Mortgage interest rates are at their lowest point in decades (about 4.5%) and the housing credit has been in effect for more than three years, yet the housing market is tepid at best, with foreclosures at record highs and government housing institutions having to put more distressed assets on their books. This has spurred rumors around the web that the Obama administration (via the Treasury) will soon be asking government owned entities Fannie Mae and Freddie Mac to expand their “save the economy” effort by reducing the principal balances for those individuals struggling to pay their mortgage payments. Keep in mind that the President does not need congressional approval for this change because 1) the government already “owns” Fannie and Freddie and 2) the Treasury has removed the previous limits on the amount of money the organizations can tap into (it was $400 Billion, now – no limit).
Unlike most rumors, this one became more, not less, plausible when you examine the details. The White House has made it clear in recent months that it is frustrated by what the Framers called “the legislative branch,” what President Obama calls “politics” and what I call “the wishes of the American people.” Obama craves a short-term sugar rush for the economy. If he feels cornered, betrayed and alone, he could use his new ownership of Fannie Mae and Freddie Mac as a free federal candy store and tell America to line up and pig out. In more ways than one, Barack Obama seems to want to be known as the Sub-Prime President. (source : New York Post)
While this plan may help a handful of borrowers on the edge of foreclosure, there are many more fundamental problems with reducing the principal home loan balances which include:
