What's $800 Billion among friends?

There was supposedly a (rumor) proposal "floated" by the Obama administration (James Pethokoukis writes on Reuters) today  that the they may be planning to eliminate many/most/all underwater mortgages in a single swoop: (here's the actual article)

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 (almost 1 in 2 here in Florida) – are underwater with negative equity of some $800 billion.

Hmmm...this would be just in time for the midterm elections...coincidence? I think not!

*Remember way back to Christmas when the administration lifted ALL loss limits on Fannie and Freddie...without comment, over a holiday weekend? Was this what they planned all along? (Read this old post)

The underwater mortgages would become Federal government debt (OUR debt) practically overnight. And, from what I understand, this could be done without Congressional approval...just a nod of the head from the Pres. and Mr. Geitner!

Many taxpayers would be understandably irate if such a thing were to come to pass. As Pethokoukis notes:
The political calculation is that the number of grateful Americans would be greater than those offended...

There are no real details to be found anywhere, and there are sooo many ways how this might work,:

• Would it be only for primary residences?
• Would you have to be delinquent?  Then if you are current, do you stop paying to qualify?
• What if you re-sell your home...do you owe back the money that was carved off?
• What about all of the borrowers who are not with Fannie and Freddie?
• What about 2nd mortgages/Helocs?

So, all of those bankers sitting with billions of underwater loans on their books would suddenly be "made whole" at the taxpayers expense...again. Probably lots of bonuses would ensue and prices of homes in the Hamptons would skyrocket!

However, all political opinions aside, this is the general starting point behind the idea I had more than a year ago to stop the continuing slide of home values and the subsequent disaterous effects it is having on our economy and our lives.

As Pethkoukis says, August 17th is a key date, as that is when the Treasury will hold a hearing on the future of Fannie and Freddie. Keep an eye on this blog.

And here is a comment I posted on one of the most interesting inside real estate blogs around, The Notorious R.O.B.

And as always...thanks for stopping by!