Free Markets, Free People

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.


[tweetmeme only_single=”false”]
Tweet about this on TwitterShare on FacebookShare on Google+Share on TumblrShare on StumbleUponShare on RedditPin on PinterestEmail this to someone

13 Responses to Will a desperate Obama administration spring an "August surprise" for political gain?

  • The political calculation is that the number of grateful Americans would be greater than those offended…

    That’s a fools bet.  4:1 AGAINST.  (80% of mortgage holders are in compliance).

    • I don’t believe “compliance” and “upside down” are the same thing. IOW, they’re banking on the gratitude of those in compliance and upside down as well as those not in compliance and upside down to carry the day.

      • You are correct, and I used the wrong terms, but the right numbers.  80% are not “upside-down”.  Only 20% are.

        • It could be the difference-maker on a state-by-state basis, though.  California, Nevada, New York, Florida – all are much worse than the national average in this regard.

  • McQIt would be an incredible move that, given the mood of the country, could backfire spectacularly if done.

    I think we can change “could” to “will”.  First of all, Americans are already very worried about the debt, and piling a whopping big pile of more debt on top of it will change their mood from “concerned” to “pissed off”.  Second, it’s such an OBVIOUS political ploy.  “Hey, here’s a bunch of ‘free’ money!  Now, grateful peons, go out and vote for us!” Finally, as Ragspierre notes, most people are paying their mortgages and, while not at all happy about being underwater, aren’t looking to rob their neighbors to bail them out, either.  It’s one thing to say, “We’re going to spend (borrowed) money to help keep people who’ve lost their jobs make their payments”; it’s quite another to say, “We’re going to spend (borrowed) money to help people… um… not have such a big mortgage payment.”

    Consider also the implicit unfairness.  Paul got his mortage through Fanny, so he gets a huge break!  Peter got his through a bank or mortgage company, so he gets… jack sh*t (other than higher taxes to pay for Paul… again).

    But, hey, if we’re going to pretend that Uncle Sugar has unlimited money to shell out to make people happy, why not suspend all taxes?  And, while we’re at it, give every American $10,000 $100,000 ONE MEEELION DOLLARS!  Talk about stimulating the economy!


  • August Surprise?  Obama and company have already tried out their various tactics in order to bring the electorate back to them.  They include:
    July Surprise:  You don’t get the keys to the car back.  Didn’t work!
    June Surprise:  Passing Financial Regulations.  Didn’t Work!
    May Surprise:  Starting their “Summer of Recovery” Blitz.  Didn’t Work!

    You get the drift.  With each passing month they keep trying something new, only to find their slide growing more and more precipitous.  They keep thinking there has got to be some kind of magic formula out there and so long as they just find the right recipe, all they then need to do is serve it up just so and – voila – they will be in favor once again – which is only as it should be!

  • If this were to happen, I would look forward to another Santelli rant.
    But. many people would be left out if this were to come about.  The only people this could apply to are those whose mortgages are currently being held by Freddie and Fannie.  Anyone whose mortgage is being held by a commercial bank or a mortgage REIT like Annaly Mortgage, or whose mortgage was packaged and sold as an MBS would be out of luck.
    Now, I understand that most mortgages being written today are going to FHA, Fannie, or Freddie, but that was not true in 2005-2007.  Those are the mortgages most likely to be underwater.  It would be important to know how many underwater mortgages Fannie and Freddie actually control.  It might be important, too, to consider these underwater mortgages are concentrated in certain states like Florida, Nevada, and Arizona.    That concentration could cause more political problems.  Even then, there is no guarantee a high percentage of owners could pay the new mortgage even if a portion were forgiven.

  • Heh, you guys aren’t thinking big enough – we demand everyone who has a mortgage get a reprieve – since it’s all government money we can hand out as much as we like, why stop with piss ant amounts that only cover Freddie and Fannie – we’ll give everyone a free pass!  Free lunch for All!  Vote DEMOCRAT!
    (and the banks will get their money, the reprieve lasts until tax time 2013 when we take it back, after we’re elected…oh, did I say that?)

    • Shoot.  If they’d give mortgage forgiveness to everyone I can run out and buy that multimillion dollar townhouse this afternoon, and have it be mine free and clear by dinner

  • Is there any way to legally block this crap? It would seem to me that equal treatment under the law would carry some weight.

  • Hah, hah, kyle8, what a joker! Equal treatment under the law?!?!?!?? Tell that joke to the former GM and Chrysler bondholders.