HARPing on refi reform

President Obama is stumping for changes to the HARP program -- and while I try to stay politically neutral here, I reserve the right to call out idiocy anywhere I see it. (and yes, idiocy may be a stronger word than is called for - but wasting political capital slightly modifying a program that is very weak and doesn't address some fundamental issues, is not exactly smart)

http://www.marketwatch.com/story/mortgage-refi-plan-targets-hard-hit-borrowers-2011-10-24?siteid=nwhpf

"To spark interest in HARP, the program will lower fees, eliminate the current 125% loan-to-value ceiling, waive lender warranties and eliminate the need for property appraisals. "

Gee, make it easier for bad credit risks to refinance? Here's my take.

Yes, something needs to be done. But allowing people who fundamentally are screwed *anyway* to get out of their loans (which includes forgiveness of some principal) shifts the burden unfairly to the bank-stock shareholders. If you are underwater on a mortgage, it is not necessarily an emergency. Absent plans to move, all it takes is some time to change the situation. The wholesale granting of "liar's loans" a few years ago was obviously a stupid things for banks to do; I am NOT excusing them. But folks who enter a mortgage need to realize that a secured loan is exactly that - and the house IS the security. You pledge to pay $250,000, and fail to pay it back - you don't get to keep the house. No one questions the repossession of a car after failing to pay a $20,000 car loan!

So it is all well and good to question this kind of program - but what do I propose instead?

First, only allowing a program that is guaranteed by FreddieMac or FannieMae does not help the 70% of homeowners who have a mortgage through another institution. Secondly, principal should not be forgiven. Third, credit issues still need to be resolved. Here's my proposal.

Allow a two-year period where refinances can be done with the following waivers:

* Any amount can be refinanced, up to the current loan amount.
This only makes sense. If the bank is on the hook for $400,000, then they by definition cannot be hurt by allowing a refinance of $400,000. By allowing the refi, they increase their chances of getting repaid AND make more in interest charges the next few years!

* Modify the appraisal process.
This is basically a correlary of the above point. We don't care about what the home is worth; we just want to make sure it is structurally sound.

* Credit still needs to be checked. Income verification needs to be revamped.
We do want to make sure that the loans made can still be repaid. If a household is bringing in $5,000 a month, is there any doubt that a $2,000 payment - 40% of their income!! - might be a stretch, still? If their P&I payment was $2,800 a month but an extra member of the household used to be working, their situation has changed enough that perhaps they shouldn't be owning a house anymore.

I guess I am angry that only a small percentage of homeowners may qualify under HARP and that the fix hurts shareholders who have already been nailed by the last few years of bank stocks' crumbling share prices.

Regards,
Trond Hildahl

Next Great Investing Column contest

Well, I appear to be in full solicitation mode this morning. Facebook, Twitter, Google+, and now my blog...

I'm in a contest to become an investment column writer for MarketWatch. The first stage's winners (25 of them) are determined solely by social media voting. If you've enjoyed my blog posts over the years, please help me out and vote for me here: http://blogs.marketwatch.com/great-columnist/2011/10/19/dont-be-an-english-lord/.

And THANKS!
Regards,
Trond Hildahl

Marketocracy results

Well, I am a big fan of full disclosure, but this is a hard post to write. The Marketocracy website allows anyone to participate in managing a mutual fund - fake of course. Nevertheless, you are bound by some rules; you can't bet it all on one stock, as no one stock can be more than a certain percent of the total. You can't be on margin, and you must be at least 65% invested. If you want to be a sector based fund, then a certain percentage of the holdings must be in that sector. They do all the calculations across months, quarters, and years to figure your returns and most importantly, compare those returns against the other marketocracy funds.

The best of the best are called the M100 - the 100 best performers, long term; culled from the 85,000+ managers and the 100,000+ funds being managed. Those 100 actually make a little money, too - the company uses the best managers' ideas to run an actual mutual fund and those managers are compensated. It is no secret that I firmly intend to be one of those manangers one day.

And that is why I am writing so sheepishly today. They update the quarterly returns quite late - Q2 was just posted about a month ago. And in my Heartstone Health fund (http://www.marketocracy.com/cgi-bin/WebObjects/Portfolio.woa/ps/FundPublicPage/source=CmOhHbFfEfOmLoNbMaKiAbDf), I was the 7th best fund (yes, 7th, not top 7%!!!) for the three month period. For the 3 year returns, for as long as I've HAD the fund for more than 3 years, I've been in the top 89%, and this quarter I came in at #67 overall.

I was ecstatic, of course, but now for the disclosure. Since they posted the results in September, I knew already that my 3rd quarter results were going to equal my second quarter results to the downside. Yes, I fear that I may well be the 7th WORST fund across the universe this coming quarter. Celsion dipped about 40%; VirnetX went from the $30s to about $20; and Dendreon crashed from the $30s to about $10! To be frank, I am not sure if any holding had a positive return in this quarter.

Since I am a sector fund (biotech/healthcare) my beta is quite a bit higher than the S&P 500. Beta is a measure of how volatile I am versus the market-as-a-whole. It is the long term that matters, of course, and I'm fully confident that I will come back and with a vengeance. Bring on the fourth quarter!

Regards,
Trond

Celsion info re: Mangrove

Hello all,

It has been quite awhile since I have updated the blog. I've been a busy beaver on multiple fronts, but I still have great expectation for Celsion. Below, please follow the link to a great interview with Nate August, whose Mangrove Partners, LLP recently took an 8% stake in Celsion, expecting a great result at the interim look of the HEAT trial.

http://celsion.blogspot.com/2011/10/exclusive-interview-with-mangrove.html

Regards,
Trond