(snip)"NEW YORK (MarketWatch) -- The Obama administration on Tuesday will launch its latest efforts to rescue the failing housing market, according to a media report Saturday.
The program, first announced in March, will focus on reducing mortgage balances for homeowners who owe more on their homes than their properties are worth, The Wall Street Journal reported in its online edition.
The Journal, citing officials, said between 500,000 and 1.5 million underwater loans could be modified through the program. About 11 million borrowers, or 23% of households with mortgages, were underwater on June 30, said the Journal, citing data from CoreLogic Inc.
The plan is the first effort that targets homeowners current on their mortgage payments but at risk of default because they have no equity in their homes, said the paper.
The plan would see banks and other owners of the mortgages who write down the loans to less than the value of their property be able to, in effect, pass the written-down loan to the government. The government would then refinance borrowers into loans backed by the Federal Housing Administration, said the Journal.
The paper said that while one in five of the loans might default, the government has set aside $14 billion from the Troubled Asset Relief Program to cover potential losses.
The paper reported that some analysts believe the program could let investors get rid of loans that have been modified and are current again. "(snip)
Obviously this will be a big 'winner' for those irresponsibly over-mortgaged homeowners who qualify for having US Taxpayers 'buy down' their negative equity. This will also be a big winner for the big banks who will 'get paid' by US Taxpayers to write down their toilet paper mortgages and packaged mortgage bonds. Hedge funds and Pension funds will also be 'winners' since this action will improve the 'quality' of remaining mortgage bonds that do not get written off and/or transferred to the US Treasury. Thus, arguably, this is yet another form of gov't bailout of Wall St, as well as a new 'stealth' bailout of gov't and union employee pension funds.
There will be losers as well though ... with the largest losers obviously being US Taxpayers. But high risk high yield speculators in mortgage bonds will also get burned badly.
As a side note, this new program bypasses Fannie and Freddie, and designates the FHA as the guarantor / eventual new owner of these rewritten but still shaky mortgages - which removes any pretense of the gov't not being in the 'mortgage business'. The gov't is already planning to allocate $14 billion in US Taxpayer money towards absorbing future losses on these shaky mortgages - an estimate that could turn out to be woefully short of reality.
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