this is a great insightful article about what the Fed/government does next to stimulate the economy. this plan wraps up a whole bunch of loose pieces and he explains why it will likely move forward with virtually everyone (except some tea-party republicans) approval. it involves very complicated moves that will reset the interest rate on mortgage loans, give consumers a huge boost in spending ability and thereby gain politial points for obama. the only losers are mortgage reits like NLY. i think it’s going to happen.
Assume for the sake of discussion that the President does announce a major new initiative to ReFi F/F mortgages. Assume further that the cost of the millions of ReFi’s would come from existing sources (the $35b of already issued and funded Hope Now Bonds), or better yet, the costs would be crammed down the neck of the banks who are servicing the loans (necessary to get DeMarco to go along). Say, for the sake of discussion, that the targeted mortgages are those who have not yet defaulted, but are desperately in need of a break. That amount would come to about $1.4 Trillion. This is a very big amount. Assume finally that the new mortgage rate would be about 4%. This (if accomplished) would be a very big shot in the arm for the economy as a whole.