Mike Shedlock

President Obama is in Fantasyland or in some alternate universe. He wants to strengthen the housing market provided

  • The plan helps a broad swath of homeowner
  • The plan stimulates the economy
  • The plan costs next to nothing

So says the New York Times in U.S. May Back Refinance Plan for Mortgages

The Obama administration is considering further actions to strengthen the housing market, but the bar is high: plans must help a broad swath of homeowners, stimulate the economy and cost next to nothing.

One proposal would allow millions of homeowners with government-backed mortgages to refinance them at today’s lower interest rates, about 4 percent, according to two people briefed on the administration’s discussions who asked not to be identified because they were not allowed to talk about the information.

A wave of refinancing could be a strong stimulus to the economy, because it would lower consumers’ mortgage bills right away and allow them to spend elsewhere. But such a sweeping change could face opposition from the regulator who oversees Fannie Mae and Freddie Mac, and from investors in government-backed mortgage bonds.

Investors may suspect a plan is in the works. Fannie and Freddie mortgage bonds had been trading well above their face value because so few people were refinancing, keeping returns on the bonds high. But those bond prices dropped sharply this week.

Uninspiring Nonsense

Frank E. Nothaft, the chief economist at Freddie Mac, said the federal action could instill confidence.

"It almost seems to me you want to have some type of announcement or policy, program or something from the federal government that provides that clear signal that we are here supporting the housing market and this is indeed a good time to really consider buying," Mr. Nothaft said.

Quite frankly that is idiotic as one of my readers noted in an email. That government needs to step in and artificially support housing prices is not inspirational.

Moreover, two tax credits that blew up just proved it.

The idea that you can do something at no cost to fix the housing market is pure lunacy. I am not sure which of the following terms applies best

  1. Holy Grail of Housing
  2. Free Lunch
  3. Perpetual Motion Device
  4. Fountain of Youth
  5. Pain with No Gain

Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.

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