James Pethokoukis

Politics and policy from inside Washington

An August Surprise from Obama?

August 5, 2010

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.

Comments

Obama has our best intrest in mind

Posted by infidel666 | Report as abusive
 

I just started the process of using some inheritance to pay down our mortgage so we will no longer be underwater in order to refinance at the current low rates. Seems like the responsible and smart thing to do, but after reading this, I think I should wait.

While I completely disagree with this handout, I am getting sick and tired of being left holding the bag by being responsible with my finances. Thank you for eroding the moral character of our nation, Obama.

Posted by jjphilli | Report as abusive
 

Let’s see – I have never owned a house – so, yes! I am getting f`cked!

Posted by DKeller | Report as abusive
 

It’s obvious that the Big O didn’t take ANY economics classes in school.

Posted by RedfishTX | Report as abusive
 

So because you decided not to pay even the INTEREST on your Option-ARM, I have to now pay or accrued principle? !#$@$%#!

Posted by MaroonPatriot | Report as abusive
 

In my understanding, Fannie May owns loans that were given to people who could not qualify for a conventional loan. This was pushed through by Democrats to allow “underpriviledged” people to own homes. When these people could not pay for these loans, it brought down the housing market, and caused a general real estate devaluation. Now the people, who have loans with Fannie Mae, that they could not have qualified for without these shenanigans, will be rewarded by having the taxpayer pay the difference in the worth of their property. Meanwhile, the taxpayers, who qualified for loans and are making payments, will get no relief, for the devaluation of their property, brought about by the people who could not afford a loan, and the government who set this up. This is such obvious manipulation by government, to redistribute wealth, that I am amazed no one is bringing this up.

Posted by castlerock | Report as abusive
 

I don’t see how it’s possible to forgive a portion of mortgages. First of all the value of a house is very subjective and moves from day to day so for the bank to place a value on it is full of challenges and is certain to be rife with fraud. Second, people vary greatly in the amount that they have paid into a house whether as a downpayment or by making mortgage payments over many years. This will only reward people who overpaid for a house and haven’t been in it for very long and/or put very little down. The only people who could come up with this type of program are people who haven’t been in the housing market very long and don’t understand how it works. They must have spent there lives in government.

Posted by JeffR | Report as abusive
 

I could have lied on a loan app five years ago, but I stayed in my crappy apartment because I knew I could NEVER repay a six-figure loan, and I had the integrity and decency to behave responsibly. Now I get tax-raped because Big O will force me to pay the mortgages for all the a-holes who lied to get their loans, after he uses my money to shrink the loan balances. So what about me? What about my neighbors? Are we then the bastard children? When do we get our renter’s bailout?

Posted by willyams132 | Report as abusive
 

DAMN IT. ENOUGH ALREADY. If you took a mortgage you can’t afford then you SHOULD LOSE IT BY NOW… there have been TOO many bail-outs… WE did NOT BUY – as we knew we could not afford it… BUT WE ARE HURTING TOO… HOW ABOUT RENTERS BAILOUT ? !… Five months ago, I was two hours from eviction.. TWO HOURS… the moving trucks were waiting out front for the sheriff to show up, when an uncle, I barely know, came to the rescue. WE ARE AGAIN IN TROUBLE LOOKING AT EVICTION… my self-employed business went south with the economy and the markets. THANKS OBAMA, and all I hear is bail outs for home borrowers and laid off…. HOW ABOUT SELF EMPLOYED who have cut down to bare bones and still NEED HELP. Sure extend unemployment forever, bail out stupid mortgages, let the rest of us live in a 10 yr old car.

Posted by mbankat | Report as abusive
 

Will this actually pump any money into the economy before the election ???

Processing the paper work alone will take months before any home owners know for sure.

Maybe some big banks will make hundreds of billions in profits from this and it will pump up the stock market right before the election …

Posted by Reality_Check | Report as abusive
 

Nomobama going through with their plan for tax payers to buy homes for demo special interest groups. Must stop breeding demos on welfare or it’s about over.

Posted by 1uncle | Report as abusive
 

What strikes me about this most are two thoughts. First that Congress and this administration are convinced they can simply buy reelection votes and rather than doing anything substantial all they ever do is throw good money after bad in that quest. Screw the future, it’s election day that counts. Sounds like Chicago politics…buy enough votes to win. But secondly, and equally disgusting to me, is that they seem to have assessed all of us Americans as “whores” who will do anything if you give us money. I for one am not a whore. And I am sick of the attitude that printing more money substitutes for doing some real work in DC that can fix PROBLEMS, not kick them into the future or the next administration. Obama pledged change, but he’s a carbon copy of his democratic predecessors. Enjoy your vacation Ms. FLOTUS…

Posted by hlizard | Report as abusive
 

This is not about helping anybody out.

It is about Democrats re-elected so they can continue to steal your children’s and grand children’s money.

Posted by Reality_Check | Report as abusive
 

Fannie Mae and Freddie Mac are credit cards with no spending limits – and Obama has control of them.

Right now Obama is having wet dreams about what he is going to buy with those credit cards.

No wonder Obama insisted in excluding Fannie Mae and Freddie Mac from the Financial System Reform.

Posted by Reality_Check | Report as abusive
 

The thing that really bugs me, is that for every person who just bought at the wrong time or lost his job, with an underwater mortgage, there are two people who went to the Bahamas ran up their credit cards bought a new car and wrapped it all up in a %100 loan to value on their house and now are in trouble. I could see maybe helping out those who need to move and are in an underwater position, but not everyone who ate up all of their equity, having fun.

Posted by Felindar | Report as abusive
 

I’m 20% under water and 1 month behind. I qualified for the home bailout program but the bank has never sent paperwork, even after calling them 20-30 times [Bank of America]. My home isn’t through Freddie/Fannie, so when the bail out comes, I’ll be left sinking.

Why?

Because I went to school, got an education, and work my tail end off to pay my bills. But, even those bills are way behind after a 5 month lay off. I’ve been sued by 3 CC companies already.

Where’s the revolution and how do I sign up? No. Seriously, how do I sign up?

Posted by CaptainObvious | Report as abusive
 

If they think this is going to buy them votes – they have got to be kidding. We have a mortgage that we’ve always paid on time for many, many years. For the government to REWARD people who took loans they could not afford and then expect a handout from US is MORE THAN ENOUGH TO MAKE MY BLOOD BOIL. No one took advantage of these people. All of you who have had mortgages know about ARM’s and what happens at the end of the adjustment period. If you didn’t know, the banks ARE REQUIRED BY LAW TO EXPLAIN ALL OF THAT TO THE BORROWER. It’s the getting something for nothing mentality. I’ve absolutely had it with these low lifes and their president. They are going down and taking all of us along with our kids and grandkids down with them.

Posted by mkj | Report as abusive
 

If you have a “good” mortgage and pay it on time, you get nothing. If you bought a house way over your head (with possibly a liar’s loan), you get a bailout. The cost of the bailout will be covered by the “good” taxpayers. Wealth will have been redistributed. Government will become yo’ daddy and yo’ momma.

Posted by TexGEOas | Report as abusive
 

What about the people who OWN their homes and worked hard in their lifetime for it. Any action of this type would create riots in the streets and be a reason for impeachment.

Posted by EyeoftheEAGLE | Report as abusive
 

Obama should do the right thing and simply resign..

Posted by EyeoftheEAGLE | Report as abusive
 

Keep Burying America in debt Mr Obama. I have worked 2 Jobs along with my wife in order to keep my mortgage current. I am not interested in paying someone elses bills.

Posted by dencal26 | Report as abusive
 

How about paying back all the losses in my 401K from Great Depression II?

Posted by Nothinsforfree | Report as abusive
 

Oops too late. The foreclosure sale notice was posted on my door yesterday morning. Auction at the courthouse in early Sept. Would have been nice to keep paying, but the wife lost her job 18 months ago and the savings is gone.

Posted by VigilantSatyr | Report as abusive
 

The proposal makes a lot of sense to me. Why should people lose their homes just because their property value was overinflated by Wall Street con-men?

These scumbags purposely wrote bad (sub-prime) loans, then made money betting against them (via credit default swaps), and are now scooping up properties at rock bottom prices after the bottom fell out of the market. Non-white’s were disproportionately affect by this scam.

This fiasco exemplifies all that is wrong with capitalism. You right wing nutcases should realize that bailing out the victims of this con-job is your best hope for saving your beloved capitalism and white priviledge. Pay now or pay later…

Posted by Hanglyman | Report as abusive
 

The IRS taketh and the Feds giveth it away – after they skim 80% off the top.

Posted by Nothinsforfree | Report as abusive
 

Lower the bar even more Mr. O. 7B to Pakistan, Michelle on an expensive “private” trip to Spain, and our economy goes deeper into the &!%tter. Let’s reward the financially irresponsible and besmirch the others! How long are we going to put up with this? We need to restore personal responsibility and integrity in this country, not promote sloth and greed. Someone come up with a better plan and let’s vote them ALL out.

Posted by observer56 | Report as abusive
 

So here in Obamaland, the name of the game is suck up to the voters in time for an election. The people who bought outside their means can be rewarded by the same government that relaxed regulations and allowed them to get in this kind of debt in the first place. Meanwhile, what about the people who are living within their means, struggling to find or keep jobs and put food on the table? What about people who need jobs? And who will end up paying for this next debacle? The people who are struggling from day to day will end up with higher & higher taxes. This president is a tragedy, and has no idea what the real priorities are for Americans living out here in the real world.

Posted by tampamom25 | Report as abusive
 

Unbelievable. Government bailouts don’t work and have never worked. Obama is just going to keep flushing your tax dolars and your borrowed dollars at that, down the drain.

Posted by curls1 | Report as abusive
 

You guys just don’t get it, nothing is more important than getting reelected. Who cares who gets hosed as long as the millionaire congressmen or soon to be millionaire congressmen all get reelected.

Posted by soupysays | Report as abusive
 

They jammed the bondholders before (remember the auto bailouts) and they think nothing of rearranging private contracts (remember the dealer closings?). This would not surprise me one bit. But, who really benefits? The homeowners are upside down and can’t pay anyway. This is just forcing the lenders to recognize that fact and giving them a government bailout to make the medicine go down. End result is that the lenders are the ones receiving the largess (again).

If the banks would act responsibly and re-negotiate loans, this would not be needed.

Posted by cebva | Report as abusive
 

TAXES – For example – If they forgive $50K in debt, that becomes income, no? If you pay about 35% total income taxes, you would owe $17,500! If you can’t pay your mortgage, how are you going to pay these taxes?

How about 2nd TDs like helocs? If you are only underwater because of the 2nd, how do they handle that?

Posted by exnuyawker | Report as abusive
 

Sounds like yet another silly and useless attempt to prevent the housing market from attaining its natural point of equilibrium between supply and demand, and directly benefiting the banks, who are essentially still insolvent.

What a mess!

This frivolous line of thinking already sunk Fannie and Freddie, and eventually it will sink everybody else, and leave us taxpayers, to pay the bills.

Posted by yr2009 | Report as abusive
 

You can’t incentivize businesses to hire by giving them money. They’re not thinking short term – “I get $10k for hiring a new person”, they’re thinking long term – “my taxes are going up next year since the Dems aren’t going to renew the Bush cuts, and passed healthcare legislation that is going to further cost me money in fines/increased premiums/etc, I had better hang on to any money I have to hedge against that”. No reasonable amount of money in the short term will cause businesses to hire.

Further, let’s just give money to people. Not everyone, just the ones that went nuts during a government caused housing bubble and bought houses they couldn’t afford at prices that were sky high. The rest of us that waited until the right time, and put down a reasonable down payment, well, screw those people.

Why not take all of this so-called stimulus, TARP, HARP, HAMP, etc. etc. etc. ad nauseum cash and apply it towards the historically high deficits we’re racking up. You can NOT spend your way out of this hole, you have to get the hell out of the way and allow the market to correct itself properly (which includes irresponsible people and businesses to lose everything they own if that is what it takes to flush their debt out of the system) and ensure that businesses are confident that they can make money with you in office.

Posted by triptyx | Report as abusive
 

So our Socialist president must continue to buy his votes from the irresponsible people who created this mess in the first place. What a joke this man is, and his supporters are pathetic losers.

Posted by scoob | Report as abusive
 

the dirty little secret is, If money is forgiven on a refinance, ANY AMOUNT. your finance company WILL send you a 1099 TAX form at the end of the year and you will owe taxes as you received the value of the refinance.

You could be owing taxes on $30,000 of “Income” you did not get!

Posted by framis | Report as abusive
 

It’s bad enough poor renters are having their money stolen to lower mortgage rates for rich homeowners so they can continue to go on expensive cruises. When are renters going to get some of this government cheese? These crooks have already made millions of people homeless by inflating home prices & stealing untold amounts of wealth from the underclass. We need to rise up and take back this country from these people that have become wealthy beyond their wildest dreams from this housing scam which has ruined our country. They are all crooks from Tax Cheating Timmy G. to Barney F. that was blowing executives at Fannie Mae! Listen to the Blago tapes, it sounds like the Soprano’s & it involves the highest levels of our government. Why bother working like a slave to live in a shack while they continue to steal my money to give to rich people. I’d rather fight to live free & stop the massive theft out of my pockets!!!

Posted by moonmac | Report as abusive
 

JohnZNYC, it’s called wealth redistribution, but you don’t have to be wealthy. This is all accomplished on the backs of the middle class. This governments definition of wealthy is so badly skewed it’s mind boggling. It’s all about wanting the world living in a bubble and in one that has no consequences for ones actions. Wish I could’ve known and made investments and financial decisions based upon a government guarantee. It’s like Sesame Street for some, and a Nightmare on Elm Street for others.

Posted by Disenfranchised | Report as abusive
 

How about we fire this clown and all of his cronies? Consider this: He applied for the job, got elected by people that wanted to participate in a historic election (they would have voted for a cow if one would have run since we’ve never had a cow for president), misrepresented his ability to lead, surrounded himself with incompetent people, is obviously in WAAY over his head and is failing miserably right before our eyes. In the private sector he would be fired – plain and simple. That’s what has to happen here. The sooner the country comes to grips with the reality of a bad hire and fires him (them) the sooner we can get back to rebuilding the country and stop being the laughing stock of the entire world.

Posted by earnie | Report as abusive
 

To those who say our debt burden is too high the President replies “I have only just begun to spend!” In today’s United States it no longer pays to be a legal citizen, healthy, well educated, married, own a home that you can afford, and have a good job with good benefits. All that qualifies you for is to become a target for the Obama wealth re-distribution plan.

Posted by RalphCramden | Report as abusive
 

>>How about giving the hardworking people who contribute tax dollars to the economy a break for a change???????

Hardworking people who pay taxes are less likely to vote for democrats.

Posted by KurtKenya | Report as abusive
 

As Barry Obama tries pulls out all the stops to head off a catastrophic November bashing…I think Barry himself should relinquish all his personal assets to fund the first portion of this vote buy…Then see how quick he spins away…

Posted by HappyG | Report as abusive
 

Look folks…the blame game is pointless. Stabilizing the US Housing Market is the KEY to ending the recession. If the cramdown bankruptcy bill would have passed in May 2009, the real estate market would already be stable and more people would have kept their homes…this is just an executive version of that bill.

Hey, we’ve already paid Fannie & Freddie the $75billion. The bankruptcy cramdown would have done the same except not on the backs of taxpayers. Thank Republicans for the extra TAX! Many members of Congress already got their $$$ from the banks so cramdown failed. Wanna blame somebody, blame the GOP, Big Banks and their stranglehold on Congress for many years before President Obama.

The irony is when we try help THE PEOPLE, it’s a handout….when we help the banks, its a bailout! This is non-sense. Moral problem if it’s a US Citizen but no moral problem when a bank walks away from a bad investment. The only reason people are walking away from their homes is they are now thinking like bankers…it’s a business decision. This gives them a reason to keep paying and keep their home!

Posted by BAKERLAWFL | Report as abusive
 

President Obama could pay off my mortgage, and I still wouldn’t vote for him in 2012.

Posted by ILOVEAMERICA | Report as abusive
 

Rewrite the mortgages for 50 years…if they then default, throw their asses out on the street…obviously they can’t afford their surroundings…

Posted by HappyG | Report as abusive
 

Stimulus again? Ugh. Fix the bled loss of jobs!!! Jobless recovery is the problem. Stimulus is a band-aid to the real problem.

Until the un- and underemployed have money from jobs, they will not be purchasing much of anything so the economy does not register them casting their economic votes as to what should be produced. Until they have money, businesses won’t hire the people to produce goods to satisfy the complete aggregate demand (which is currently emaciated by lack of money because people don’t have jobs). Sense the catch-22 here??

The solution is to 1) provide a forum people to register what they would want for a best life, 2) aggregate this demand, 3) design the infrastructure to produce all we really want, and 4) provide online training to learn the skills to create and maintain this new infrastructure.

When all people who want to work can do so and be paid handsomely (because their value is enhanced by the newly learned skills), we then have essentially “Full Participation”, employment that is only short being full by the number of people retraining, a newly robust tax base that can provide the kind of tax revenue that will lift our economy out of the jaws of impending catastrophe — no more need for deficit spending and finally get back to paying down the national debt instead of currently heaping more on in record fashion.

Posted by GordonFBJ | Report as abusive
 

I am against handouts, but I’m also getting tired of irresponsible comments by people like catmman (although I agree with him in theory.

Not everyone whose house/mortgage is underwater bought more home than they could afford. Many of us bought homes that we could afford and we aren’t suffering because an adjustable rate mortgage adjusted and we could no longer make the payments. No, we continue to service our debt while watching the value of our property erode. I bought at a bad time at ridiculously inflated prices and I’m paying the price for that. But by no means did I get into a mortgage I couldn’t afford.

And although there are certainly many, many people who fit the description and helped to put downward pressure on the market, simply claiming that everyone who owns a home worth less than the mortgage “bought more than they could afford” is irresponsible and ludicrous.

Posted by gwlucas | Report as abusive
 

It seems as each bail-out increases the opportunities to those not paying their mortgages. We do need some middle ground since all homes have lost substantial value- even those with no mortgages.
LowerFloridaTaxes.com

Posted by lowerflorida | Report as abusive
 

Fairness requires that all the Countrywide mortgage packages sold-off by BOA at pennies on the dollar to CWALT, Inc. be included. These are generating major servicing cash and foreclosure fees for both Bank of America and CWALT INC’s servicer Bank of New York Mellon.

Posted by MAnyse | Report as abusive
 

Great, let’s offer more rewards for irresponsible behavior … and then act surprised when the irresponsibility increases as a result.

If he wants to fight deflation and buy votes why not just offer a $2500 cash payment for every U.S. Citizen … it rewards everyone equally, increases the money supply to fight deflation and costs less than a trillion dollars.

Posted by jrboss | Report as abusive
 

I put 20% down on my home. It has lost more than 20% in value. That’s not your fault, folks, and I don’t expect you to make up the difference. But if Obama is dumb enough to do this, and YOU are dumb enough to let him, then I’m going to be smart enough to take advantage of you. If you can’t beat socialism, exploit it. Or, as a wise man once said: “Never give a sucker an even break.”

One of the insidious things about government entitlements is that, since we are all forced to pay for them under threat of imprisonment, it makes sense to milk them for all they’re worth. I’m always on the lookout to find tax incentives and credits to recoup some of my tax expenses. To date, you fine folks have spent $25,000 to pay for the adoption of my two Russian daughters, you’ve paid several thousand dollars toward the purchase of a natural gas-powered car, you’ve bought me a new furnace for my home (even though the old one was fine, but I wanted to save on utility bills), etc. All legal, and all STUPID on your part, suckers! Don’t like it? Vote Conservative.

Posted by MQBitsko | Report as abusive
 

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