James Pethokoukis
Politics and policy from inside Washington
An August Surprise from Obama?
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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.
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And what about those who have worked the last 35 years and paid off their mortgage? Those who did not over extend their budget, stayed prepared for downturns in the economy and employment? I do not want to have to pay for those that have chosen not to.
Just someone try to buy the vote.
I believe a better paln would be not to forgive principle but rather allow a current homeowner of more than 3 years to rewrite the exiting mortgage at today’s interest rates. Most Americans do not want a handout, they would just like to refinance but cannot because of the drop in thier homes value. Even a goverment program of 30 year loans at 5.5 % would help most people.
So if you went and bought a house you could not afford in the first place the government will bail you out? What if the real estate prices come back up will those same people have to payback the bailout with interest? A report by the CBO and GOA showed the last bailout had an impact to 8% of the people who needed it. What about people who own cars that are not worth what they paid? And land? and stocks bought that fell in value? and other bad investments? Where do you stop? Or maybe this is another vote buying scheme from the administration.
Too much focus on folks that shouldn’t have bought a home, as well as unqualified under normal circumstances. The fact is, there were not near as many of those folks as there were the ones keeping up with Jones’. What everyone seems to be missing is the fact that what caused the worst of this problem is that income rose 2% while housing was 80%. Ask any economics guru and they will tell you that is not the norm, and the bubble happened for that reason alone! The toxic assets and people that shouldn’t have qualified were the weakest links in the chain, so naturally they were the first to go. If you think it’s over, wait until you see what happens in the next 12-18 months. Good points Rick.
So I worked my but off. I made a decent amount of money and paid a large amount of taxes. I worked nights, weekend, 30 days straigt and worked 70 and 80 hour weeks. I saved and saved until I had a substantial down payment and used to to buy a home 3 years ago. I put down 40%. So now the idiots that bought a home with no money or 5% down are shocked that the price of realestate fluctuates (suprise it is called an economy) and now owe more than it is worth. Let us reward their stupidity!!!!!! and the poor sap that worked to get ahead and did the prudent smart thing and didn’t buy a home before they could afford it. Screw them. Their money goes to pay for the idiots.
That is what is wrong here. Reward the idiots and punish the hard working smart individuals. It is the Democratic liberal way
But wait – what about Federal, State, and local income taxes on the buy-down? Is it income? Will the participants get hit with a massive tax bill when the property transfers? Can I opt-out?
I have an opposite problem. The HUD tightened lending rules on condos. I own a condo, I’ve had buyers willing to put down 20% and 30% and they can’t get a mortgage!
The new lending rules instituted by the HUD unfairly target condominium projects. The rules that disqualify me are due to 50% owner occupancy in my building and one owner owns a majority of our building.
My building is in great shape and financially sound, but I can’t sell????
This is mostly a transfer of taxpayer monies to people who don’t have the moxy to plan for making payments and the upkeep of property. They were unqualified before they received the first mortgage loan and as usual the government will make it worse by throwing more monies at the problem.
When will people realize that it isNOT a government bailout; it is using money from taxpayers to bailout people who have made bad choices. As we know now, a really bad choice would have been if McCain had been elected. We would be in the same position except seduced to it. With have BHO elected, we see the true beliefs of the administration, dem controlled congress and the left wing of the country, who believe it is just hunky-dory to run this country into the debt-ridden dirt. We pinch pennies while the administration, congress, dem controlled states spend like drunken dems.
Chairman Maobama prints our money which increases our countries debt to buy our votes to pay our mortgages to justify increasing our taxes (after the mid-term elections) to pay our/countries debt back.
THIS IS YOUR MONEY THAT MAOBAMA IS ATTEMPTING TO BRIBE YOUR VOTE WITH AND YOU WILL BE PAYING IT BACK AFTER YOU VOTE FOR HIM. WISE UP!!!!!!!
History should have proven by now that you need to count your fingers after any association with Chairman Maobama!
Chairman Maobama prints our money which increases our countries debt to buy our votes to pay our mortgages to justify increasing our taxes (after the mid-term elections) to pay our/countries debt back.
THIS IS YOUR MONEY THAT MAOBAMA IS ATTEMPTING TO BRIBE YOUR VOTE WITH AND YOU WILL BE PAYING YOURSELF BACK AFTER YOU VOTE FOR HIS MARXIST COMRADES. WISE UP!!!!!!!
History should have proven by now that you need to count your fingers after any association with Chairman Maobama!
These people have absolutely no shame! They are desperately trying to buy votes for their agenda of turning this country into a third world socialist state with Obumbler as dictator. if they think the tax payers will stand for this, they are very sadly mistaken!
Some of you commenting are so out of touch. I am a hardworking american who can afford my house, and since I bought my home in 2007 the value has dropped over $100K. This is due to a number of factors, including people who could not afford their homes walking away from their underwater mortgages. The hit I have taken on value make it impossible for me to refinance or sell my home. A program like this could keep me from becoming one of these people that choose to walk away from a negative equity situation which is far out of my control.
Genius: Debt forgiveness = Taxable Event
Genius: Debt forgiveness = Taxable Event
More 1099′s for ALL
When are we going to stop this theft and rape of our nation and its people?
This is just another banker gift/bailout disguised under another name to deceive people into believe it is for their benefit. The money will go direct to the bankers and taken from your pocket via inflation and higher taxes. The gross amount of the load will be reduced yes, but don’t expect any payments to be lowered. They may reduce the length of time to payoff but likely won’t reduce payments.
The housing bubble must be corrected and this will prevent that from happening. Housing prices MAY stabilized but how will that help you as they create inflation by printing money and raising your taxes? Additionally they continue the invasion of illegal’s to reduce the value of your job by exploiting the poor who are attempting to stream across the border to escape the poverty in their own nation. They are bringing the poverty with them and to your home my fellow citizens. What jobs cannot be devalued via illegal immigration is via work visa’s (importing low cost employees) and tax benefits for companies just pick up and leave entirely.
The American people are being robbed, deceived, and their future stolen from them. At the same time they a devaluing the labor you provide and are holding up prices to benefit bankers via ‘bailouts’ and other deceptive terms. If they pass this – refuse to accept and leave your home if you must and find another place but do not allow another massive theft from our nation’s people and from your future, nor believe the lie that is truly a government sponsored manipulation of the market to the benefit of the bankers and elite that are now attempting to enslave us.
Where is my bailout? Not fair. Everyone should get help on their mortgage.
A quick bit of math:
15,000,000 million mortgage
avg underwater guess $50,000
Thats $750,000,000,000 = 750 BILLION DOLLARS
I just refinanced and payed down my debt to get back above water – WHAT THE HELL WAS I THINKING !!!!
obama, rewarding bad behavior… again.
no wonder the country is in trouble. he’s busy buying votes while the ship of state sinks from the debt he created.
what aobut the people who work hard, buy houses they can afford and actually pay their bills???
REMEMBER IN NOVEMBER
Why not just give every voter in November a hundred bucks to pull the lever for Dumbocrats?
Gold is up today. Dollar is down and has been going down. Should this be done by obama, all bets are off. obama deciding winners and losers and passing the debt on to generations to come. There WILL BE a day of reckoning. IT WILL COME.
I believe that would result in taxable income to the mortgage holder that, if unemployed, may not have the means to pay. IRS will then require the homeowner to sell the property to pay the government!
Screw it! Why dont they just forgive all home loans. Why only reward some people for their bad decisions. Let’s be fair now.
Want to make a diffrence… cut all taxes including corporate taxes. Make the Bush tax cuts permament. Do away with Income Tax and go to a Flat Tax on everything except Food and Medical care. You will collect more taxes and those that are here illegally will pay their share in taxes. Roll back Obama-Care and fix the Mediocare System and fix mal-practice law suits. Hold the Insurance Industry Accountable.
Put America back to work and manufacturing goods that we can sell world wide. Do not keep putting more tax and regulation on this country. The People can not handle any more burden for misguided policies of our Government (Dems and Republicans).
to catmman: are you calling yourself irresponsible for buying more car than you can afford?
The housing market crashed in my area. It is not my fault they decided to close the local military base. Now my life savings is gone, my house is going through a “short sale” and my family is split because of jobs. The house has lost 100k in value and I bought 8 years ago, far from the peak of the market.
What about those of us who went through a bank? Are we screwed? So now I get to pay for Freddy Mac and Fannie Mae mortgage people. What the hell?
HES LYING AGAIN, HE WILL SAY WHATEVER TO GET HIS WAY THEN OOOOUUUCCCHHHHH!!!!!!!! HE WILL STAB YOU IN THE BACK AGAIN AND AGAIN
If free handouts should be given, it should go to students who finished school and now have to pay the loans back. They are paying the price on not finding a job after hard school work.
Nobody should get free handouts. Let there be a free market! Too much government intervention will always damage the free market and never help it. Did anyone in Congress take Economics 101. My God! I know Obama failed Intro to Economics. The guy can’t stop spending! JUST STOP GOD DAMN IT!!!
they should have done this in the first place. I prefer no bailouts but if they’re gonna do it they should give it to those that benefit most. It was the lenders that were spending money like drunken sailors. The economy is and will always be driven by main street which is why it should have been bailed out first.
LETS MAKE IT SIMPLE,EVEN FOR THE DUMMIES !
EVERYBODY GETS TO REDUCE THEIR HOUSE PAYMENT BY 25%
Hope the market remains stable!
“there will be no more tax-payer bailouts for big banks, period.
It is easy to see now why Fannie and Freddie were left out of Financial Reform.
This bail out is no surprise… it has been planned for some time now.
The loss in value is a paper loss. These speculating home buyers bought at the peak of the market and now we have to bail them out? How is this not the same as bailing out Wall Street speculators? A home is NOT and investment, quit pretending that it is. You wont recognize the loss until you sell the house. What in the hell does that do for the economy? It destroys it. Why? Because what happens when the pent up demand to sell these underwater homes suddenly become sellable (albeit for a short time)?
Of course people will try to dump them, what happens when they try to dump them? Supply goes up. What happens when supply goes up? prices fall. Hmmm go figure. Then we are all underwater. Nice going Keynesians! Welcome to the welfare state.
President Barack Hussein Obama (P BHO) Chavez is poised to deliver more Hoax and Chains to the weary masses. Obama Zombies – those useful idiots who think he’s really “The One” – should really get a thrill running up their legs on this idea.
HEY OBAMA….WE NEED THAT LASER-LIKE FOCUS ON JOBS – NOT BAILOUTS!!!
Purchasing votes eh? Keeping home prices above what the market will bear using my tax dollars. F U mr. president.
When I bought my house, I paid no attention to what the bank said I qualified for. I bought a house with payments small enough so that I could still afford electricity, food, clothes and a car. If the past couple of years have taught me anything, it is that I was a damned fool. I should have bought the biggest, most expensive house they would let me have. That way I could be getting bailed out instead of watching my money go to subsidize the irresponsibility of others.
Simplest solution is to eliminate all Income Tax (for business and individuals) and open up immigration to individuals with a minimum net worth. That will immediately stimulate demand for Real Estate. It will also increase hiring if companies relocated the US to avoid corporate income taxes. No more reason for Corporations to move offshore. Halliburton will come back and share their huge War profits to boost our economy.
This is insane. Not no, but HELL NO.
Forgiveness of debt is taxable income to the recipient. Just another ploy to increase taxes on the unexpecting.
Not everyone that is underwater put less than 20% down. In fact, in some areas here in Michigan homes have lost over 50% of their value.
That said, this is a bad idea, and it is exactly as characterized: last ditch effort by 0bama and the Dems to buy votes.
These Socialists/Marxists will do anything, say anything they need to to preserve their power base long enough to enslave this still great Nation into Socialsim or worse. It is a sorry state of their mentality to attempt to balance the number of people that will be harmed vs the the number that will be happy getting a handout inorder to maintain power. The welfare of the Nation of no consideration whatsoever. Bring it you Socialist/Marxists scum we will be waiting for you on November 2nd!
We bought our home in 2006- one which we could afford. Last year my husband lost his job and is still unemployed.
I contacted my bank and was told that we could qualify for a financial hardship and have our mortgage rate reduced. However, our first three payments on this new plan would be partial payments and would be reported to the credit bureau thus negatively affecting our credit. We are not willing to do that and will struggle on one way or another. All we were asking for was a reduction in our rate due to hard times without it affecting our credit rating.
Even if BHO does this, a. it will probably apply to only certain borrowers (read people who should NEVER have been given mortgages) and b. if it did apply to our situation, I still WILL NOT VOTE FOR HIM.
Keep your eyes on the prize people. Think Nov. Don’t be swayed by cynical WAG THE DOG tactics by the regime. We need to stop them in Nov or it WILL BE TOO LATE.
Is this something we have to apply for or will all banks holding mortgages be required to figure out who is underwater and then ordered to reduce the mortgage? It would be really cool is they just did it all for us. What a friggin joke.
Wow, so those of us who saved, bought modest homes with in our budgets are once again expected to give more to reward the bad behavior of those who did the opposite.
Great way to encourage people to live within their means and act responsibly Barry.
And people wonder why I say I’ll never vote for another Democrat as long as I live.
I’m not saying this is fair to tax payers, but being underwater does not mean you were unqualified to get a mortgage in the first place. Underwater does not mean delinquent in mortgage payments, it means your home is worth less than what you actually owe.
why can’t we just put all the people who don’t like Barry S. into re-edjucation camps and take their homes?
then we can sieze their bank accounts and their cars.
the world would be better off without people who get in Barry’s way
Still chasing that elusive solid B+
Being in the mortgage business, I have a lot of clients whose homes are under water, and I feel for them.
That said, I agree that the free market is where the housing downturn should work itself out. Some people will pay down their mortgage anyway – the majority, in fact – and others will either have to face foreclosure due to hardship or will decide to walk away. That is too bad, but the free market is the best place to work this out. It will be much more efficient than with political intervention.
“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.” ??? BIG MISCALCULATION! How many people have mortgages that are NOT underwater? I say it’s more than 15 million. How many have mortgages with banks, savings & loans, etc? How many people are sick of paying for other people??? Should make for a really great TEA Party gathering scheduled for Sept. 12 though
I am DONE with these progressive Democrats though; 40 yr Dem. going Independent!
Its so hard to make assumptions. However another trillion dollars in debt–how much more than 45,000.00 percapita can the US afford? So much wealth vaporized in 2008 I don’t even think this will help much.
To think outside the box, I think the whole financial system in the world needs a reset. Governments create the money themselves to pay off central banks and financial institutions world wide. Its all vapor money anyhow.
Governments can pay off 100% of consumer debt, including mortgages to credit cards, while they are at it.
People who have hung on to their homes will have real assets. People who haven’t can buy back into the market with strict banking regulations: 20% down minimum.
Consumer demand will advance without customer’s having to go back in debt.
Some will–to buy a car for example. So long as they qualify NOT in a sub-prime way. The economies would get back on their feet again.
Banks who count debt as assets will have to start from scratch under scrutiny. They should still make a lot of money from the investment side. Since stocks will rise in sync with consumer demand.
Inflation should be held in check intially by law. Which can be adjusted based on the market pressures.
What we don’t want however is a global currency. Maintain sovereignty at all costs!