Instead of moving to put FM/FM into a more easily understood model–either nationalizing them, or privatising–they’re making the GSEs even weirder, and of course, piling on more debt.

It’s time for Congress to bite the bullet: nationalize them, or take them private. But keeping pet companies on a leash so that you can use them as a sort of housing market slush fund, while pretending that the liabilities you thereby create don’t really affect the government, is the kind of thing one expects to see in a banana republic, not a free and prosperous nation.

The biggest boost for homeowners is a program that would allow the FHA to back the refinancing of as much as $300 billion in home loans for distressed borrowers. Under this plan, the lender or investor holding the mortgage would have to accept at least a 15% write-down in the value of the previous loan. The new mortgage would then receive federal backing.

But lenders wouldn’t be required to participate, and many are likely to conclude that they are better off proceeding with a foreclosure or offering the borrower some other means of trying to catch up on payments. The Congressional Budget Office recently estimated that the program would lead to 500,000 borrowers refinancing loans totaling $85 billion.

Thomas Lawler, a housing economist based in Leesburg, Va., said he expects the effect of that program to be minimal. “This is probably low on [lenders'] list of options” of how to work out overdue loans, he said.

I’m skeptical that any of this will help, especially the mortgage writedown/refinance angle – people with problems managing their personal finances are generally (in my experience) bad at it, period. Even though getting their payments lowered might offer permanent help to some, I suspect many are going to get into trouble again at some point in the not-too-distant future, so this provision is probably just kicking the can down the road.

As for the $$$ for local government to buy and fix up abandoned housing, this sounds like a prime opportunity for juiced in friends of various mayors and councilmembers to make some really easy money. We’d be better off if they just piled that $3.9 billion in the middle of the national Mall and let all the political cronies run at it like a smashed pinata and carry off as much as they can stuff in their pockets.