You Can Bet Your Fannie There's a Scheme Afoot

The Obama Administration and the Federal Reserve are feverishly working behind the scenes to stir momentum for a massive rescue package designed to resurrect the ailing housing industry.  It's all part of a synchronized stealth effort to boost the president's flagging reelection chances.

The blueprint began unfolding earlier this month when the Federal Reserve issued a little-noticed white paper recommending that mortgage behemoths Fannie Mae and Freddie Mac assume a more active role in awakening the slumbering housing market.

In its document, the Fed admitted the new direction could deepen financial losses for the two lenders.  Already taxpayers have ponied up $183 billion and counting to keep Fannie and Freddie from plummeting into a financial sinkhole.  The prospect of more red ink apparently doesn't faze the Fed or the president.

The white paper provides air cover for the administration to move ahead on several fronts.  The president's puppet masters are taking aim at replacing recalcitrant heads at Fannie Mae and the Federal Housing and Finance Agency (FHFA) to remove potential roadblocks to their scheme.  

That helps explain why Fannie Mae CEO Michael Williams unexpectedly announced he was stepping down.  Almost simultaneously, the administration leaked the news that it was searching for a new chief executive to shepherd the Federal Housing and Finance Agency (FHFA), replacing Edward DeMarco.

Apparently, Williams and DeMarco are both too independent for the president.  Obama wants sycophants who will advocate for aggressive government intervention to stabilize housing prices and stem the onslaught of foreclosures sabotaging the real estate market.

As head of the independent housing agency, DeMarco's role has been to regulate Fannie and Freddie.  The once private firms were placed into conservatorship by FHFA on September 7, 2008, after both were threatened with insolvency when the housing market collapsed.    

Since then, Fannie and Freddie have continued their downward spiral. In the most recent quarterly earnings reports, Fannie tallied $5.09 billion in losses while her mortgage brother Freddie experienced a similar hit of $4.4 billion.  

By any measure, Fannie and Freddie are abject failures.  The lenders were at the forefront of the sub-prime lending frenzy that subverted the housing market.  The twin turkeys, which underwrite 90 percent of all the nation's home mortgages, also have a sordid history of abuse of power.

In the last decade, Fannie and Freddie have been slapped on the wrists by Congressional oversight committees for dubious campaign contributions, accounting scandals, gross mismanagement,  political lobbying and influence peddling.

It begs the question: why not do away with both agencies and turn over the mortgage holdings to private companies?  The answer can be found by following the money trail.  Both agencies have been generous donors to Democrats, including the president. 

But the president has other reasons for wanting Fannie and Freddie to return to the lax lending standards that got it into trouble in the first place.  It seems Obama has finally awoken to the fact that consumer spending and thus the economy will not improve unless housing prices and property values stabilize.

As a result, his foot soldiers are scurrying to develop a massive refinancing package or possibly a housing stimulus program to resurrect the moribund real estate market.  There are sure to be plenty of Congressional skeptics in light of the administration's past flops to revive housing.

For example, the president's much ballyhooed Home Affordable Modification Program (HAMP) has been an utter disaster.  Despite $50 billion in taxpayer funding, even the government has admitted the program fizzled in its effort to arrest the tide of home foreclosures.

In 2011, there were foreclosure filings on 1.88 million properties in the nation, according to Realty Trac.   The number would have been much higher but thousands of foreclosures are being held up by legal action pursued by states.  A settlement in the case will unleash a torrent of new foreclosure notices.

That would be catastrophic for the housing market and for the president's chances for a second term.

The president's state of the union address is scheduled January 24.  It would not be surprising for Obama to call for Congressional action to prop up delinquent homeowners and the sagging real estate industry with colossal infusions of taxpayer money.

In a period of record federal deficits, such a plan may seem preposterous.  However, never underestimate the power of election year politics to influence politicians to do dumb things with your money.