The Government’s Mortgage Modification Program May Hurt The Bottom Line Of The Banks In The Financial ETF

“Citigroup (NYSE: C) announced on Thursday that it would join the government’s program to modify second mortgages, following Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), JP Morgan Chase & Co (NYSE: JPM) and others, as the housing market appears to be at the beginning of a second downturn,” American Banking News Reports.

They go on to say, “The Obama administration’s second mortgage modification program hopes to modify $75 billion worth of loans aiming at reducing monthly mortgage payments of distressed homeowners to help customers stay in their homes and avoid foreclosures.”

“Many believe that the housing market is at the beginning of a second down turn as home sales numbers are beginning to fall and as foreclosure rates are rising. The Federal Reserve is also planning on ending its support of the real estate market next week by terminating a program that has helped keep mortgage interest rates down. Some believe mortgage rates could rise by as much as 1% during the next several months. The administration’s plan is to hope to eliminate the hurdle of second mortgages for some cash-strapped borrowers by offering lender incentives to lower payments or to eliminate the loans entirely,” American Banking News Reports.

A modification program like the administration has planned may put serious pressure on financial ETFs.  It will be just a matter of time when all institutions take part in the effort.  The program may accelerate losses in the banking sector creating problems for the banks bottom line. Investors should proceed with caution in banks including the popular Financial Select Sector SPDR ETF (XLF) which has enjoyed double digit gains since the March lows.

Here are some details we highlighted on the Financial Select Sector SPDR ETF (XLF) including the holdings within the ETF below:

The Financial Select Sector SPDR® Fund (XLF), before expenses, seeks to closely match the returns and characteristics of the Financial Select Sector Index (ticker: IXM). Our approach is designed to provide portfolios with low portfolio turnover, accurate tracking, and lower costs.

Fund Name: Financial Select Sector SPDR Fund
Ticker Symbol: XLF      
Holdings: As Of 03/26/2010    
Name Weight Ticker Sector Shares Held
Bank Of America Corporation 10.26 (BAC) Financials 41974690
Jpmorgan Chase & Co 10.22 (JPM) Financials 16620062
Wells Fargo & Co New 9.24 (WFC) Financials 21674432
Berkshire Hathaway Inc Del 7.69 (BRK.B) Financials 6925539
Goldman Sachs Group Inc 5.2 (GS) Financials 2201397
Citigroup Inc 4.84 (C) Financials 82216880
Us Bancorp Del 2.85 (USB) Financials 8007122
American Express Co 2.81 (AXP) Financials 5007862
Morgan Stanley 2.3 (MS) Financials 5847245
Bank Of New York Mellon Cor 2.13 (BK) Financials 5056072
Metlife Inc 1.98 (MET) Financials 3428167
Pnc Finl Svcs Group Inc 1.76 (PNC) Financials 2163852
Travelers Companies Inc 1.6 (TRV) Financials 2152471
Prudential Finl Inc 1.57 (PRU) Financials 1945945
Aflac Inc 1.43 (AFL) Financials 1963369
Simon Ppty Group Inc New 1.41 (SPG) Financials 1213307
State Str Corp 1.31 (STT) Financials 2073402
Bb&T Corp 1.27 (BBT) Financials 2890164
Cme Group Inc 1.2 (CME) Financials 278688
Capital One Finl Corp 1.09 (COF) Financials 1897853
Schwab Charles Corp New 1.05 (SCHW) Financials 4088650
Allstate Corp 0.99 (ALL) Financials 2245328
Chubb Corp 0.98 (CB) Financials 1376178
Franklin Res Inc 0.94 (BEN) Financials 621066
Price T Rowe Group Inc 0.82 (TROW) Financials 1083365
Northern Tr Corp 0.76 (NTRS) Financials 1011618
Suntrust Bks Inc 0.76 (STI) Financials 2089570
Loews Corp 0.76 (L) Financials 1485379
Marsh & Mclennan Cos Inc 0.75 (MMC) Financials 2227016
Progressive Corp Ohio 0.74 (PGR) Financials 2810538
Public Storage 0.71 (PSA) Financials 567654
Vornado Rlty Tr 0.69 (VNO) Financials 659624
Aon Corp 0.65 (AON) Financials 1117444
Ameriprise Finl Inc 0.64 (AMP) Financials 1069261
Equity Residential 0.63 (EQR) Financials 1179133
Hartford Finl Svcs Group In 0.61 (HIG) Financials 1607618
Boston Properties Inc 0.61 (BXP) Financials 581816
Fifth Third Bancorp 0.6 (FITB) Financials 3327508
Hcp Inc 0.56 (HCP) Financials 1229478
Host Hotels & Resorts Inc 0.54 (HST) Financials 2731360
Principal Finl Group Inc 0.53 (PFG) Financials 1336822
Regions Financial Corp New 0.52 (RF) Financials 4991093
Invesco Ltd 0.52 (IVZ) Financials 1794298
Lincoln Natl Corp Ind 0.51 (LNC) Financials 1264802
Genworth Finl Inc 0.49 (GNW) Financials 2046928
Discover Finl Svcs 0.48 (DFS) Financials 2275152
Unum Group 0.47 (UNM) Financials 1390987
Intercontinentalexchange In 0.47 (ICE) Financials 308264
Nyse Euronext 0.43 (NYX) Financials 1092003
Ventas Inc 0.43 (VTR) Financials 655942
Avalonbay Cmntys Inc 0.41 (AVB) Financials 341012
Keycorp New 0.39 (KEY) Financials 3675122
M & T Bk Corp 0.38 (MTB) Financials 347657
Hudson City Bancorp 0.38 (HCBK) Financials 1983127
Prologis 0.38 (PLD) Financials 1984502
Comerica Inc 0.37 (CMA) Financials 728572
Kimco Realty Corp 0.37 (KIM) Financials 1694067
Xl Cap Ltd 0.37 (XL) Financials 1431906
Plum Creek Timber Co Inc 0.36 (PCL) Financials 681141
Slm Corp 0.34 (SLM) Financials 2002128
Moodys Corp 0.34 (MCO) Financials 822762
Peoples United Financial In 0.33 (PBCT) Financials 1554176
Health Care Reit Inc 0.33 (HCN) Financials 518932
Legg Mason Inc 0.27 (LM) Financials 680253
Leucadia Natl Corp 0.27 (LUK) Financials 794180
Cincinnati Finl Corp 0.27 (CINF) Financials 682104
American Intl Group Inc 0.26 (AIG) Financials 564837
State Str Instl Liquid Resvs 0.26 (85749P9A) Unassigned 18815524
Torchmark Corp 0.25 (TMK) Financials 346768
Marshall & Ilsley Corp New 0.24 (MI) Financials 2203892
Cb Richard Ellis Group Inc 0.23 (CBG) Financials 1131414
Assurant Inc 0.23 (AIZ) Financials 487435
Huntington Bancshares Inc 0.22 (HBAN) Financials 2998091
Zions Bancorporation 0.19 (ZION) Financials 628405
First Horizon Natl Corp 0.18 (FHN) Financials 942621
Nasdaq Omx Group Inc 0.18 (NDAQ) Financials 619531
Janus Cap Group Inc 0.15 (JNS) Financials 767549
E Trade Financial Corp 0.14 (ETFC) Financials 6535443
Federated Invs Inc Pa 0.13 (FII) Financials 371885
Apartment Invt & Mgmt Co 0.13 (AIV) Financials 490474
U.S. Dollar -0.21 (CASH_USD) Unassigned -1.5E+07

Chart for Financial Select Sector SPDR (XLF)

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