Jump to content
House Price Crash Forum
JMcLane

Is Obama About To Allow Mortgage Debt To Be Reduced For 15 Million Underwater Owners

Recommended Posts

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. A few key points:

1) Republican leaders believe this is going to happen since GOPers and Democratic moderates in the Senate are unwilling to spend more taxpayer money on more stimulus. But such a housing plan would allow the White House to sidestep congressional objections and show voters it is doing something tangible about an economy that seems to be weakening.

2) Wall Street banks are alerting their clients privately to this possibility. Here is what some are cautiously saying publicly. This from Goldman Sachs:

GSE policies are one of a dwindling number of policy levers the administration has left to pull, so it is conceivable that changes could be made, though there is no sign that a policy change is imminent. 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 in 2H 2001.

And this from Mizuho Securities:

As policy makers ponder their next move the data suggests that they face not only a stalling recovery but a growing risk of deflation taking root in the economy. As a result, the Administration has turned back to industrial policies by approving the purchase of a sub-prime auto lender by GM as a means for pumping up domestic sales, especially since the latest auto sales data indicates that consumers are still responsive to incentives. This precedent increases the risk that the government will use its control of Fannie and Freddie to increase consumer cash flow and juice the economy again.

Moreover, Morgan Stanley is pushing a mortgage relief plan directly to Congress. On August 3, a top Morgan Stanley economist recommended to the Senate Budget Committee that Fannie and Freddie ease their lending standards to allow millions of Americans to refinance their mortgages.

3) Keep in mind the political and economic context. The nascent recovery is already running out of steam. Wall Street economists just downgraded the government’s second-quarter GDP estimate of 2.4 percent to around 1.7 percent. And as even Treasury Secretary Timothy Geithner is warning, the unemployment rate may well begin to rise back toward the politically toxic 10 percent level given such sluggish growth. Many in the White House thought the unemployment rate would be dropping sharply by this point in the recovery.

More here http://blogs.reuters.com/james-pethokoukis/2010/08/05/an-august-surprise-from-obama/

So could this happen here?

Share this post


Link to post
Share on other sites

So could this happen here?

Debt forgiveness is the new black.

It's going to spread to entire nations before this is over. I know this 'cause my sig says so.

Share this post


Link to post
Share on other sites

Reading comments from other sites on the story it seems to really be stirring up anger. Why should anyone bother (in the USA for now) paying their mortgage? I suspect people dodge overpaying and the like in favour of going out and spending the money elsewhere thus driving up consumer spending figures no doubt just in time for the Nov mid terms.

I smell a rat here. I bet, if it is true, that there maybe some big catch involved.

Share this post


Link to post
Share on other sites

Reading comments from other sites on the story it seems to really be stirring up anger. Why should anyone bother (in the USA for now) paying their mortgage? I suspect people dodge overpaying and the like in favour of going out and spending the money elsewhere thus driving up consumer spending figures no doubt just in time for the Nov mid terms.

I smell a rat here. I bet, if it is true, that there maybe some big catch involved.

America really is in a mess - did you see the intial jobs claim this week - and how many are on food stamps??

There clutching at straws now and getting more desperate - the thing i see is that the sheeple seem to be waking up (just little ancedentals here and there) - no ones buying the stock market ponzi scheme - people saying why should i pay on debt thats worth more than my home.

What i expected is happening now, hyper inflation through the back door - food and energy.

Keep an eye on the end of seeptember till end of october, think we wil see complete collapse by then (yes may be over dramatic - but its really warming up)

P

Share this post


Link to post
Share on other sites
Guest sillybear2

Moral hazard, much?

I guess Obama wants to give the Tea Party a boost!

That's the only flaw in these schemes, you cannot buy off all of the people all of the time.

Share this post


Link to post
Share on other sites
Guest spp

Reading comments from other sites on the story it seems to really be stirring up anger. Why should anyone bother (in the USA for now) paying their mortgage? I suspect people dodge overpaying and the like in favour of going out and spending the money elsewhere thus driving up consumer spending figures no doubt just in time for the Nov mid terms.

I smell a rat here. I bet, if it is true, that there maybe some big catch involved.

No such thing as a free lunch, hey?

The catch? Spend, spend, spend...it's the service economy after all!

Too right though, the sensible get punished, for...being sensible.

We'll just stealth tax them through inflation...they will never know! :unsure:

The Silver shines.

Edited by spp

Share this post


Link to post
Share on other sites

Thought this through and thought no way, the moral hazard and stuff.

If this does happen this is as good as printy printy and putting the money directly in peoples bank accounts.

Share this post


Link to post
Share on other sites
Guest sillybear2

No such thing as a free lunch, hey?

The catch? Spend, spend, spend...it's the service economy after all!

Too right though, the sensible get punished, for...being sensible.

We'll just stealth tax them through inflation...they will never know! :unsure:

The Silver shines.

The feckless have nothing left to steal.

Who carries the haircut, if it's forced upon the banks then it will bankrupt them twice over, not to mention destroying part of the debt pyramid is highly deflationary. As for lumping it on to the national debt, hasn't China stopped buying Treasuries?

Share this post


Link to post
Share on other sites

Thought this through and thought no way, the moral hazard and stuff.

If this does happen this is as good as printy printy and putting the money directly in peoples bank accounts.

as previous posts say...the banks will be busted if its just a write off....no-one will beleive in the value of the bankers assets....they will KNOW the write off and expect to see it inthe balance sheet.

Share this post


Link to post
Share on other sites

America really is in a mess - did you see the intial jobs claim this week - and how many are on food stamps??

There clutching at straws now and getting more desperate - the thing i see is that the sheeple seem to be waking up (just little ancedentals here and there) - no ones buying the stock market ponzi scheme - people saying why should i pay on debt thats worth more than my home.

What i expected is happening now, hyper inflation through the back door - food and energy.

Keep an eye on the end of seeptember till end of october, think we wil see complete collapse by then (yes may be over dramatic - but its really warming up)

P

Nah not at all over dramatic, I see they are fighting the beast but I get the feeling something nasty is lurking or another monster is coming out from the cave.

October in the UK or in the USA?

Share this post


Link to post
Share on other sites

Denninger and Schiff will be bouncing off the walls in their next video logs :lol:

Denninger has already spake.

calculates about 21% of people would"benefit", leaving homeowners and others who tend to vote, vote against Obama in the November elections.

He thinks its a rumour put about by people looking for an out.

Share this post


Link to post
Share on other sites

Denninger's take...

http://market-ticker...orgiveness.html

Third, it won't do anything for prices - in fact, it likely would push them downward, as it would permit "clearing" of homes that currently can't be sold (and thus do not establish a market-price mark) due to being underwater.

Share this post


Link to post
Share on other sites

as previous posts say...the banks will be busted if its just a write off....no-one will beleive in the value of the bankers assets....they will KNOW the write off and expect to see it inthe balance sheet.

The banks in question are already busted.

Write off to the profit and loss account, reduction in retained earnings. Who takes the haircut? Thats right the shareholder, who is the shareholder?

Don't confuse solvency with profit.

Edit to add: I do not agree with this btw.

Edited by Godley

Share this post


Link to post
Share on other sites

The banks in question are already busted.

Write off to the profit and loss account, reduction in retained earnings. Who takes the haircut? Thats right the shareholder, who is the shareholder?

Don't confuse solvency with profit.

not to do with P/L..its to do with capital assets...and leverage.

Share this post


Link to post
Share on other sites

The debt jubilee is coming, they have to reset the counters and writing off the debt clearly is a good political vote winner.

America needs consumers to spend rebalancing the economy away from the dependence on consumer spending will take too long.

Moral hazard is everywhere the ponzi system is collapsing our political masters are getting desperate.

Once they go down this route the house price crash may get even more extreme, as those still in equity will want prices to come down so they can write off some of their debt.

They could possible create some very perverse incentives here.

Share this post


Link to post
Share on other sites
Guest sillybear2

"I saved your neighbour from foreclosure by destroying your pension, vote for me!"

Share this post


Link to post
Share on other sites

The debt jubilee is coming, they have to reset the counters and writing off the debt clearly is a good political vote winner.

America needs consumers to spend rebalancing the economy away from the dependence on consumer spending will take too long.

Moral hazard is everywhere the ponzi system is collapsing our political masters are getting desperate.

Once they go down this route the house price crash may get even more extreme, as those still in equity will want prices to come down so they can write off some of their debt.

They could possible create some very perverse incentives here.

According to Denninger, its not a debt jubilee...its not for non payers, its not for payers...its for people struggling with NE and the write off is for the difference between the loan and the current value, this to free up the market....course this would mean that people would be able to clear..in theory, not that they wouldnt be in NE...course as they come to market in numbers, the NE will return...supply and demand dictates.

AS to Godley, the write off is rumoured to be for the GSEs, not for banks, so the banks would again be free to clear the debts with sales, as above...non payers wouldnt get it anyway, so bankers would LOSE the income from loans which are cutrrently ubderwater, and yet providing an income.

the CDOs and MBS asseta would of course tank in value as the property market again tanked...this affects their lending ability, although, as you say, they just lie about the values anyway.....but failure to show a drop in line with house price falls would deffo give the game away.

Share this post


Link to post
Share on other sites

According to Denninger, its not a debt jubilee...its not for non payers, its not for payers...its for people struggling with NE and the write off is for the difference between the loan and the current value, this to free up the market....course this would mean that people would be able to clear..in theory, not that they wouldnt be in NE...course as they come to market in numbers, the NE will return...supply and demand dictates.

I know it's not a debt jubilee but it's going down that road, once they start this there will be no stopping it. Everyone will want there debt cut.

The money came out of thin air in the first place, so saying is doesn't exist is a rather simple process.

Share this post


Link to post
Share on other sites

I know it's not a debt jubilee but it's going down that road, once they start this there will be no stopping it. Everyone will want there debt cut.

The money came out of thin air in the first place, so saying is doesn't exist is a rather simple process.

money doesnt come out of thin air...something is monetised...temporarily....so a debt jubilee is a default..someone somewhere ISNT going to get some expected wealth back.

Denninger talks about this rumour, which is what it is, as occuring, if it does, AFTER the 401Ks are submitted...I beleive that is US pension contributions....so it looks like the US plans to use pension funds to bail out debtors.....Argentina rather then Japan.

Share this post


Link to post
Share on other sites

money doesnt come out of thin air...something is monetised...temporarily....so a debt jubilee is a default..someone somewhere ISNT going to get some expected wealth back.

Denninger talks about this rumour, which is what it is, as occuring, if it does, AFTER the 401Ks are submitted...I beleive that is US pension contributions....so it looks like the US plans to use pension funds to bail out debtors.....Argentina rather then Japan.

Wont happen bloo - the sheeple will rise

Share this post


Link to post
Share on other sites

money doesnt come out of thin air...something is monetised...temporarily....so a debt jubilee is a default..someone somewhere ISNT going to get some expected wealth back.

Denninger talks about this rumour, which is what it is, as occuring, if it does, AFTER the 401Ks are submitted...I beleive that is US pension contributions....so it looks like the US plans to use pension funds to bail out debtors.....Argentina rather then Japan.

Okay, read what you have said and disagree to a point.

The other side of the write off IS to retained earnings, who doesn't get the wealth back, the shareholder. The shareholder of these institutions is the state. It's the perfect fiddle, the state has effectively monetised the write off. Hasn't it?

Edited by Godley

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 152 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.