Obama’s August Surprise – Mortgage Bailouts!

Rumors are swirling around Washington and Wall Street that Obama may try to help Democrats’ dim midterm election prospects by having Fannie and Freddie forgive principle on underwater mortgages.  Obama would basically accomplish this by executive order and thus relieve Congress from their role as holder of the purse strings. 

James Pethokoukis, Reuters: 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… [MORE]

Irresponsibility doesn’t even begin to describe this maneuver. Fannie and Freddie are already financially teetering; such massive write-downs will have to be passed off to the already burdened taxpayer. Needless to say, it is again spending more money we do not have. Should this surprise take place, Congress should share the blame by passing laws that basically gave away their Constitutional authority to the treasury and executive branch.

This may buy the Democrats some votes in the short run, but can you image just how pissed off everyone who struggled to responsibly pay their mortgage is going to feel about footing the bill for someone else?  The anger that is going to generate against Democrats might be the kind of anger the party may never recover from.

Via: Memeorandum

Via: Reuters

Please Sir, May I Have Some More? Freddie Mac is looking for another $10.6 billion

This is why "systemic risk" and "too big to fail" are concepts we never should have followed. 

Exhibit A: WASHINGTON – Freddie Mac is asking for $10.6 billion in additional federal aid after posting a big loss in the first three months of the year. It's another sign that the taxpayer bill for stabilizing the housing market will keep mounting.

The McLean, Va.-based mortgage finance company has been effectively owned by the government after nearly collapsing in September 2008. The new request will bring the total tab for rescuing Freddie Mac to $61.3 billion.

Freddie Mac says it lost $8 billion, or $2.45 a share, in the January-March period. That takes into account $1.3 billion in dividends paid to the Treasury Department. It compares with a loss of $10.4 billion or $3.18 a share, in the year-ago period. 

What we have here is a classic example of what our grandparents use to call "throwing good money after bad". Because we have already sunk over $50 billion into rescuing Freddie Mac, we are forever on the hook to bail them out or we risk loosing more than had we just let them collapse on their own.

Freddie Mac and Fannie Mae were part of the fundamental causes to the economic meltdown of 2008.  It is irresponsible to the point of being criminal that the Democrats did not address these two entities in their Financial Regulation bill.

We all know that Freddie will get the cash, because they are "too big to fail" and the "systemic risk" of their collapse to the economy is too great. Next quarter, Freddie will be back with a new set of losses and we can start throwing more good money after bad all over again.

Via: Memeorandum

Via: Associated Press