anyway! See through the Smoke & Mirrors we call a Government! The banks win, The Administration Wins and the people lose. Nothing has changed - Well except Cramer gets a fuzzy chill going up his leg!
Feb 9, 2012 11:25PM
What a jerk you are.  $25b in profit for the banks and the banks pay $5b.  11m homeowners and 1m "may" benefit.  Yes, Jim, it's good for the banks and Wall Street and that's all.  
Feb 10, 2012 6:28AM
a word used to describe this shakedown on corrupt banks was a godsend....Nothing from the Marxist Muslim Mulatto in the White house comes from God.....nothing.
Feb 10, 2012 1:24PM
People bought houses they couldn't afford OR bought houses they hoped to flip and the market tanked.    I'm tired of paying for other people's "keeping up with the Jones" and get rich quick gambles.  

Let the market bottom making housing affordable again.   
Feb 10, 2012 1:39PM
Totally agree with AgainstGovernmentWaste and groverg comments.  We lived frugally until we could afford the mortgage we got.  Now we're paying for those who didn't.
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