Obama Times Mortgage Forgiveness Perfectly…
Get ready for the snake-oil salesman to go all in as he prepares to make the voters swoon, cry, and wave their arms in the air yet again.
On the heels of another $1.5 Billion requested bailout from Fannie, (who has suffered 12 straight months of losses), we have the Obama political machine maneuvering to ‘buy’ votes in the upcoming midterms by offering mortgage forgiveness to Americans. How does that money-changing-hands-thang work again? Why don’t we just keep our money in the first place? I’m sorry, I forgot; I’m just some brain-dead, fluoridated, prescription-drugged and debt-strapped moo whose only reason for an IRS and Social Security tracked existence is to be out working to produce a revenue stream for the aristocrats and the rest of the world.
Then again, did I or DID I NOT say in Fall 2007 that somebody was going to have to put a freakin’ floor under the housing market to stop the slide, and how does this affect the coming rounds of mortgage resets coming down the line in the next three years?
An August Surprise from Obama?
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.
A few questions though.
- Who will be making up the difference of the forgiveness loans?
- Who will still be able to pay their mortgages without jobs, or with a dollar whose value is almost non-existent?
- Who will still be able to pay their mortgages when their taxes increase in a few short months?
- Who will still be able to pay their mortgages when hyper-inflation hits and food becomes more important than a roof over their childrens’ heads?
- If this was such a viable option, why did Washington wait so long to do this?
Another short term heroin hit to make the Usurper Freeloader look like The Messiah and attempt to save his precious majority from the guillotine.
The chess game continues…
(UPDATE: I want to congratulate Left Coast Rebel and their crew of amazing bloggers for being picked up by The Daily Caller as they cover a number of these issues including Sam Foster’s GM and Chrysler bleed jobs while Obama claims victory. Make sure to put LCR on your daily flyby of blogs of note.)