An August Surprise from Obama? | Analysis & Opinion |

This is the first I had heard of this rumor, but Reuters is pretty reliable:

Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion.

If this is true, there are lots of implications to draw. The most important is that the Administration is deeply concerned that the economy is faltering badly and, knowing that a fiscal stimulus is politically impossible, is seizing on an idea that would not need Congressional approval.

The article goes on:

What is happening is that the president’s approval ratings are continuing to erode, as are Democratic election polls. Democrats are in real danger of losing the House and almost losing the Senate. The mortgage Hail Mary would be a last-gasp effort to prevent this from happening and to save the Obama agenda. The political calculation is that the number of grateful Americans would be greater than those offended that they — and their children and their grandchildren — would be paying for someone else’s mortgage woes.

I'm not sure what the market reaction would be to this, but it certainly would be a "surprise" and markets hate uncertainty.

An August Surprise from Obama? | Analysis & Opinion |