Rick Santelli Gets Schooled By Press, White House

MSNBC's First Read offers this brief item, following up on CNBC's Rick Santelli's awesome plan to lead the gentry on a pitchfork-'n'-torch battle with a bunch of Straw Men who had foolishly added imaginary bathrooms to their homes:

TODAY had on CNBC ranter Rick Santelli to debate the merits with colleague Steve Liesman, who penned a favorable review of Obama's plan yesterday in the New York Daily News. Pressed for real solutions, Santelli offered none.

Yes. Well, of course he offered no "real solutions." He would have to know something about what he's talking about for that to happen. But, silver lining, I suppose, because Santelli's got everyone under the sun stepping forward to clarify: NO, WE AREN'T GIVING OUT MONEY TO FOOLS.

As John Yang, reporting this morning from the White House, clarifies:

YANG: The program really is not aimed at helping people who can't pay their mortgages, who are unable for other reasons -- may have bought too much house, bought too much -- taken out too much mortgage. They acknowledge some of those people may be swept up, but this program is aimed at preventable foreclosures, people who have gotten into trouble through no fault of their own, because their home value has dropped, they've lost a job and run into financial strains. They point out it's not in the interest of the commercial business interest of the mortgage lenders to refinance or restructure loans for people who bought too much house, because they're just going to have to eventually foreclose on those houses later, when home values have dropped even more. So, it's in their interest to foreclose now. They almost admit they can't save everybody, that some people will be losing their homes, but they say this is aimed and targeted at preventable mortgages, people in trouble through no fault of their own, Tamron.

One of the strong points of the plan is that it attempts to assist both homeowners at risk of foreclosure and homeowners who are not at risk of foreclosure, but are constrained by high mortgage payments. For the former group, the program combines cash incentives for lenders to modify loans with additional cash incentives for borrowers. However, whether or not to modify a loan remains subject to lender discretion, and it is impossible to say whether the incentives will be sufficient to get the lenders to loosen up the way they should. There is also relatively little insurance on offer for modified loans outside the Fannie/Freddie safety net.

Still, a definite advantage of the plan is that it should help unblock the problem of securitization trusts. Housing loans that were "bundled" together into mortgage-backed securities have been hard to restructure, because no one has clear authority to negotiate on behalf of thousands of dispersed investors, particularly when there were multiple tranches or complex structures. For loans that have been securitized, the loan servicers who administer the mortgage can now be pressed by their regulators to modify loans. The proposed coordinated approach by regulators on this issue is long overdue.

The plan also offers meaningful assistance to those not immediately facing foreclosure, primarily by allowing people to borrow more (relative to the value of their house) when refinancing into lower-rate government-backed mortgages. Effectively, it is now easier to qualify for a refinancing, and that should leave homeowners with more available income for consumption (or saving). At the same time, substantial additional money will increase the capacity of Fannie and Freddie to buy mortgages, which theoretically will increase liquidity and reduce mortgage rates. However, the plan represents a step back from the more ambitious proposals to force mortgage rates down by guaranteeing Fannie/Freddie debt (Krugman) or funneling low-rate funding from Treasury to Fannie/Freddie (Hubbard and Mayer), or offering direct government mortgages (Feldstein).

As the excerpt indicates, Johnson is of the opinion that the Obama plan is an "insufficiently bold" one, making it likely that he'd be a better debate partner for Santelli than Steve Liesman -- at least in principle. Anyway, thus endeth the Revolution.