Here is a hot rumor coming from Reuter’s James Pethokoukis: essentially the Obama Administration in its latest attempt to prop up the housing market may issue an order to forgive portions of underwater mortgages processed through GSEs, Fannie Mae and Freddie Mac, where negative equity approaches a whooping $800 billion overall.
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.
Wall Street banks are alerting their clients privately to this possibility.”
This is nonsense. Yes, Fannie and Freddie need reform, but not this kind of reform. Second, and most importantly, how is this going to help millions of Americans who need jobs but don’t own houses? Forget this rumor. Is probably just part of the silly season. Nothing more.