Fannie / Freddie Mortgage Principal Reduction Rumor...

mshan

Diamond Member
Nov 16, 2004
7,868
0
71
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.http://blogs.reuters.com/james-pethokoukis/2010/08/05/an-august-surprise-from-obama/

They are just about to talk about it on CNBC Fast Money.

Video clip presumably will be available a few hours after live broadcast at CNBC website.
 
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edro

Lifer
Apr 5, 2002
24,328
68
91
for the people who pay our mortgages on time, we get nothing. lol
Do you have negative equity? If so, you could win.

Quick! Everyone overpay for houses! Offer $500k for a $100k house!
You'll get free money!
 

gar3555

Diamond Member
Jan 8, 2005
3,510
0
0
for the people who pay our mortgages on time, we get nothing. lol

I know right...house is still worth what I paid for it, and I've never missed a payment. Also, I bought right before Home buyers credit was started. I missed all the goodies.
 

mshan

Diamond Member
Nov 16, 2004
7,868
0
71
$200 - $300 billion economic stimulus plan version 2.0?

From what I've read, principal reduction always made the most sense, but banking lobby in Washington resisted, so you ended up with water downed mortgage modification plans that were doomed to fail from the point they were conceived...

Hopefully, because Obama administration is on the ropes for November elections, they actually do something that has real teeth and can actually have a positive effect and reduce suffering of poor souls in Florida and elsewhere who bought homes as a place to live during housing bubble and overpaid because they believe hype that, this time it is different, and housing prices always increase. I would guess that short term flippers are long gone from the market.
 
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spidey07

No Lifer
Aug 4, 2000
65,469
5
76
$200 - $300 billion economic stimulus plan version 2.0?

From what I've read, principal reduction always made the most sense, but banking lobby in Washington resisted, so you ended up with water downed mortgage modification plans that were doomed to fail from the point they were conceived...

A principle reduction will mean home prices will plummet even more than they have in the last 3 months.

Good job!
 

Patranus

Diamond Member
Apr 15, 2007
9,280
0
0
751animated-obama-money.gif
 

MiniDoom

Diamond Member
Jan 5, 2004
5,307
0
71
Do you have negative equity? If so, you could win.

Quick! Everyone overpay for houses! Offer $500k for a $100k house!
You'll get free money!

nope. paid enough down not to get that problem.
 

MiniDoom

Diamond Member
Jan 5, 2004
5,307
0
71
I know right...house is still worth what I paid for it, and I've never missed a payment. Also, I bought right before Home buyers credit was started. I missed all the goodies.

second home here so i got double fucked with no reach around.
 

mshan

Diamond Member
Nov 16, 2004
7,868
0
71
Nightly Business Report said Fannie and Freddie have taken $147 billion in federal aid so far.

As unpalatable as it may be, I wonder if $200 - $300 billion principal reduction program might reduce ultimate cost to taxpayers of bailout of Fannie and Freddie (I don't know what answer is, I am just speculating here).

I also wonder what actual cost to taxpayers of 0 - 0.25 percent Federal Funds rate to big banks and Wall Street might be.
 
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mizzou

Diamond Member
Jan 2, 2008
9,734
54
91
can I have a super special credit rating for not being a leech on society now?
 

Pheran

Diamond Member
Apr 26, 2001
5,849
48
91
Grrr, if true, this is going to piss me off. Nothing like getting a government handout because you were (possibly) a dumbass and bought more house than you could afford. In the meantime I pay my reasonable mortgage responsibly and on time.
 

Ronstang

Lifer
Jul 8, 2000
12,493
18
81
At some point the government is going to drive the average responsible person to simply stop paying taxes.
 

Patranus

Diamond Member
Apr 15, 2007
9,280
0
0
Nightly Business Report said Fannie and Freddie have taken $147 billion in federal aid so far.

As unpalatable as it may be, I wonder if $200 - $300 billion principal reduction program might reduce ultimate cost to taxpayers of bailout of Fannie and Freddie (I don't know what answer is, I am just speculating here).

I also wonder what actual cost to taxpayers of 0 - 0.25 percent Federal Funds rate to big banks and Wall Street might be.

The bigger issue is that the taxpayer should have never been put on the hook in the first place.