Another Bailout Plan: Directly Bailout Homeowners

Actually, if you accept "bailout logic" at all, this makes the most sense and should have been done from the beginning (which is why I didn't object when McCain proposed it).

If people's ability to pay their mortgages are at the heart of the problem, why are we fucking about several steps up the chain from there, trying to stabilize banks and inject capital to make up for bad mortgages? Why not just firm up the mortgagees themselves, which would, in turn, fix the problems of the institutions holding them as assets?

It's unfair, yeah, but all of this is unfair. And maybe it's not so unfair -- anyone with good credit and a mortgage can refinance at a new lower rate.

Treasury Secretary Henry Paulson is considering a new plan to lower mortgage rates in an effort to resuscitate the U.S. housing market, a government official said.

The Treasury, which already has a program to buy mortgage- backed securities issued by Fannie Mae and Freddie Mac, could step up those purchases to drive down interest rates on some loans to 4.5 percent, the official said on condition of anonymity. The plan is preliminary and could change.

The deliberations come as President-elect Barack Obama pledges fresh action to help American homeowners, and on top of a $600 billion initiative announced by the Federal Reserve last week to buy mortgage debt. Mortgage applications surged by a record last week and the average rate on a 30-year fixed-rate loan dropped to 5.47 percent, the lowest level since June 2005, the Mortgage Bankers Association said today.

“Lower mortgage rates will allow households to fortify their balance sheets, and we will likely see consumer spending come back a little quicker than it would otherwise,” said Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina. At the same time, “it's not going to be an instant panacea for what ails the economy,” he said.

While lowering mortgage rates to 4.5 percent would allow most homeowners to refinance into a cheaper loan, far fewer will actually qualify, said Rajiv Setia and Nicholas Strand at Barclays Capital in New York.

“Over 90 percent of the mortgage universe out there would be refinancable, but you can't force banks to lend to people,” said Setia, a fixed-income strategist for Barclays.

Well, you kinda can, given that we increasingly own banks.

posted by Ace at 07:53 PM

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