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Hopes for mortgage-payment subsidies light up Wall Street

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Desperate for any shred of good news, the stock market rebounded dramatically from today’s lows on more talk that the Obama administration planned to subsidize mortgage payments for struggling homeowners.

The Dow Jones industrial average, which was off as much as 245 points, finished the session down just 6.77 points at 7,932.76.

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From Reuters:

The Obama administration is hammering out a program to subsidize mortgage payments for troubled homeowners who have gone through a standardized reappraisal and affordability test, sources familiar with the plan said Thursday. The program would be a major break from existing aid programs, which are triggered once homeowners fall into arrears. Under the plan being contemplated, mortgage companies would use a uniform eligibility test even before a borrower becomes delinquent, sources said. Homeowners would have to make a case of hardship to qualify for new loan terms.

Well, who couldn’t make a case for hardship these days. Talk about the devil being in the details. . . .

In any case, the subsidy idea had already been floated by the admininstration in recent days, so it isn’t some sudden brainstorm. Bloomberg News had filed a story earlier today saying much the same thing that Reuters did, but the stock market seemed to ignore that one.

From Bloomberg:

Treasury Secretary Timothy Geithner intends to make the plan public in coming days, possibly within a week, according to sources. Some elements can begin immediately, and others must be considered by Congress. Lawmakers indicate they are eager to see the details of the administration’s housing plan. Senate Banking Committee Chairman Christopher Dodd told reporters that using $50 billion to $100 billion of the $700-billion bank rescue fund to stem foreclosures will create ‘a tourniquet’ for the housing crisis and help families stay in their homes.

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The Bloomberg story says the focus will be on knocking a homeowner’s monthly payment down to an affordable level, with the government making up the balance. That would be a different strategy than focusing on reducing borrowers’ loan rates and ‘cramming down’ lower rates on lenders.

-- Tom Petruno

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