Response to Tansy_Gold (Original post)
Tue Jan 31, 2012, 09:38 PM
Demeter (69,045 posts)
13. BRUCE KRASTING: Obama Bluffs on ReFi?
Last edited Tue Jan 31, 2012, 09:39 PM - Edit history (1)
In his State of the Union speech, the President said:
Millions of innocent Americans have seen their home values decline. And while government can’t fix the problem on its own, responsible homeowners shouldn’t have to sit and wait for the housing market to hit bottom to get some relief.
And that’s why I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low rates. No more red tape. No more runaround from the banks. A small fee on the largest financial institutions will ensure that it won’t add to the deficit and will give those banks that were rescued by taxpayers a chance to repay a deficit of trust.
I found this interesting, and can’t wait to see the legislation that the Prez is going to offer up.
I have written four articles on the topic of a Mega ReFi (SEE LINKS AT ORIGINAL ARTICLE). The first one was back in August. At first I thought there might be something behind all this talk. Now, five months later, I think it's all gas. We’re not going to see any big ReFi plan until after the next election. These are the issues as I see it:
As FHFA has noted on numerous occasions, with taxpayers providing the capital supporting the Enterprises’ operations, this “preserve and conserve” mandate directs us to minimize losses on behalf of taxpayers.
In my opinion DeMarco has lived up to that. He has taken steps that have reduced the risks and the ultimate costs that the taxpayers face with Fannie and Freddie (F/F) . It’s for that same reason that he has not allowed F/F to be the agencies of the Administration’s economic plans. These plans would force F/F to reduce interest rates on outstanding mortgages. As some of those mortgages are in inventory at F/F, the ReFi will result in additional losses. More importantly, the ReFi’s will require a waiver of many existing representations, and warranties of existing borrowers. In the end, there would have been a cost to all of this. The plan was for F/F to absorb the costs over time, and therefore kick the can down the road. (Why the President said there would be no cost)...DeMarco has nixed those plans. I’m amazed by this. DeMarco has been beaten up by the likes of Elijal Cummings (the new wanna-be Barney Frank of housing, ....only in America…) ...But even the President can’t bend Ed DeMarco. The reason, I believe, is that Mr. DeMarco has “protection”.
A year ago, the Administration tried to junk DeMarco. It wanted its own guy in charge of the old Agencies. It wanted Ed out of the way so that they could conduct economic policy (quietly) using F/F's $6 trillion of power. I thought the appointment was a shoo-in at the time. That was not the case. The appointment was squashed by one of the strongest hands in D.C. - Senator Richard Shelby (R. Al) put his thumbs down. Without Shelby's support in the Senate, no appointment was going through. So DeMarco kept his job, and the Administration's plans got checked by powerful forces. The question is, “Is this check mate?”...The legislation that the President promised in his SOTU address can’t be a rehash of what was previously tried with Fannie and Freddie. That door is closed, at least until the next election. Therefore, I anticipate that the President will attempt to use the other big D.C. player in the mortgage business, the Federal Housing Authority (FHA). This entity could, in theory, be used to achieve Obama’s objectives. It could guarantee the payment of the new mortgages that would be required. In the process, it would transfer risk (both credit and interest rate) from F/F to FHA. That would make DeMarco happy. While this plan is a possibility, it will never happen. The FHA is already in financial jeopardy (link). It needs a capital injection into its reserve fund for the existing book of business ($1T)...FHA would need a very big slug of additional capital to handle the ReFis that the President wants. (There are approximately 10mm homeowners, all underwater who would be eligible.) There is no way in hell that the FHA could get that much money this year. To do so would require the blessings of Senator Shelby. He has already tipped his hand; he won't back off in 2012. I think we will see some legislation on this from the WH. It will get talked about on TV, but it’s dead on arrival. The President will claim that he tried, and he will blame Republicans for the failed effort. I wonder if the upcoming failed effort is not a "planned failure". One that has been put "out there" purely for the political theater that will come with it.
AND THERE'S MUCH MORE...BUT GIVEN OBAMA'S LOVE OF LEGERDEMAIN, I'M WITH BRUCE.
If the Top 1% Get 99% of the Income and Wealth, They Should Pay 99% of the Taxes...Damaged people are dangerous. They know they can survive... Is there any way the ultra-right will let go of its stranglehold on the US economy?*Occam’s Switchblade: If you can’t figure out why someone does something, assume it’s because they want to."
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