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Reuters thinks that the Administration is working towards an "August Surprise:"

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.

We know nothing can get through the Senate. But we can't just do nothing. This should be just a first step. Even a Serious Centrist like economist Brad DeLong had an idea of how we could harness the GSEs as of January 2009:

My favorite idea right now is that of nationalizing Fannie Mae and Freddie Mac completely and unleashing them to buy up every single mortgage in the country at market rates. Their ability to borrow at the Treasury rate means that they should be able to make money by doing this. When they own mortgages they can renegotiate and refinance them all with the public interest in mind. And as they squeeze banks out of the mortgage business the fact that banks are looking for yield should push other financial asset prices up--and make it possible for those businesses that should be expanding to get financing right now on terms that make expansion profitable.

So at the moment my preliminary judgment of the Obama fiscal boost is that it is a good first bid, but that the administration ought to be doing a lot more.

It is still possible now to do this. Doing nothing is not an option. Will it work? This is what Goldman Sachs is "warning" its customers (again from the Reuters article):

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

Damn right. I imagine there will be push back from Wall Street. Considering the fortunes of real hard working Americans and the Lords of Finance, anything that scares the shit out of them can't be all bad.

Because people are hurting, and if we can't convince the douchebag from Nebraska and his Republican friends of that, we should just go around them.

Labor mobility has fallen to a post WWII low - and this is weakening an already weak recovery. Apparently August 17th is when this will be decided.

The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie.

This could help prevent a double-dip recession, avoiding the worthless cesspool that is the Senate, and genuinely help millions of people. Conveniently right before an election, but that is just a bonus. I know I criticize Obama for a whole lot but when he tries to do something right, we have to his back.  I am not sure who we should be contacting, but I just wanted as many people to know about this as possible.

Originally posted to bay of arizona on Fri Aug 06, 2010 at 08:04 AM PDT.

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Comment Preferences

  •  Calculated Risk has pretty much debunked (4+ / 0-)
    Recommended by:
    Sparhawk, Sydserious, Deicide, Jonze

    "You can't put a civil rights issue on the ballot and let the people decide. .... . If you left it up to the people, we'd have slavery......" ~ Jesse Ventura

    by rontun on Fri Aug 06, 2010 at 08:09:10 AM PDT

  •  Thank you for this diary.... (2+ / 0-)
    Recommended by:
    askew, Eric Nelson

    ....I read the Reuters story yesterday (along with some of the strange comments there that people made) and I was hoping someone here would diary it.

  •  At least it's something sort of on the bold side (0+ / 0-)

    Better than the passiveness he's displayed for the most part so far.

    How we got here, the Powell Manifesto:

    by Paleo on Fri Aug 06, 2010 at 08:10:00 AM PDT

  •  This is likely Republican games... (2+ / 0-)
    Recommended by:
    Deicide, moonpal

    First was the rumor that Obama was looking to skirt Congress on immigration in some manner and now this.  Basically it smells like wing nut stories to show Obama is out of control and there needs to be a strong pushback from Congress and you can bet a Democratic congress wouldn't rein in the out of control Obama...

    Politics is like playing Asteroids - You go far enough to the left and you end up on the right. Or vice-versa.

    by Jonze on Fri Aug 06, 2010 at 08:16:49 AM PDT

  •  This got so much attention the WSJ went to (2+ / 0-)
    Recommended by:
    BoxerDave, Sydserious

    Treasury and got a denial from a spokesman there.

    That said -its an interesting notion.

    Small correction - Morgan Stanley and Goldman Sachs FAVOR the GSE mortgage writedowns according to the linked Reuters piece.

    "The way to see by faith is to shut the eye of reason." - Thomas Paine

    by shrike on Fri Aug 06, 2010 at 08:21:12 AM PDT

  •  Way to cause riots (2+ / 0-)
    Recommended by:
    soros, Sydserious

    So, all of us who rented while everyone else went hog wild buying houses now get our tax dollars taken away to help them, while prices are kept too high for us to buy?

    Great news, not.

    (-5.50,-6.67): Left Libertarian
    Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

    by Sparhawk on Fri Aug 06, 2010 at 08:25:36 AM PDT

    •  I have seen the same comment as yours repeated (1+ / 0-)
      Recommended by:

      multiple times every time this comes up.  Not just here but on every site out there.  If the homeowners are helped there will be a tremendous amount of backlash from renters like yourself and people who still have underwater mortgages but not through Fannie/Freddie or are just doing ok with their mortgage.  Would be a lot of resentment out there and major uproar by the pukes.  

      They screwed up with HAMP when they had the chance.

      "...I enjoy helping people who are vulnerable. And I enjoy crushing bastards.".Julian Assange

      by Sydserious on Fri Aug 06, 2010 at 09:20:01 AM PDT

      [ Parent ]

    •  Not really (0+ / 0-)

      The dollars have already vanished. This would just slow the hemorrhaging of foreclosures and people walking away from underwater mortgages. It will provide a floor to the falling real estate prices and boost the overall economy.

      •  Re (1+ / 0-)
        Recommended by:

        It will provide a floor to the falling real estate prices and boost the overall economy.

        So you're going to take money from renters who hope to buy someday and provide it to owners to "provide a floor" to prevent those same renters from buying at low prices.

        (-5.50,-6.67): Left Libertarian
        Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

        by Sparhawk on Fri Aug 06, 2010 at 09:28:48 AM PDT

        [ Parent ]

      •  Economically it makes sense but only to people (1+ / 0-)
        Recommended by:

        who have an above average understanding of how the economy works.  The perception of this as Sparhawk described will be what is in the mind of 90% of the public.  Even if the republicans agreed and understood, they would use this to further inflame the public....and as we have learned from healthcare - that is fairly easy to do.

        "...I enjoy helping people who are vulnerable. And I enjoy crushing bastards.".Julian Assange

        by Sydserious on Fri Aug 06, 2010 at 10:11:17 AM PDT

        [ Parent ]

  •  Could it have something to do with $1.00 homes (1+ / 0-)
    Recommended by:
    Eric Nelson

    HUD's Dollar Homes initiative helps local governments to foster housing opportunities for low to moderate income families and address specific community needs by offering them the opportunity to purchase qualified HUD-owned homes for $1 each.

    Dollar Homes are single-family homes that are acquired by the Federal Housing Administration (which is part of HUD) as a result of foreclosure actions. Single-family properties are made available through the program whenever FHA is unable to sell the homes for six months.

    By selling vacant homes for $1 after six months on the market, HUD makes it possible for communities to fix up the homes and put them to good use at a considerable savings. The newly occupied homes can then act as catalysts for neighborhood revitalization, attracting new residents and businesses to an area.

    Local governments can partner with local nonprofit homeownership organizations or tap into existing local programs to resell the homes to low- and moderate-income residents of the community.

    Who would finance these foreclosed homes, bought by towns/cities for $1.00, fixed up with funds made available to them, and sold again?

    •  my best guess (1+ / 0-)
      Recommended by:
      War on Error

      if they were set up to qualify qualify for tax breaks given to other affordable housing projects, consortiums of builders/developers/investors would buy, fix up and self finance provided the tax subsidies were sufficient.   They tap into the construction profit, the tax breaks and have a market that will pay more interest than a t bill or CD.  

  •  Wall street is agin least the conservative (0+ / 0-)

    responses seem to be.

    If Wall street is poo-pooing it, does it threaten their "share" of profits?

    I'm sure we'll hear the worst via MSM, could be a good sign.

    T&r'd bay of arizona

    I don't want your country back..I want my country forward - Bill Maher

    by Eric Nelson on Fri Aug 06, 2010 at 08:40:37 AM PDT

  •  Silly Season! (2+ / 0-)
    Recommended by:
    shrike, Sydserious

    No truth to this Reuters rumor at all.  The blogger was a former writer for the far right wing rag Investors Business Daily and was promoting it for political purposes.

    Treasury has always planned to release a new plan for lenders and servicers to get some incentives for reducing the principal amount of some mortgages that are deeply underwater (more than 150% of current home value).  There might also be some type of financial "sacrifice" from homeowners who do this, such as giving up some of their equity in the home.  But these plans are always voluntary recommendations.

    Principal reduction w/equity sharing is definitely the preferred alternative by housing economists to foreclosures for deep underwater mortgages.  Many banks are now exploring the idea.  But this is totally different from the so-called "August surprise" blog which was all politics and no reality.

  •  Fannie says home prices to decline through 2011 (0+ / 0-)

    No word on bailing anyone out.

    Home prices will decline into next year, Fannie Mae said Thursday, reversing earlier projections that the housing market would stabilize this year.

    Former Federal Reserve Chairman Alan Greenspan said Sunday on NBC's "Meet the Press" that a so-called double-dip recession was possible "if home prices go down."

    Fannie's forecast, disclosed in its latest quarterly report filed with the Securities and Exchange Commission, shows that the government-owned mortgage giant has turned bearish on the housing market. Fannie Mae, the federal mortgage association, along with its sister entity, Freddie Mac, own or guarantee about half of all U.S. mortgages.

    "The human eye is a wonderful device. With a little effort, it can fail to see even the most glaring injustice." Richard K. Morgan

    by sceptical observer on Fri Aug 06, 2010 at 08:47:57 AM PDT

  •  I posted a diary on this yesterday. (2+ / 0-)
    Recommended by:
    Kitty, Hopefruit2

    From the comments, it looks like it is just a rumor. I was hoping that Treasury/WH are planning to do something besides sit by as the Senate GOP destroys this economy completely.

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