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Richard Suttmeier is the Chief Market Strategist at www.ValuEngine.com. ValuEngine is a fundamentally-based quant research firm in Newtown, PA. ValuEnginecovers over 7,000 stocks every day.

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December 23, 2010 – A Nat iona l Mor t gage Mod if ica t ion Program Is  

My Solu t ion  

Housing Remains Weak as Mortgage Rates Rise1. The Mortgage Bankers Association reported that its mortgage application index fell 18.6% last

week led by a decline of 24.6% for the refinance index. The sixth consecutive weekly drop hashappened as the 30-Year fixed rate mortgage rose to 4.85%.

2. Existing Home Sales increased 5.6% in November to an annual rate of 4.68 million units. Evenso, 2010 is shaping up to be the worst housing market since 1997.

3. Additional troubled homeowners have dropped out of the Obama foreclosure-relief program.About 774,000 homeowners have left the program as of last month, which is 54% of the 1.4million who applied for help.

4. Foreclosure filings may have fell 21% last month, but this decrease is expected to betemporary, as lenders revise and resubmit paperwork in 2011.

According to the Federal Housing Finance Agency (FHFA) US house prices fell 1.6% in the thirdquarter and are down 3.2% year over year.

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The FHFA also reported a modest 0.7% rise in house prices in October versus September.

A Nat iona l Mor t gage Mod i fica t ion Program Is My So lu t ion  

Every county in the country has a Property Appraiser responsible for determining home values for tax

purposes and local government funding. Most counties base a home's appraised value on recentsales in the community. Homes deemed to have changed hands at a too high or too low price are notincluded in the calculation. Once the homes are set for the calculation, an average-price-per square-foot is established. The value of every home in that neighborhood can then be calculated bymultiplying its square footage by the pre-determined average-price-per square-foot. This is typically sein late August to establish the property taxes for the following calendar year. The appraised valueversus the mortgage balance—if any—on the home determines the homeowner’s equity-- which canbe positive or negative. Homeowners with negative equity are said to be “underwater.”

With a fairly determined appraisal based on conditions at the local level, we can implement amortgage modification/re-financing plan. My proposed National Mortgage Modification Program is

designed to be applied to “traditional” mortgage structures--e.g. a one-year adjustable, a five-yearadjustable, a fifteen-year fixed and a thirty-year fixed. Rates under the plan are tied to US Treasuryrates as follows: 200 bps above the One-Year Bill, 150 bps above the 5-Year Note, 100 bps over the7-Year Note and 100 bps over the 10-Year Note respectively.

Underwater participants will have their mortgages divided into two components. One componentconsists of the amount of negative equity in the home. This tail is financed as a zero percentmortgage. To qualify for the program the underwater homeowner must put up 20% of the appraisedvalue--which I call the mortgage buffer. The remaining balance is financed at the rate stated above forone of the four “traditional” mortgage products.

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These mortgages must be kept on the books of the bank participating in this plan as an investment. Inaddition the bank collects a 50 basis point fee, and the balance of the spread above the US Treasury

goes to the FDIC’s Deposit Insurance Fund (DIF). The 20% mortgage buffer is placed in the escrowaccount of the homeowner. This buffer can come from the homeowner's IRA or 401 K without penaltyand without tax consequence.

Every year, program participants have their mortgages reviewed given the new property appraisal. Ifthe appraised value declines, the mortgage decreases again taking funds from the mortgage buffer. Ifthe appraised value goes up, the mortgage balance increases by that much--, which reduces the zeropercent mortgage tail.

This plan will stabilize the housing market and put money in the pockets of homeowners.

What happens if you sell your home? If you sell at the appraised value set at the beginning of theprogram, you get your 20% back. If you sell below appraised value, you get only that portion of the20% above the mortgage amount. If you sell below the mortgage amount, you split the loss with thebank. You do not participate in any other home price appreciation unless the sale price exceeds theoriginal total mortgage: the initial appraised value plus the zero mortgage tail. That windfall is sharedby the homeowner and the lending bank.

The National Mortgage Modification Program puts the borrower and lender in partnership in themortgage market, gives consumers more money in their pockets in an effort to spur consumption andthe economy, and gives community and regional banks a mortgage product line where profits aregenerated by earning the interest spread between rate paid on consumer deposits and the interestrate on the mortgages.

Tracking the US Capital Markets – US stocks are overvalued fundamentally and overboughttechnically on both daily and weekly charts. The major equity averages straddle weekly pivots andrisky levels at 11,496 Dow, 1250.3 SPX, 2670 NASDAQ, 5136 Dow Transports and 787.37 Russell2000. Fifteen of sixteen sectors are overvalued according to ValuEngine with only 37.5% of all stocksundervalued. At 35% the stock market tends to find a top. Only 17.5% of all stocks are undervalued by20% or more.

The Yield on the 10-Year Note (3.348) – This week’s pivot at 3.358 has been a magnet. Mysemiannual value level at 3.479 was violated at last week’s high yield of 3.568.

Comex Gold ($1387.4) – The 50-day simple moving average is $1371.8 with this week’s risky level a$1426.1.

Nymex Crude Oil ($90.48) – Has been influenced by my weekly pivot at $89.61. My semiannual valulevel is $83.94 with my annual risky level at $97.29.

The Euro (1.3100) – My weekly pivot is 1.3079 with quarterly pivot at 1.3318. The 200-day simplemoving average is 1.3091.

The Dow Industrial Average (11,559) – I will not have new monthly, quarterly, semiannual and annuavalue levels, pivots and risky levels until January 3, 2011, but this week’s pivot is 11,496 and today’srisky level is 11,586.

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That’s today’s Four in Four. Have a great day.

Richard Suttmeier

Chief Market StrategistValuEngine.com, (800) 381-5576

Send your comments and questions to Rsuttmeier@Gmail.com. For more information on our products and services visitwww.ValuEngine.com  

As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. I have daily, weekly, monthly, andquarterly newsletters available that track a variety of equity and other data parameters as well as my most up-to-date analysis of world markets. Mynewest products include a weekly ETF newsletter as well as the ValuTrader Model Portfolio newsletter. You can go HERE to review sample issues andfind out more about my research.

“I Hold No Positions in the Stocks I Cover.”