Change is in the Air
Research for Online Investors

01/11/12

There have been rumors around the market the White House was working on a “grand refinancing” plan to put money in voter’s pockets this spring.  The idea is to allow ANYONE who is current on their mortgage payments for the last six months to refinance at today’s lower interest rates.

Ezra Klein wrote about the “plan” yesterday in the Washington Post.  His title tells it all “The biggest thing Obama can do without Congress.”  It fits nicely with President Obama’s campaign message of a “do nothing” congress.

Columbia economist Christopher Mayer and Glenn Hubbard, dean of the Business School, authored a paper last fall.  They estimated up to 30 million homeowners could benefit from refinancing their homes.  Many are not able to refinance because they are “upside down.” This popular term has been applied to situations where the home has fallen in value below the amount of the loan.  Others may not be able to refinance because of enhanced and more difficult loan origination credit underwriting.

Many self-employed homeowners have “low-doc” loans that cannot be refinanced under today’s guidelines.  Mayer and Hubbard estimate mortgage payments would fall by about $70 billion.  This would leave more money in homeowner’s pockets and help spur the economy.

Mayer and Hubbard point out the economic benefits of the program and the costs, comparing it to a “long term tax cut.”  The plan would not cost the government anything, because “Bondholders are paying the bulk of the cost of this program.”

Klein points out the President can do this without congress agreeing.  There is one small problem.  Fannie Mae and Freddie Mac are overseen by the Federal Housing Finance Authority (FHFA).  The FHFA is headed by Edward DeMarco.  Mr. DeMarco is a career bureaucrat who became the acting director after James Lockhart (Bush’s appointee) resigned early in Obama’s term.

President Obama didn’t nominate anyone to head the FHFA until late in 2010, after the elections.  Senate Republican have blocked the confirmation.  Acting Director DeMarco won’t play ball with Obama.  He has taken a conservative management approach and opposes many of Obama’s efforts that involve Fannie and Freddie.

Klein proposes that President Obama make a “recess” appointment to fill the FHFA Director’s job with a “friendlier” director.  Have the new director approve the program, write the rules and announce the program during his State of the Union address.

The plan fits nicely for Obama.  He can go around the congress, painting them as not addressing the middle class voter’s needs and get back on the campaign trail with his “We can’t wait on Congress” mantra.

Evidence that ‘Change is in the Air’ hit yesterday when Michael Williams announced his resignation as CEO of Fannie Mae.  It is almost too good an opportunity for Obama to act.  Watch for a “recess” appointment in the next few days, on any break congress takes.  The State of the Union address is scheduled for Tuesday January 24.  What can congress do, impeach him?

Pepsi Beverages announced the settlement a “racial bias” case with the Equal Employment Opportunity Commission (EEOC) for $3.1 million dollars.  USA Today reports the company made the mistake of using criminal background checks to screen job applicants.  Using criminal background checks was deemed discriminatory ‘if it is not relevant for the job.’  Ok…what is relevant?

The market looked to go lower this morning but has good support after the strong advance yesterday.  Absent any bad headlines, we are consolidating the gains on the market’s push through resistance at 1285.  We have been busy in the market today.

Editor’s note:  If you bought our SwingTrader recommendation of TZA here are our results:  01/10 bought at $24.00 01/11 sold at $24.05 for no gain

This trade was ‘feeling’ the market for a possible breakdown.  We closed with no damage and are looking for long plays to go with the trend higher.

Quote:
Socialism in general has a record of failure so blatant that only an intellectual could ignore or evade it.—Thomas Sowell

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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