Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages "“ one in five "“ are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.
The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie. A few key points:
1) Republican leaders believe this is going to happen since GOPers and Democratic moderates in the Senate are unwilling to spend more taxpayer money on more stimulus. But such a housing plan would allow the White House to sidestep congressional objections and show voters it is doing something tangible about an economy that seems to be weakening.
2) Wall Street banks are alerting their clients privately to this possibility. Here is what some are cautiously saying publicly. This from Goldman Sachs:
GSE policies are one of a dwindling number of policy levers the administration has left to pull, so it is conceivable that changes could be made, though there is no sign that a policy change is imminent. The Treasury’s essentially unlimited ability to provide financial support to the GSEs creates an interesting situation over the next twelve months: the GSEs could potentially be used to provide additional support for the housing market and, to a lesser extent, the broader economy in 2H 2001.
And this from Mizuho Securities:
As policy makers ponder their next move the data suggests that they face not only a stalling recovery but a growing risk of deflation taking root in the economy. As a result, the Administration has turned back to industrial policies by approving the purchase of a sub-prime auto lender by GM as a means for pumping up domestic sales, especially since the latest auto sales data indicates that consumers are still responsive to incentives. This precedent increases the risk that the government will use its control of Fannie and Freddie to increase consumer cash flow and juice the economy again.
Moreover, Morgan Stanley is pushing a mortgage relief plan directly to Congress. On August 3, a top Morgan Stanley economist recommended to the Senate Budget Committee that Fannie and Freddie ease their lending standards to allow millions of Americans to refinance their mortgages.
3) Keep in mind the political and economic context. The nascent recovery is already running out of steam. Wall Street economists just downgraded the government’s second-quarter GDP estimate of 2.4 percent to around 1.7 percent. And as even Treasury Secretary Timothy Geithner is warning, the unemployment rate may well begin to rise back toward the politically toxic 10 percent level given such sluggish growth. Many in the White House thought the unemployment rate would be dropping sharply by this point in the recovery.
But that is not happening. What is happening is that the president’s approval ratings are continuing to erode, as are Democratic election polls. Democrats are in real danger of losing the House and almost losing the Senate. The mortgage Hail Mary would be a last-gasp effort to prevent this from happening and to save the Obama agenda. The political calculation is that the number of grateful Americans would be greater than those offended that they — and their children and their grandchildren — would be paying for someone else’s mortgage woes.
4) And don’t think the White House is worried about financial market reaction. If they thought it would pass Congress, they would be submitting a $200 billion Stimulus 2.0 (3.0?, 4.0?) right now.
August is supposed to be a slow month for Washington politics. But maybe not this one.
[...] James Pethokoukis hears rumors of an August surprise coming from the White House, one that will attempt to win backs the hearts and minds of voters dismayed at the failing economic policies of the Obama administration. With the government fully in control of Fannie Mae and Freddie Mac, Barack Obama may issue an order to forgive portions of underwater mortgages processed through the GSEs, where negative equity approaches $800 billion overall. Some financial houses have begun quietly preparing for the possibility: Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages "“ one in five "“ are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama's loan modification effort. HARP was just extended through June 30, 2011. [...]
I have an “underwater” car note. Can I get a government handout?
Let’s further reward irresponsible people who bought more than they could afford. Why not simply just write off all the debt in the country? Why not simply forgive everyone’s “underwater” everything?
Robbing Peter to pay Paul, yet again, to get Paul to kiss your backside.
[...] pledge to give away half their fortunes to charity | Technology | guardian.co.ukThe Usual FareAn August Surprise from Obama? | James PethokoukisEconomist’s View: Tax Cuts and the Stimulus PackageFehlende Bewerber: Tausende Lehrstellen [...]
If they want to buy votes than everybody should have 20% knocked off there loan balance.
[...] James Pethokoukis hears rumors of an August surprise coming from the White House, one that will attempt to win backs the hearts and minds of voters dismayed at the failing economic policies of the Obama administration. With the government fully in control of Fannie Mae and Freddie Mac, Barack Obama may issue an order to forgive portions of underwater mortgages processed through the GSEs, where negative equity approaches $800 billion overall. Some financial houses have begun quietly preparing for the possibility. [...]
[...] hot rumor comes from James Pethokoukis: essentially, the White House (which is becoming increasingly frantic about the way that their [...]
[...] and all to read the following view from James Pethokoukis which was sitting over at Reuters.com (HERE). WE’ve gone ahead and taken the liberty of creating the doc into a pdf and throwing it up at [...]
[...] James Pethokoukis reports on rumors of a massive gift to underwater mortgagees in specific markets (think: Las Vegas?) from the Obama [...]
[...] of the mortgage debt of millions of Americans who owe more than what their homes are worth. An August Surprise from Obama? | Analysis & Opinion | Become a CF Site Supporter Today and Make These Ads Go [...]
[...] has this one over at Hot Air, and I want to think through the consequences. Here’s the original rumor-mongering from James Pethokoukis: Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington [...]
[...] Pethokoukis is hearing the rumors of something which might put a number of you in the situation where you’re paying down your [...]
I have plenty of consumer debt but I haven’t been late on a single payment. I rent and pay taxes but I won’t benefit at all. Why not pay down my debt? This sure doesn’t earn my vote.
[...] [...]
I had predicted this or something like this .. in URL below ..
http://amareshgangal.blogspot.com/2010/0 6/14-stimulating-credibility.html
Thanks – Amaresh.
[...] leave a comment » The next irresponsible decision you subsidise could be your own. [...]
Solve the problem. The problem with housing is demand. Increase demand, and price increases will follow. Increase the tax deductibility of mortage payments for say the next 5 years. 2.5X for 2 years, 2X for 2 years, 1.5X for 1 year. Anyone with a house is now incentified to pay the mortage. Anyone underwater has more hope of clawing their way out. Anyone waiting to buy a home now has incentive to purchase now. Increase the demand, and price increases will follow.
This would be really, really strange. It could only apply to mortgages held by Freddie and Fannie. Anybody whose mortgage was held by a bank, a company like Annaly mortgage, or whose mortgage had been packaged and sold as an MBS would be out of luck. In that case, we would be treating two identical borrowers substantially differently.
Next, the question would arise as to where the funds to do this came from. All Federal funding has to be authorized by Congress, so did Congress allow for this when they extended the bailout to Freddie and Fannie? Did Congress now they were doing this?
If this were to happen, we would be treated to another Santelli rant.
[...] hot rumor comes from James Pethokoukis: essentially, the White House (which is becoming increasingly frantic about the way that their [...]
And how does this help the millions with no job, no prospects, and a destroyed credit record to throw a monkey wrench into all thier personal recovery efforts???????
[...] You can read the article for yourself here. Possibly related posts: (automatically generated)What will happen to Fannie and Freddie? So you think Obama’s a socialist?A Very Green Christmas for Fannie and FreddieFan and Fred and the Problem of NarrativeEnergy Efficiency Loans Lose the Backing of Fannie Mae and Freddie Mac Categories: Random Thoughts Comments (0) Trackbacks (0) Leave a comment Trackback [...]
[...] Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages "“ one in five "“ are underwater with negative equity of some $800 billion. REST VAN HET VERHAAL [...]
[...] Пошел слух, что Обама намерен заставить банки частично простить американцам долги по закладным – тем, где стоимость дома в результате падения цен стала меньше суммы mortgage. [...]
[...] may forgive portion of underwater mortgages… An August Surprise from Obama? James Pethokoukis Aug 5, 2010 00:26 EDT [...]
Why don’t they do a cramdown, yet reserve the right to share in any equity accumulation for 5,7, or 10 years thereby recouping the money? Owner Occupied homes only, and if there is any mortgage fraud proven when someone acquired that loan, well, it looks like those people will have just to move into a jail… This would keep people in their homes by giving them a more affordable payment, yet not “reward” them when they sell if and when a reinflation of home values return. This added bookkeeping should be simple enough to administer.
[...] From Underground: Markets awash with a rumor about an Obama August surprise By Yra There is a Reuters blog making the rounds that the Obama administration is planning a surprise for the 15 million [...]
What us folks who need jobs, but don’t own houses? What about using some of that $7B funding to Pakistan two weeks ago for stimulating US business with some incentives to hire? How about that?
I put 20% down on my apartment, so my loan is not underwater (yet). So if I lived in other parts of the country where they accepted 5% down I would have qualified for a government bailout. Great!! ~
These unqualified people who got these mortgages get the bailout. In 3 more months they will still be foreclosing anyway. How about giving the hardworking people who contribute tax dollars to the economy a break for a change???????
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