Will a desperate Obama administration spring an "August surprise" for political gain?
James Pethokoukis is hearing the rumors of something which might put a number of you in the situation where you’re paying down your neighbor’s mortgage – all in the name of politics. I’ll let him explain:
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.
Essentially Fannie Mae and Freddie Mac would be the vehicles for this $800 billion bailout. As mentioned above, the “$400 billion limit” for financial assistance to the two institutions was waived by Congress. And, HARP has been extended. The ability to do what Pethokoukis is hearing certainly exists.
As I mentioned in the previous post, the election this November isn’t shaping up well for Democrats. And the administration knows that without the majority in the House and Senate, its agenda is dead. As Pethokoukis points out, the midterms are expected to be a blood bath for Democrats and this sort of a move may be seen as a last hour way to change that outcome. The GSEs (Freddie and Fannie) are about the only “levers” left for the White House to pull. And with the economy slowing and the President’s approval ratings tanking, those levers are looking mighty tempting:
The mortgage Hail Mary would be a last-gasp effort to prevent this [loss of House and working majority in Senate] 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.
And, of course, it would be a backdoor “stimulus” that many on the left think is needed.
It may not happen, but as pointed out, the rumors are pretty darn strong with Wall Street firms privately warning their clients it is a distinct possibility. It would be an incredible move that, given the mood of the country, could backfire spectacularly if done. But the political calculation may be that if Democrats are supposed to lose badly in November anyway, why not try.
The financial consequence? Bah … we’re talking politics here, the “religion of the left”. They’re likely to do whatever they think is necessary, consequences be damned. And we’ll be left, as usual, holding the bag.