Foreclosure pact promises more trouble

• Reprints

Updated: February 11, 2012 8:10PM

The foreclosure settlement involving Illinois and 48 other states is much ado about $25 billion, but for homeowners still in a heap of financial trouble, it signifies little besides more pain.

The banks involved will like it, and their investors should draw comfort as well. By settling, the five large banks have indemnified themselves against civil lawsuits over robo-signing and faked paperwork. Criminal charges are possible, but hardly likely. The banks get financial certainty as opposed to the prospect of endless litigation. That should help the shares of four banks involved — JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC). The fifth one in the deal, Ally Financial, is not publicly traded. The deal does not cover loans backed by Fannie Mae or Freddie Mac, a major limitation.

Some homeowners will get reductions in mortgage principals. A few who lost homes will get direct payments, perhaps $2,000 each, which might not even pay the moving expenses. But the larger impact will be on the housing market itself.

Expect banks to turn up the flow of foreclosures. They’ve held them back because of the robo-signing scandal, causing national foreclosures to fall about 46 percent from October 2010 to last December, according to RealtyTrac.

A sharp increase in foreclosures will snuff out any recovery in most U.S. cities. Before the foreclosure settlement was announced, the realty data provider Zillow estimated housing prices in the Chicago area will fall an average 7.6 percent this year, on top of a 36 percent decline since the 2006 peak.

In 2011, Chicago area prices fell 10.9 percent, the second largest decline of 25 major cities in the U.S., by Zillow’s reckoning.

Stan Humphries, chief economist at Zillow, said its forecast took into account the likelihood for a foreclosure settlement. He said that while the pace of liquidations will rise, he doesn’t expect lenders to flood the market.

Some will say the attorneys general who settled this case sold out too cheaply. More to the point, the settlement took too long. It does more for narrow political interests than for aggrieved homeowners. And the dispute put off housing’s great reckoning. The market needs a purgative. Without more foreclosures or targeted mortgage relief, prices cannot stabilize.

UNSUNG TECHIE: Forget Facebook or Groupon (GRPN). If you’re in the market for a techie stock, analysts at William Blair & Co. suggest NetSuite (N), a provider of “cloud” software for business. It’s becoming a leader in on-demand accounting services and saw fourth-quarter billings rise 36 percent.

Blair said the company’s customer count is growing quickly and that N is getting higher prices for its services. It also reports a plan to add 500 employees to its headcount of about 1,200.

NetSuite shares are up about 80 percent since last fall and closed Friday at $45.40. But the company could be a target of a takeover by Oracle (ORCL).

HIGH-FREQUENCY FOLLIES: Some useful market information has arrived via the Associated Press. It reports that while 4 billion shares change hands during a typical day on the New York Stock Exchange, one in 10 of those are for Bank of America (BAC).

It has little to do with fundamentals. Instead, the cheap single-digit share price of the stock and a vast supply on the market make it suited for high-frequency computer trading that seeks to exploit minute changes in price.

BAC’s “float,” the number of shares available for trading, is 10.5 billion shares, vs. 3.8 billion for JPMorgan Chase (JPM) and 2.9 billion for Citigroup (C), AP said. BAC closed Friday at $8.07, and the low price makes the stock easy pickings for algorithms.

LOOK OUT BELOW: Financial newsletter editor Mark Hulbert, writing at MarketWatch.com, said corporate insiders are selling shares at the greatest rate since late July. Back then, insiders sold shares ahead of a 2,000-point drop in the Dow Jones industrial average.

Citing data from Argus Research’s Vickers Weekly Insider Report, Hulbert said that in February, the insider sell-to-buy ratio was 5.77-to-1. In late November, it was 0.81-to-1. Hulbert said, “Vickers is so alarmed by recent insider trends that this week it is selling big chunks of its two model portfolios and putting the proceeds into cash.”

EARTH TO BEN: Reuters reports that Federal Reserve Chairman Ben Bernanke cites overly tight credit by banks as holding back the housing recovery. He should pay a call on the Federal Deposit Insurance Corp., which has been striking fear into the hearts of smaller lenders by demanding that they raise capital above all else.

CLOSING QUOTE: “What has particularly bothered me is the humiliation of the country. Clearly, Greece can’t and shouldn’t do without the European Union but it could do without the German boot.” — Greek politician George Karatzaferis, as quoted by Bloomberg News