Promising signs

But will they continue?

Has the stock market finally found its bottom?

It appears that investors have returned to the market. At least some have noticed that there are bargains available. Many very good to excellent companies have had their stock price beaten down by the market with no respect to the individual company situations. Savvy investors have noticed this and are returning to the market. Hopefully that will continue.

Mortgage reality

JP Morgan Chase has joined Bank of America’s restructuring of mortgages. In addition, the FDIC, as the owner of the successor of IndyMac Bank, is experimenting with radical restructuring. As I have said on October 8th, the only way that the toxic mortgage situation will be solved is the somewhat radical idea of doing a true “mark to market” of bad loans.

What’s happening now can be characterized as “baby steps.” What I propose goes further than what is being done on a small scale, but if implemented, would restore liquidity to financial institutions and will go a long way to unfreeze the credit markets.

All nonperforming loans should be reviewed.

Borrowers who feel that they are in danger of going into default should be invited to have their loans reviewed also.

The loans should be restructured so that the payments are in line with generally accepted underwriting guidelines.

In order to achieve this, the loans may have to have radical reductions in rate, extension of term, or a write-down of the principal balance.

While there will be cries of “giveaway,” the reality is that all of these nonperforming and potentially nonperforming loans will go into the performing category. They will have true value and liquidity will be restored.