Saturday, August 7, 2010

Rumours of a big US mortgage bailout circulating.

An August Surprise from Obama?

Main Street may be about to get its own gigantic bailout. Rumours 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. 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.

Posted by wanderinman @ 10:41 PM (2037 views)
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7 thoughts on “Rumours of a big US mortgage bailout circulating.

  • There are an awful lot of people who have led modest and financially carefull lives living in run of the mill houses who will strongly object to financially wreckless, property speculative and heavily indebted individuals who have lived it up on ‘equity’ being foregiven for their property losses.

    Rumours like this are usually spread to make some halfway house, half baked policy more respectable to the masses.

    September as always should be interesting once the financial types have finished their lazy August holidays.

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  • fallingbuzzard says:

    That will be an easy one to get through inside 100 days!

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  • I would be tend to be very skeptical about a story like this, but for the fact that it comes from Reuters – who rarely produce total fiction.

    So I suspect someone in high office is throwing some straws in the air to see where they land..

    However, I tend to agree with the Denninger analysis – that for every person helped, there would be several outraged.

    Simple forgiveness is not a runner (I think). Allowing people to re-schedule their debts so that there is no obligation to service part of it until their income reaches a certain threshold – or something along those lines – might have some mileage..

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  • There are some problems with the numbers..

    15m is one in five of all privately owned homes in the US, not one in five mortgages. (approximately two thirds of all US homes are privately owned)

    Of the privately owned housing stock in the US, only 48m, or about 64%, have any kind of mortgage, and of those, fewer than a third have ever re-mortgaged. Given the proportion of homes that were bought when the Case Shiller index was lower than it is today, repayments made on loans and initial deposits; it seems unlikely that more than 4m loans made to those who have not subsequently re-mortgaged are now in NE.

    Of those who have re-mortgaged at some point, many will have done so for quite reasonable and moderate reasons, or did so a long time ago and now have little left to pay; so I am doubtful that more than 50% – or 8m – would now be in NE.

    This gives 12m, of whom about 2m have already been evicted, so perhaps 10m homes left with a current NE problem.

    Many of those will have a relatively small degree of NE, and would prefer to pay down the debt than face eviction, so we are probably looking at 5-6m homes left that have a hopeless degree of NE.

    This represents about 5% of all households in the USA

    Would the 95% (many of whom are on low incomes) welcome the bailout of the 5% (many of whom are on high incomes)

    – No way!

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  • UT – yes very good comments. I reiterate what i said on a prior thread :

    As usual Daneric is the smart cookie:

    “QE2 will be a disaster if they execute it. Sure the market may have one final short-squeeze spasm, but once the buyers wane, I expect a flash crash event.

    They would be fools to do it.” – he is absolutely right, the public are realising it and the politicians are beginning to realise the public realise it.

    they might try it but it will backfire. All this “the fed / government can do what it wants” aint quite right. Its what it will be ALLOWED to do thats the issue. A tightrope through the grand canyon – with the potential for disaster if they fall off either side.

    BTW UT – looks like you done good on them BP shares. Braver man than me i must say, although i read the indexes as still not being over on the upside, so i spose it would have been difficult for that to happen without a move up in one of the core components,

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  • Ah so effectively US debt is not worth anything. That’s going to be good news for US bonds isn’t it?? ?>X?A

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