August Rumor: The Mortgage Hail Mary to Save Soulless Democrats

Via Memeorandum

Remember Peggy?


Peggy may be getting her wish if there is any truth behind this August rumor:

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.

The last weapon in the arsenal to stave off political annihilation. Surely they wouldn't dare would they? Of course they would:

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.

Count me among those who would be greatly offended.

Good News - Fannie and Freddie Fix could be a mere $160 Billion

A pittance actually compared to the 1 Trillion worst case scenario:

The Congressional Budget Office calculated in August 2009 that the companies would need $389 billion in federal subsidies through 2019, based on assumptions about delinquency rates of loans in their securities pools. The White House’s Office of Management and Budget estimated in February that aid could total as little as $160 billion if the economy strengthens.

If housing prices drop further, the companies may need more. Barclays Capital Inc. analysts put the price tag as high as $500 billion in a December report on mortgage-backed securities, assuming home prices decline another 20 percent and default rates triple.

Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania, said that a 20 percent loss on the companies’ loans and guarantees, along the lines of other large market players such as Countrywide Financial Corp., now owned by Bank of America Corp., could cause even more damage.

“One trillion dollars is a reasonable worst-case scenario for the companies,” said Egan, whose firm warned customers away from municipal bond insurers in 2002 and downgraded Enron Corp. a month before its 2001 collapse.

The Big Picture  thinks the trillion dollar figure is high unless of course banks continue to dump their bad loans into the quasi-governmental boondoggles known as Fannie and Freddie:

That trillion dollar number has a number of challenging assumptions in it. It assumes a large downleg in housing prices, a continuing foreclosure surge, and ongoing unemployment.

My estimates are for about half of that — between $450-500 billion dollars. But with just the right — or wrong — economic policies, bailouts and bad decisions, I wouldn’t rule out a trillion dollar loss. And if we keep allowing banks to dump all of their bad loans onto the GSE’s books, I would raise my odds of a trillion dollars in losses from 25% to 100% . . .

 The American people own 80% of the GSE's where banks are dumping their bad loans.  Don Surber says Enough is Enough:  

We, the people, are tired of what becoming an America with a centralized, government-controlled economy with a perpetual 10% unemployment rate.

Enough.

If it passes, sue and stop it until November 2 swhen the Democratic Congress is voted out of power.

To which I say Amen.

H/T: Memeorandum

Last Bailout of 2009? - There's Still Time For More

Via Twitter

Washington Post reports General Motors got a fresh infusion of cash (that would be our cash) courtesy of the Obama administration. They're awfully generous with our money aren't they?

The government gave GMAC Financial Services another $3.8 billion in cash and took a majority stake in the auto lender, aiming to stabilize the company as it struggles with big losses in its home mortgage unit.

This gives the US Government majority ownership in General Motors, Freddie Mac and Fannie Mae. The government now owns 56% of GM but not to worry they are going to stick to their promise of letting the executives run the company, except when it comes to pay:

Even with the government upping its stake, Treasury officials said the government intends to stick to its policy of leaving day-to-day business decisions about financing to GMAC management. Still, with the additional stake, the government will have the right to appoint two additional directors to the company's board, bringing the total to four of nine, Treasury officials said.

GMAC will continue to be subject to executive pay restrictions imposed by the government's pay czar.

Love the comments on this news at Zero Hedge:

"These slippery creepy bastards are jamming it to the sugarplummed sheeple during the Holly Jolly Holidays. Blank check to FNM/FRE on Xmas eve. Then another $3.8B to GMAC for some New Year kicker laughs.


You'd think after a whole year of government-induced fiscal insanity, they'd at least give us a week off before next year's round of insanity commences."

Amen to that, no rest for the weary pocketbooks of the American taxpayer.

Added note:  to my regular reader and friend Janet -  be sure to check out this comment

Fannie & Freddie Stock Soars - Too Bad the Execs Don't Think it's Worth Owning

CNN Money reports stock prices of Fannie Mae and Freddie Mac soared today after news came the GSE's would have a blank check from the government. Here's why it pays to follow the news, however, the bonus packages for the executives of Fannie and Freddie do not include any stock or options which is quite unusual for a shareholder owned companies.

All signs point to the fact that there will no longer be any pretense these GSE's are going to be privately run in the future:

The lack of stock and options for Fannie and Freddie executives suggests that when Congress and the Obama administration decide what to do with the mortgage firms, shareholders could be left with little or no equity.

The CNN report indicates other companies such as GM that received large bailouts were encouraged to give stock as part of executive compensation packages.  Clearly there are plans for Fannie and Freddie we the taxpayers aren't entitled to know about, at least not yet anyway.  Meanwhile, execs at Fannie and Freddie hit the bonus jackpot this year as you will see in the following report:

Merry Christmas - Unlimited Bailouts for Fannie and Freddie

Consider yourself Santa Claus for the formerly quasi-governmental institutions known as Fannie Mae and Freddie Mac. The White House announced on Christmas Eve they would eliminate the caps on bailouts for the "zombie" Government Sponsored Enterprises removing all doubt there was anything private about the institutions:

As some observers have pointed out, all the move really did was formalize what everyone has figured for decades, that the two zombie GSEs were truly organs of the federal government, and that their debts would be backed up ad infinitum.

There can be little doubt the news was released after markets closed Christmas Eve and presented as an update in order to minimize the impact of the news.  Ed Morrissey writes:

The announcement was designed to put them out of reach, just as it was designed to keep the news out of reach from the general public.  No one can seriously argue that Treasury and the White House woke up early on Christmas Eve and suddenly discovered a reason to lift the caps on the Fannie/Freddie bailout, after all.  This had to be in the works for weeks.

This leads to the larger question of why the White House chose to act unilaterally and why now.  Joe Weisenthal asked credit analyst Edward Pinto for his theories.  Pinto lists five possible reasons for the move and all portend greater involvement and control over the mortgage market:

The above actions would preserve and strengthen the government’s involvement and control over the country’s housing finance system and make it harder to reintroduce substantial private sector involvement later on.  They would also continue distortions in the marketplace leading to who knows what unintended consequences. Finally these steps would do nothing to deleverage the housing finance system, a key step in returning it to any degree of normality.

 As if the lessons of government intervention in this market haven't been clear enough already, the Obama administration plunges ahead full throttle for greater involvement and control.  Prepare yourself for a little social engineering Obama-style.  The $400 billion set aside for the mortgage market from the previous bailout still had slightly less than $300 billion available for further assistance.  As Ed Morrissey pointed out if a larger amount had been needed the administration could have merely raised the limit instead of removing all caps.  Weisenthal sees no scenario where the move restores the market to any semblance of normality and makes it more difficult to restore greater private market involvement.  There is no other conclusion but that the Obama administration has effectively taken control of the GSE's for some future purpose.

 I am betting Ed Morrissey is correct in this prediction:

 I’d bet that the Obama administration retools its foreclosure prevention programs to have Fannie and Freddie buy up the paper and forgive parts of the principal on the loans, and have taxpayers eat the losses on a massive basis.

I will gladly listen to the Obama administration offer an alternate rationale for the move but I am not holding my breath waiting for it either.