This post first appeared on Minyanville.

The mortgage bailout parade marches on.

Just days after rival Bank of America (BAC) announced plans to modify hundreds of thousands of mortgages, JPMorgan (JPM) released details of a homeowner rescue plan of its own on Friday afternoon.

Following its takeover of both Bear Stearns and Washington Mutual, JPMorgan’s inventory of distressed mortgages has risen dramatically in the last 8 months. The bank’s modification efforts, which mirror Bank of America’s plan, are focused largely on subprime loans and option ARMs. The acquisition of WaMu saddled CEO Jamie Dimon’s firms with billions of these loans - $16 and $54 billion, respectively, according to the Wall Street Journal.

JPMorgan plans to identify borrowers with both the willingness and ability to pay, lower interest rates and, in some cases, forgive loan principal. For Option ARMs, borrowers may have the opportunity to replace their negatively amortizing mortgage with a safer, fixed rate 30-year loan.

Look out for more of these plans coming from the remaining big American banks, particularly Wells Fargo (WFC): Its recent acquisition of Wachovia (WB) included the Charlotte-based bank’s massive option ARM portfolio.

The plan is certainly a step in the right direction. It’s nice to see that some of the recent $25 billion injection from the government will be funneled toward the taxpayers that ponied up the money in the first place.

Both JPMorgan and Bank of America’s new programs, are, however, evidence of the government’s – and banks’ — inclination to deal with problems that already exist, rather than ones that are on the horizon.

This post first appeared on Minyanville.

That glitzy McMansion you’ve always wanted may finally be within reach.

Or not.

If nearly 3 years of home price declines, historically low interest rates and a relentless media barrage of half-truths from the National Association of Realtors haven’t been able to stabilize home prices, it’s doubtful a gimmicky used-car-style sales event will do the trick.

Coldwell Banker, one of the nation’s largest real-estate brokerages, launched a nationwide campaign last Friday to boost the flagging housing market. The 10-day sales event aims to close the gap between buyers and sellers by offering up to a 10% discount on listed homes for, you guessed it, 10 days.

This selling bonanza was hatched in response to a recent survey of over 3000 of the firm’s real estate agents, which found that a majority feel listing prices are too high to attract buyers. The survey also showed almost 80% of the agents believe more appropriately priced homes are garnering more attention; apparently, you need a license to know people like to pay less for a house, not more.

Coldwell Banker’s president and CEO, Jim Gillespie, is confident the housing market may finally be nearing a bottom. He told our friends at Marketwatch: “Despite the difficult headlines regarding our overall economy, the residential real estate market has been showing several positive signs over recent months that could be signaling a tipping point.”

It’s unclear whether continuing price declines, historically high levels of inventory, tightening lending requirements or frozen credit markets are the “positive signs” he’s referring to.

Gillespie also believes the unprecedented sales event will encourage buyers to jump back into the market: “Because of higher inventory, buyers have more homes to choose from and they can take advantage of near historically low interest rates and affordability levels that are the best they have been in years.”

Yes, affordability levels are the best they have been in years: Much better than when the only way to get into a house was to lie about your income and take out an Option ARM with a 1% teaser rate.

About this time last year, homebuilder Hovnanian (HOV) tried a nationwide fire sale to flush out its bloated inventory. More recently, Lennar (LEN), Centex (CTX), and DR Horton (DHI) tried a similar approach with both land and homes – to no avail. The fundamental forces pushing housing prices down will persist, regardless of futile ploys aimed at tricking buyers into paying more than they should for homes.

To be clear: Being negative on the housing market isn’t exactly a contrarian position. Therefore, anyone claiming it’s a great time to buy – like Coldwell Banker and tens of thousands of real estate professionals around the country — clearly have their own reasons for doing so.

Real estate agents get paid to close transactions; whether their client receives (or pays) a fair price is a non-issue.

Commission expenses are borne by sellers, typically to the tune of 6% of the sale price. In California, where the median home price is still over $350,000, that’s $20,000 out of the pocket of someone who’s already seen his home’s value evaporate before his eyes.

The selling agent usually splits the commission with the buyer’s agent, a pay structure that gives both sides an incentive to not only focus exclusively on closing deals, but also to sell homes for as much as possible.

Coldwell Banker correctly asserts that many sellers have unrealistic expectations about their homes’ final selling price, and as a result keep asking for prices too high for too long. Their cute little sales event, however, is aimed more at earning commissions for their struggling agents than advancing true price discovery in the troubled housing market. If the firm truly had the best interests of homeowners in mind, agents would volunteer to take a pay cut to ease their troubled clients’ burden.

Gillespie, Coldwell’s CEO, claims the event will “help move the US real estate market in the right direction.” He’s right – home prices must continue to fall. Simple economics, the interplay between supply and demand, is driving most markets, as tens of homes sit on the market for every one qualified buyer. Until this overhead supply is worked through, prices will remain under pressure.

In some of the most depressed areas – Las Vegas, the California Central Valley, Florida and Phoenix – homes have reached or surpassed traditional levels of affordability. Unfortunately, there’s more to buying a home than just being able to make the monthly payments. With down payment requirements returning to pre-bubble levels, low interest rates are almost a moot point.

There just isn’t any economic rationale for buying if home values keep sliding.

Even if a borrower can afford the monthly payments, home price declines wipe out the tax benefits of writing off mortgage payments and risk putting the new homeowner in the paralyzing position of owing more than his home is worth. Buying a home today is almost like buying a new car: You’re upside-down as soon as you’re handed the keys.

Until there’s real, verifiable evidence that home prices have stabilized, buying a home remains a dangerous financial proposition. This is true in every market, not just the ones that make the headlines for mind-boggling foreclosure rates.

Renting is still the far more fiscally responsible option. Staring into the teeth of a recession, families should be making choices in the best interest of their financial security, not for bragging rights at cocktail parties.

This post first appeared on Minyanville.

When Bank of America (BAC) agreed to buy Countrywide, it didn’t just take on a mountain of questionably valued mortgage-related assets. It also took on huge legal liability.

San Diego City Attorney Mike Aguirre, who has a penchant for punitive lawsuits that rarely result in much more than a media frenzy, is accusing Countrywide of defrauding thousands of San Diego homeowners. A lawsuit has already been brought at the state level by California Attorney General Jerry Brown, as well as in several other states, including Washington and Illinois.

San Diego’s suit takes aim at Countrywide’s alleged practice of coercing borrowers into risky adjustable rate mortgages (ARMs). Aguirre hopes to make San Diego a “foreclosure sanctuary” by preventing foreclosure proceedings on any property secured by a subprime ARM where the borrower owes more than the home is worth. (For more on what the glut of upside-down homeowners means for the future of the housing market, please read Finding the Bottom in Housing.)

The litigious City Attorney isn’t satisfied with just taking aim at Countrywide (and, by extension, Bank of America). Aguirre said he’s planning similar suits against Washington Mutual (WM), Wells Fargo (WFC) and Wachovia (WB).

While Aguirre’s heart may be in the right place, foreclosure moratoriums aren’t part of the road to recovery for the housing market. Opportunistic mortgage market participants are buying delinquent mortgages on the cheap, forgiving some part of the debt and giving borrowers a fresh start. Government intervention in this process will simply scare off lenders, since they’ll have limited recourse if the loan goes sour.

At best, such suits will simply drive up the cost of new mortgages. At worst, they’ll bring the recovery process to a standstill.

Foreclosures are nasty, painful and tragic. They are, however, a necessary part of the mortgage process, enabling lenders to recoup losses on bad loans.

Mandating an end to foreclosures is like telling the IRS it can’t go after tax evaders or preventing cops from chasing down burglars. This is not to say victims of foreclosures are criminals or necessarily deserve to be thrown out on the street, but living in a law-abiding society means that contracts must be enforced.

The moment we waive one group’s obligation to honor their collective word, the floodgates are open.

This certainly isn’t the last lawsuit we’ll see following the collapse of the mortgage market. In fact, it’s just the tip of the iceberg. A couple years from now, when Option ARMs begin to reset, class action lawsuits will bear down on lenders like a rumbling avalanche rolling down a steep slope.

Banks would be wise to get long some lawyers.