Is Obama about to forgive billions in mortgage principal?

[Geee]

Hot Air:

Is Obama about to forgive billions in mortgage principal?

POSTED AT 8:48 AM ON AUGUST 5, 2010 BY ED MORRISSEY


James Pethokoukis hears rumors of an August surprise coming from the White House, one that will attempt to win backs the hearts and minds of voters dismayed at the failing economic policies of the Obama administration. With the government fully in control of Fannie Mae and Freddie Mac, Barack Obama may issue an order to forgive portions of underwater mortgages processed through the GSEs, where negative equity approaches $800 billion overall. Some financial houses have begun quietly preparing for the possibility:

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. …

Why? As Pethokoukis notes, it would be a naked ploy to buy votes … with our money:

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.

The government controls the two GSEs thanks to the bailout demanded by Bush administration, and then made unlimited by the Obama administration. They are being floated on taxpayer money, but the idea had been that an orderly wind-down of bad loans and securities would eventually rescue the principal in most of the mortgages. Taxpayers would take a bath, but eventually we’d see something approaching a wash in the long run. Government seizure was supposed to allow for renegotiation of terms with borrowers to rescue the loans.

A massive write-down of principal in underwater mortgages would cost us additional tens of billions of dollars, if not $100 billion or more, in order to get these mortgages to market level. That money won’t come out of thin air, either. Either it will take taxpayer dollars to make up the difference, or the sudden and arbitrary writedown will make Fannie/Freddie investors a whole lot more poor than they were before. The Obama administration can’t afford to send Wall Street reeling with that kind of shock, especially this close to an election and with the economy already sinking, so it would almost certainly require massive taxpayer subsidies to accomplish, on top of what’s already been spent on TARP bailouts.

In other words, it’s exactly the same kind of Obamanomics that we have seen for the last eighteen months — spend what we don’t have now, run up debt like crazy, and hope that a momentary spike will translate into political success. Unfortunately, that has also been the formula for long-term economic failure.

[pollyannaish]

If this happens, it will tick me off more than I can possibly say.

 

Over the past few decades, we have continued to pay down our mortgage while many financial analysts and others were saying that we needed to "put that equity to work" for us. We've doggedly stuck to our guns and done our very best to live debt free within our means. Sometimes, it is downright painful. But we owe less than a third of what our house is worth.

 

So what happens?! This. It makes me so angry I just want to scream. Irresponsibility and a lack of patience of others ends up being paid for by me and my children. It is NOT right.

 

[Geee]

Pollyannish. My son and DIL wanted to refinance their house at a lower interest rate. They did not qualify for the program cause their credit score was too high

[NCJim]

pollyannaish!

I agree..I have 23 months left on my mortgage buy making double payments and even add to that... just to get out of debt...Now Oboy is giving it all away in the hope for votes...

 

I do think however the votes he is looking for aren't there...the slackers who will benefit from this most likely don't vote anyway they just take....

[pollyannaish]

Pollyannish. My son and DIL wanted to refinance their house at a lower interest rate. They did not qualify for the program cause their credit score was too high

 

I understand that. In February of 2009, after catastrophic job loss (both my husband and I on the same day) and significant medical issues, we were tapped completely out and were 45 days late on our house payment. I called our bank to ask what kind of arrangements we could make, and the lady on the other end breathlessly told me that we were exactly the kind of people that the loan modification program was for. She said our house would go into foreclosure, but not to worry that was just part of the process. Well, long story shorter and leaving out a bunch of details, at the end of October, we were told that we would not qualify because our home was not under water, we had significant equity. It was to be sold two weeks later. We cashed out what was left of our meager retirement and were able to save our home of 23 years with less than five hours to spare.

 

What has always nagged at me is, why did she tell me we were the perfect candidates when she could see in the records that our home is worth over three times what we owe on it? The whole time, we had Obama supporters telling us how great it was that this program was in place. That actually made us feel worse for going that route during the process...but when got the notice that we actually didn't qualify they were stunned and blamed the bank.

 

I certainly am in no place to not want to help folks who truly need it, but it bothers me that doing the right thing means you foot the bill for the perks.

 

Anyway, lesson learned and here we are again with the layoff. We are now older and wiser and hopefully can avoid making that kind of stupid mistake again. "Hi we're from the government and we're here to help" and I FELL for it!

 

To watch it continue and KNOW exactly who/why people are getting it really bothers me—and it's personal.

[pollyannaish]

pollyannaish!

I agree..I have 23 months left on my mortgage buy making double payments and even add to that... just to get out of debt...Now Oboy is giving it all away in the hope for votes...

 

I do think however the votes he is looking for aren't there...the slackers who will benefit from this most likely don't vote anyway they just take....

 

I agree. And to me it seems like ticking off 80% for 20% of the populations thank you votes is really bad math. But then...math doesn't seem to be this administration's strong suit.

[Argyle58]

If I had had an inkling that things were going to turn out this way I would never have paid cash for my house, cars, furniture, etc. All I had to do was go into debt, hold out long enough, and have Big Brother take care of it all for me.

 

[pollyannaish]

If I had had an inkling that things were going to turn out this way I would never have paid cash for my house, cars, furniture, etc. All I had to do was go into debt, hold out long enough, and have Big Brother take care of it all for me.

 

 

 

EXACTLY! Why the heck have we been trying so hard all these years.

[Casino67]

I don't know how this would work. In a normal mortgage, no matter how much is paid or, in this case, forgiven, the payment stays the same. One would just pay off the owed amount sooner. If the same amount is coming out of my paycheck for the mortgage, how does that help me now?

 

If they allow everyone to refinance, then the payment would be less, but is that what they have in mind? And can it be done before the new Congress takes over? If the R's control the House, then they can refuse to fund it can't they?

 

I is so confuzed.

[Argyle58]

Normally, under Treasury Department rules, such debt forgiveness would consititute a taxable event.......and windfall in the shape of an economic benefit. I can almost hear the screams of those who think they are supposed to get something for nothing when they get their 1099's.

 

 

Remember the stink when Oprah gave away some cars? The recipients of these free cars cried "Foul" when they were told they had to pay income tax on the MSRP of those cars.

[clearvision]

"NORMALLY" the operative word....

[Casino67]

Normally, under Treasury Department rules, such debt forgiveness would consititute a taxable event.......and windfall in the shape of an economic benefit. I can almost hear the screams of those who think they are supposed to get something for nothing when they get their 1099's.

 

 

Remember the stink when Oprah gave away some cars? The recipients of these free cars cried "Foul" when they were told they had to pay income tax on the MSRP of those cars.

 

I forgot about the forgiven amount being taxable. Wouldn't it be ironic if the people who were helped couldn't afford to pay their tax and had to sell their home?