Stocks rallied (though they are now off their highs), largely on the Fannie Mae announcement on mortgage forbearance. Though it was leaked a few hours ago, it was only known that an announcement would be made today shortly before the 2 PM conference.
The plan would help borrowers who are 90 days or more behind on their mortgage. Payments may not exceed 38% of monthly income. More details will be announced shortly.
What details? We will likely see rate reductions as well as principal forbearance. While this is costly, the thinking is that long-term this will be less costly than allowing homes to go into foreclosure.
Federal Housing Finance Agency Director James Lockhart said the private industry should adopt the same industry standards to modify mortgage loans, but several have already announced mortgage forbearance plans: Citi, JP Morgan, Bank of America .
Interestingly, FDIC head Sheila Bair immediately called it "a step in the right direction but falls short of what is needed to achieve widescale modifications of distressed mortgages, particularly those held in private securitization trusts."
She has become quite outspoken recently and is obviously making sure she stays on the offensive.
Surprisingly, they would still allow loans where the principal, interest, taxes and insurance could be as high as 38 percent of gross income. That is still high: traditionally, 30 percent of gross income was the most lenders would allow to go to the monthly housing bill.
This is a sign of how far out of whack mortgage loans became in the last few years.
Finally, a few traders also noted that Blackstone's CEO Stephen Schwartzman also made positive comments at the same time. Speaking at a Merrill Lynch conference, he noted that THEIR private equity portfolio performing pretty well, and that he would be a buyer of distressed real estate.
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