Obama's latest attempt to stimulate the housing sector and inflate home prices "before waiting for them to hit bottom" (which they never will as long as central planning tries to define what clearing prices are) is a noble reincarnation of now an annual, and completely ineffectual, theatrical gambit. There is, unfortunately, one major snag. It is Dead on Arrival (just like every single iteration of the Greek bailout), for the simple reason that it has to get congressional approval. Which it won't. And that's not just the view of biased political pundits. Wall Street agrees.
Courtesy of the WSJ, which summarizes the prevailing views on this topic [7]:
Edward Mills, analyst, FBR Capital Markets: “We believe that this program would be dead on arrival in Congress, as congressional Republicans are opposed to additional intervention in the mortgage market and are philosophically opposed to a bank tax. This should be confirmation that the administration realizes that a mass-refinance program can only be achieved by legislation and not by regulatory fiat.”
Jaret Seiberg, senior policy analyst, Guggenheim Securities: “The question is whether Congress will enact this into law. To us, that is a very high hurdle in an election year. Republicans will be loathe to give the president a political win and we expect they will portray this as a policy that rewards the irresponsible at the expense of the responsible. Yet one should not dismiss this idea outright. We believe it may be far less expensive for the government than the market may believe. That could make it difficult for Republicans from states still suffering from housing woes to object.”
Alec Phillips, economist, Goldman Sachs: “While the universe of eligible borrowers isn’t entirely clear, this implies that the legislation might go beyond refinancing loans backed by Fannie Mae and Freddie Mac and could also allow refinancing of loans held by investors or banks. Given the stalemate in Congress on most housing-related issues at present, the fact that the president is seeking congressional approval should probably be interpreted as a sign that the administration has taken its own refinancing efforts as far as it can without legislation.”
Issac Boltansky, policy analyst, Compass Point Research & Trading: “While the details of the plan were almost nonexistent, the broad contours of the plan lead us to believe that the likelihood of successfully enacting it are exceptionally low. We are concerned that the proposal would have to be enacted legislatively, that it would call on the government taking on much more mortgage risk, and that the corresponding proposed bank tax will serve as a political wedge.”