I think it’s obvious by now that the Obama administration is going to have to find some creative ways to do more stimulus. The Republicans have blocked almost every effort to get help to the American people who are still suffering from the Bush recession. There’s a rumor being floated now that people could see a principal reduction:
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.
This sounds really close to what we at DL were proposing in 2008. Instead of sending money to the banks, just reduce everyone’s mortgage debt. I’d prefer to see this kind of debt forgiveness for everyone, not just homeowners. But it’s a start!