Economic Crisis Is A Lose-Lose for Democrats and Republicans, Stimulus or No

Rules packed into Obama's mortgage bailout may limit its effectiveness.

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By Bonnie Erbe, Thomas Jefferson Street blog.

I feel sorry for Democrats and Republicans trying to sort through the current economic crisis and pull the country through this Depression—er—recession. If they open the printing press's floodgates, they satisfy the "woe is me" types. But they also expose federal funds to all manner of corporate abuse, as we saw with the first Bush Bailout dollars, some of which were spent on lavish vacations for high-earner sales types.

If they do nothing, and the economy does not pull itself out of recession, they won't get re-elected because they failed to act.

Now Bloomberg tells us stringent rules packaged in with the president's mortgage bailout may limit its efficacy:

The effect of the Obama administration's housing plan on home-loan bonds and borrowers will be limited by restrictions on which mortgages are eligible, according to Bank of America Corp. analysts.

The plan, announced yesterday, includes government payments to lenders such as bond investors, mortgage servicers and borrowers either before or after loans are reworked. It also will loosen Fannie Mae and Freddie Mac rules to allow more borrowers to refinance into lower payments, including some who owe more than their homes are worth.

Only about 50 percent to 60 percent of securitized prime jumbo or Alt-A loans meet the loan-modification standards requiring borrowers to live in mortgaged properties and owe no more than Fannie and Freddie's loan limits, according to a report yesterday by Bank of America strategists including Akiva Dickstein and Vipul Jain. The refinancing plan will be limited by a standard preventing homeowners from qualifying if they owe more than 105 percent of their homes' value, they said.

As I said, this could turn out to be a huge lose-lose proposition.

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