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By Jason Stipp | 02-10-2012 01:00 PM

Real Cure or Placebo Effect?

Morningstar markets editor Jeremy Glaser sizes up the curative powers of mortgage settlements, more European austerity, emerging-markets exposure, and corporate breakups.

Jason Stipp: I'm Jason Stipp for Morningstar, and welcome to the Friday Five.

Although January was a stellar month for stocks, most investors would fail to give the market a completely clean bill of health.

Here with me with five potential cures for what still ails us is Morningstar markets editor Jeremy Glaser. He is going to offer his insights and his prognosis for whether those cures will work.

Jeremy, thanks for joining me.

Jeremy Glaser: You're quite welcome, Jason.

Stipp: What do you have for the Friday Five this week?

Glaser: We're going to talk about the mortgage settlement, about Greek austerity, about emerging markets, Sprint, and finally Pepsi.

Stipp: So I'd like to think that the mortgage disease is well behind us, but we all know that's not the case. We see the housing market still struggling, but there was news about a potential settlement this week. What does that mean?

Glaser: You're absolutely right that we are not out of the woods yet. Even recently in the last couple of quarters we've seen banks continue to take charges against their mortgage portfolios, continue to take charges against potential settlements they're going to have to pay to get out of all of this mortgage mess. But that doesn't even get into the rest of the malaise that's still over the rest of the housing industry in terms of sales levels, in terms of inventory that's on the market, in terms of people not really feeling any kind of pressure to actually buy now because people don't think prices are going to go up any time soon and could in fact fall even more.

This week we found out about a mortgage settlement, somewhere around $25 billion, $26 billion between five of the largest market servicers, including Citigroup, JPMorgan, Wells Fargo, Bank of America and Ally Financial with both state attorney generals and the Federal government to settle some of the robo-signing claims, which was the idea that people were being foreclosed on without the due process really being completely followed to the letter of the law. Sometimes the banks didn't know exactly who owned the different mortgages and were just foreclosing anyway instead of looking at ways to work out different payment plans, to work out other ways to keep those homeowners in their houses.

So, this settlement, I think, put some uncertainty behind the big banks. They don't have to worry about even more lawsuits about robo-signing. They will be able to put that behind them. They've really already taken the charges because they had a feeling that the settlement was forthcoming. So, I think in that sense it's good, but in the sense that it's going to cure all of these ails, I think it absolutely won't.

I think that we still have those underlying housing problems that I was talking about. The banks are still facing lawsuits from the origination side--the idea that they were giving loans to people who they knew wouldn't be able to repay it, or they were repackaging the loans in such a way that they knew would fail.

There is still a lot of uncertainty out there for the banks. I think we're going to be hearing a lot about the mortgage market for a long time. I think this is an important step, but it's certainly not the end of the road.

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