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Freddie Mac to Ask For Additional $30.8 Billion From Taxpayers After Losing $50 Billion

“Freddie Mac said Wednesday it will ask the government for nearly $31 billion in additional aid after posting a gargantuan loss of more than $50 billion last year as the U.S. housing market worsened.

The recent loss was driven by $13.2 billion in hedged trades, $7.2 billion in credit losses from the declining housing market conditions and $7.5 billion in writedowns of the value of its mortgage-backed securities. The company also took a charge of $8.3 billion for now-worthless tax credits.”

Obama’s Mortgage Plan Already Benefits Freddie…

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Stocks Give Back Yesterday’s Gains as Troubled Mortgages Rise to Nearly 12%

US Session Key Developments

  • JPMorgan Credit Outlook Slashed By Moody’s
  • Troubled Mortgages Jump to Nearly 12%
  • FDIC Chief Says Funds May Dry Up
  • Citibank Shares Trade Under $1

Stocks Give Back Yesterday’s Gains As Troubled Mortgages Rise to Nearly 12%

Stocks were pummeled today with Financials continuing their slide after President Obama’s mortgage bailout plan was revealed to benefit only those whose home loans were owned by Fannie Mae or Freddie Mac. Banks like Wells Fargo, which owns 16% of the mortgage market, will likely not directly benefit as a result. As such, any confidence that Obama’s plan would help stabilize the banks went down the drain. If that wasn’t enough to bring down the financial sector, JPMorgan’s credit outlook was slashed by Moody’s yesterday in after-hours trading. Indeed, the bank which was first hailed as a beacon of financial stability may now be in danger. The credit rating agency stated that JPMorgan’s health was at risk due to its direct exposure to bad loans and credit defaults.

Housing data continued to plague the industry. Data showed that Mortgage Delinquencies jumped 7.88% in the final quarter of 2008. Overall, nearly 12% of all mortgages are either late, delinquent, or are in foreclosure.

Sheila Blair, the Chairman of the Federal Deposit Insurance Corp. (FDIC) said that the pool of money that it holds to insure consumer banking accounts for up to $100,000 could dry up by the end of the year. In response to a swarm of letter that the corp. received as a result of FDIC fee increases she stated “without these assessments, the deposit insurance fund could become insolvent this year.” All this inertia led Citigroup, which was once the largest bank by market capitalization, to trade under $1 per share for about 40 minutes today. Shares of the embattled bank reached a low of 97 cents. Citigroup ended the day down -9.73% at $1.02 per share with JPMorgan finishing down -13.99% at $16.60.

Dow 30                   6594.44                      -281.40                      -4.09%
Every sector in the Dow Jones Industrial Average took a beating with Financials seeing the worst of the storm. The sector dove -12.90% with Materials tanking -9.08% with it.

NASDAQ               1299.59                       -54.15                          -4.00%
NASDAQ sector performance was more evenly distributed with Financials dipping -6.68% and Information Technology falling -3.58%. Microsoft and Cisco were the most actively traded stocks, declining -5.27% and -4.59%, respectively.

S&P 500                682.55                         -30.32                        -4.25%
The S&P plummeted as much as 4.9% on the day before profit-taking forced the index to close the day down -4.25%. The most active stock was JPMorgan which saw 33.61 million stocks traded as it fell -13.99%. The VIX volatility index jumped to 50.17 or by 5.49%.

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Mortgage Bill Allows Judges to Reduce Principle Payments, Passes House; 24 Dems Oppose

The “Cram Down” Bill…24 Democrats Vote Against…

“The legislation would give bankruptcy judges — who now can modify loans for such items as cars and student loans but not for primary residences — new power to reduce the interest rate and principle on a home mortgage.”

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Obama Unveils Mortgage Plan, But Is That Good For The Market?

Equity markets rallied in the U.S. and Europe and many are hailing President Obama’s mortgage plan as the reason for this bounce. But this may be quite a fallacy. European markets rallied overnight before the plan was even unveiled. Much of this may have been due to new expectations that Chinese Premier Wen Jiabao is scheduled to add to the 4 trillion Yuan ($585 billion) stimulus package that had been announced last October.

President Obama released his long-awaited mortgage plan only to see banking stocks plummet by -6.59%. This could have been because of the details the laid within the text of the document itself. It was revealed that only those whose home-loans are owned by either Fannie Mae or Freddie Mac would be eligible to receive help. However, there are many other banks that own substantial a substantial portion of the mortgage market that will not benefit from the bailout. Indeed, Wells Fargo led the slide with its 16% market share of mortgages outstanding.

As such, today’s rally may only be temporary. Equities might continue seeing volatility. Currencies that are vehicles for risk-aversion may continue rallying.

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