Stocks Drop Due to Falling Home Prices and Increasing Foreclosures

By: Joseph Smith

Indications that the housing prices will continue to fall and foreclosures will go on dragging the economy down have influenced investors to sell their financial stocks which led to the drop of stock prices.

The current attitude of investors also showed that they are not that optimistic over the Obama Administration’s plan to prevent foreclosures and halt the falling housing prices.

With the trend that it is going, it looks like President Barack Obama’s signing of the $800 billion economic recovery package, which also includes the foreclosure prevention measure, has failed to provide comfort to investors

Investors were also disappointed over the lack of details provided by Department of Treasury Secretary Timothy Geithner on the administration’s financial bailout plan.

As part of its effort to alleviate the financial problem, the Obama Administration plans to release details of a $50 billion foreclosure prevention program to help modify mortgage loans for distressed homeowners.

Another factor that burdens financial stocks is the foreclosure moratorium that banks have imposed in an effort to help troubled homeowners and reduce the number of foreclosed homes.

Following the decision of its rivals, PNC Financial Services Group has also imposed a foreclosure moratorium on existing and new mortgages. PNC President Joseph Guyaux explained that the financial institution wants to help homeowners retain their properties.

After its announcement of foreclosure moratorium, PNC shares dropped by 6 percent. The trend prompted Weiss Research’s Mike Larson to question the sensibility of delaying foreclosure in the current market condition.

He pointed out the problem of delaying foreclosure in which the collateral is losing market value. He added that it is a choice of taking over a property and selling it for about $200,000 or waiting for a 90-day period of moratorium to lapse and sell the property for $195,000.

Financial stocks of mortgage insurers, regional banks and real estate firms led the stock market decline, with MGIC Investments, Developers Diversified and Fifth Third Bancorp among the top losers.

The Financial Select Sector SPDR dropped by over 7 percent while the KBW Regional Banking ETF declined by 4 percent due to investors’ concern about the stocks’ continuing exposure to home and business loans.

Meanwhile, Moody’s Investor Service reduced credit ratings on some mortgage services in anticipation of higher-than-expected mortgage losses due to unabated foreclosures and the economic recession.

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Joseph Smith has been educating buyers on the finer points of Repo Homes purchase at for over ten years. Click here to visit and read more advice on finding Foreclosed Homes.

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