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Mortgage Refinancing Plan Would Harm Banks: Dick Bove

Speculation that a new mortgage refinancing plan may be introduced drove bank stocks higher Thursday, but noted banking analyst Dick Bove believes investors actually got it wrong. He told Larry Kudlow that a program like that would actually “harm” banks.

Dick Bove
cnbc.com
Dick Bove

“It’s bad for banks, it doesn’t help them in any way, shape or form,” Bove said.

The speculation was fueled by reports that suggested the White House may be preparing a new trillion-dollar plan to refinance home loans. However, administration officials told CNBC’s Diana Olick that they are not considering a $1 trillion refinancing program.

The fact that bank stocks went up on the possibility of such a program makes no sense whatsoever, Bove said. In fact, he thinks a mortgage refinancing plan would cause banks to lose money.

“If you add up all the sources of profit or loss,” he said, “they lose more than they gain.”

So why did the banks, like Bank of America , shoot up higher? Bove thinks it was a simple misreading of what a mortgage refinancing program would do for the banking industry.

He believes investors may have thought it might affect foreclosures, putbacks to the banking industry and the service income of the industry. However, Bove said it would do none of that.

“It harms the banking industry,” he said. “All it is, is taking a lot money from one class of people and giving it to another class of people under the theory that the second class of people would spend the money more than the first class."

And banks aren't the only ones which could be hurt, Bove said. Only 21 percent of the mortgages in the U.S. are held by the banks. 55 percent held by Fannie Mae, Freddie Mac and mortgage pools, and the remainder are held by investors, he said.

"So the net affect is the people you are taking the money away from are the taxpayers and the investors."

Questions? Comments, send your emails to: lkudlow@kudlow.com
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