Hat tip to Joe Schmoe and Gary – from Reuters:
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.
Read the remainder here, plus comments:
http://blogs.reuters.com/james-pethokoukis/2010/08/05/an-august-surprise-from-obama/
Free money out of a helicopter is not new, and at best it’ll be a fraction be a fraction of TARP or Iraq since they’re not waiving all of it. Although I hate the idea of me paying for someone else’s mistake, at least it’s not leaving the country like all the ideas we had before.
I have an alternative idea. How about we do absolutely nothing, and give them a choice to pay for their house like they originally promised or foreclose and hand it over to a hard working American who can? It’s not like anybody didn’t know how much their home cost.
For what it’s worth Calculated Risk ran a post on this earlier today, this is from a political blog post and not gonna happen.
Dang it, I didn’t check CR before posting – he always scoops me. Ignore please.
Not surprised, sometimes it seems like we’ve gone from yelling fire in a theater to blogging on the internet. We’re lucky to have Jim holding the fort here.
Its also referenced in the Mother Jones article I pointed to. I’m in DC. Let me give three words to describe this idea/bill: Dead. Dead. Dead.
The CR post has some good data, including the stuff about the number of homes that are 50% or more underwater. That’s really a staggering number. I’m not sure what the solution is there. 5-10-20 percent, there’s probably some combination of seller cash in, write-off/short sale, or foreclosure that can be worked out. But 50 percent? That’s decades – maybe even a century- of recovery.
Here is CR’s post:
http://www.calculatedriskblog.com/2010/08/nonsense-rumor-on-fannie-and-freddie.html
“… Ignore please.” -JtR
You just proved you’re human, Jim!I’m happy you updated this ‘cuz I was just about to hyperventilate.
“We’re lucky to have Jim holding the fort here.” -sdbri
You can say that again…
Oh HELL no. I was responsible and have been saving and saving for 10 years to buy a home in San Diego. I am not subsidizing irresponsible people who drove up home prices above what local salaries support.
I hope Obama got China’s buy-in on this, they own most of this crap.
Let me clarify, as long as these write down, say $100,000 – $200,000 losses set new comps and are public record for the neighborhood, THEN I could live with it.
But no way taxpayers should absorb those losses and the responsible people see no discounts in comps, these new values should be available to the apprasiers.
This certainly smacks of “rumor to get people infuriated at those fools in the gubberment.” A lot of people have day jobs circulating false rumors to provoke a reaction that will ultimately benefit themselves. We’ll see after the announcement.
1/3 own outright
1/3 rent
1/3 have mortgages
Of the 1/3 with mortgages maybe 30% at most are underwater.
Count the votes.
“Of the 1/3 with mortgages maybe 30% at most are underwater. Count the votes.”
And the majority of those mortgages are in four states – FL, NV, AZ, CA – that’s only 8 senators total out of 100 w/ only 4 up for re-election. Not going to matter.
Plus it runs the risk of alienating the rest of the country where the remaining 92 senators reside [32 of which are either up or open seats].
It makes no sense economically and even less sense politically.
If you’re assuming this is entirely political in nature, then let me suggest the votes that matter aren’t in the Senate, but in the Electoral College.
As I noted above, this isn’t happening. And, I’m not sure its a good idea. But, the fact remains that the underwater mortgages create a problem, a market distortion if you will. Discussing creative options to the problem is a good idea. I’m not sure what the solution should be, and maybe it is simply to let the market continue with its dysfunction and wait for it to return to normal. But, a discussion of alternatives, at least until the unemployment rate recovers, is a good thing to do.
Meh. Obama doesn’t need any help come re-election time for himself in 2012. Incumbency is a very powerful force, especially on the presidential level, plus the Republican field of potential candidates is quite weak (Palin, Gingrich, Huckabee, Romney, Jindal, etc.). Worst case scenerio for Obama is he squeaks by in a mirror image of the 2004 election. Best case scenerio is a repeat of 2008, or maybe even better (I can see Arizona in play this time, for instance).
Now, the Democrats in Congress desperately need some sort of help for this year’s midterms, although I agree this sort of proposal wouldn’t be it.
@Geotpf, while I agree the GOP candidates are almost parodies of themselves, the Electoral College does has historically given the GOP a nice advantage. They have had historicly strong blocs in the deep south and the large, unpopulated square states, which is only partially countered by CA, IL and the Northeast. So, it isn’t necessarily going to be the slam dunk you think it is.
And, just so we’re clear, the legislative session is essentially over. Nothing new is going to happen (there’s a few things that are in the pipeline now that should pass). They’re gone for three weeks, back in Sept. and then its election time.
Former RB Resident-Yep, and as the Democratic Senate majority will drop from 59ish to 55ish (including indies caucusing with the Dems, which might get to 3 after Nov if Crist wins), and the Republicans perfectly willing to filibuster everything, expect no new Federal laws of substance (except bipartisan bills, which are becoming quite rare) until one party or the other gets over sixty in the Senate or darn close (58, 59). This could mean decades the of status quo.
Geotpf, you misunderstood me: I meant that as an even year, the cycle is over. Whereas in odd years, there can be debate and progress in October, November and December (assuming of course, a minority interested in something other than naked obstructionism), in even years the month or so they spend here after they get back from summer recess is worthless. The ones with tough reelection fights don’t even come back.