A mortgage in every pot

Congress may beat Illinois to the punch in bailing out "negative equity" home-owners. It appears that this legislation may become law before the 4th of July holiday, "the most sweeping government overhaul of mortgage financing since the New Deal." Whenever anyone mentions the New Deal, you have reason to hide your wallet and pay attention. From the NYT:

The centerpiece of the Senate package is a rescue-refinancing plan aimed at stemming the tide of more than 8,000 new foreclosures a day that lenders are filing across the country.

Under the refinancing plan... lenders would first have to agree to cut the principal balance of loans to roughly 85 percent of each property’s current value.

Skeptics say the plan is a handout for irresponsible borrowers and lenders, who would be able to get rid of their worst-performing mortgages, putting taxpayers on the hook for billions of dollars in risky loans.

Well, this is shaping up to be a big bailout. Given that many troubled properties have already fallen 20-30% in value, resetting the mortgage to 85% of that, or down another 15%, means the lenders are going to lose at least one-third to one-half of their money. This will be interesting to watch. Early days, but I would put odds of a disaster policy coming out at about 50%.