Obama’s New Economic Plan: Take Over Fannie and Freddie?

President Obama promised to release his new economic plan really soon. We don’t know what he’s going to call for, but there have been hints, and it’s almost certain he will call for more stimulus spending. According to Fox News, it’s now looking like a federal government take over Fannie Mae and Freddie Mac is part of his plan.

At the center of the Panic of 2008 were defaults on cheap mortgages for Americans with poor credit. The latest idea to reverse the resulting recession is for the government to offer cheap mortgages to Americans with poor credit.

There have been rumblings for weeks that the economic plan to be offered by President Obama after he returns from his vacation would be aimed, at least in part, at trying to re-inflate the American housing market.

Nearly non-existent interest rates, tax-rebates and free money for banks that refinanced underwater borrowers have not worked to reverse perhaps the steepest slide in home values ever. Even when there was hope for recovery, home values kept descending.

There are lots of problems for American homeowners, but one of the biggest is that foreclosures continue to hit the market. Rather than clearing the glut of foreclosures from the bubble burst that preceded the panic, lenders have been forced to delay the process. That has prevented homeowners in good standing from getting top dollar for their homes.

And now, mortgage delinquencies are on the rise again for the first time since 2009.

The other problem is that banks, fearing looming regulations from the Dodd-Frank financial law and leery of the weakening economy aren’t keen to make loans of any kind, especially when returns are minimal. (read more)

They’re talking about spending $85 billion and a full takeover of Fannie and Freddie. What could go wrong?