Tags: Treasury | Denies | Big | Fannie | Freddie | refinance

Treasury Denies Plans to Forgive Bad Home Loans

Thursday, 05 Aug 2010 02:39 PM

The Obama administration is not considering a change to its policy regarding mortgage finance giants Fannie Mae and Freddie Mac, a Treasury spokesman said on Thursday.

"The administration is not considering a change in policy in this area," said Treasury spokesman Andrew Williams.

The comment followed speculation in recent days from analysts at Wall Street firms including Morgan Stanley that suggested the administration could tweak rules at Fannie Mae and Freddie Mac to spark a major refinancing wave.

On Thursday, a Reuters Breakingviews opinion column referred to rumors in Washington and Wall Street that the administration could soon order 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.

Mortgage bond prices pared losses after the statement from Williams. Prior to the denial, investors were selling mortgage bonds that would sustain large losses if a new wave of refinancings took place.

The Reuters Breakingviews article, written by James Pethokoukis, stated that an estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion.

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, Reuters Breakingviews reported. On Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help.

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, Pethokoukis wrote.

The key date to watch is Aug. 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie, Reuters Breakingviews reported.

Pethokoukis wrote that Republican leaders believe this is going to happen since Republicans and Democratic moderates in the Senate are unwilling to spend more taxpayer money on more stimulus. But such a housing plan would allow the White House to sidestep congressional objections and show voters it is doing something tangible about an economy that seems to be weakening.

Wall Street banks, such as Goldman Sachs Mizuho Securities, are alerting their clients privately to the possibility, he said.

Pethokoukis also wrote that Morgan Stanley is pushing a mortgage relief plan directly to Congress. On Aug. 3, a top Morgan Stanley economist recommended to the Senate Budget Committee that Fannie and Freddie ease their lending standards to allow millions of Americans to refinance their mortgages.

© 2017 Thomson/Reuters. All rights reserved.

 
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The Obama administration is not considering a change to its policy regarding mortgage finance giants Fannie Mae and Freddie Mac, a Treasury spokesman said on Thursday. The administration is not considering a change in policy in this area, said Treasury spokesman Andrew...
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2010-39-05
Thursday, 05 Aug 2010 02:39 PM
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