Bruce Krasting uncovers a central bank plot

He lays it out here, it is all about the mortgage relief idea being floated.

I (Bruce)  try to get all the steps:

Edward Demarco, head ot the Federal Housing Finance will push Freddie and Fannie to refinance federal moartgage loans at 4%, giving many homeowners a lower monthly.
2I) Homeowners get a new loan at 4% and payoff 100% of the old mortgage.

II) The servicing banks get the proceeds and pay off the old loan.

III) The money is paid to F/F. This money is used to redeem existing mortgage pools of Agency MBS.

IV) Fannie/Freddie have the same asset mix at the end of the day. They still need to finance the new 4% mortgages they are writing.

V) Fannie and Freddie are taking on substantial new risk as they now have a book of 4% mortgages and are much more at risk to rising interest rates.

VI) It takes 90 days for a new mortgage to become a new Agency MBS. During this period F/F warehouse these loans. They finance the warehouse with short-term debt. They take action to reduce their risk by entering into new swap transactions or by buying derivatives to neutralize the market risk.

VII) As the process goes on huge chunks of EXISTING higher coupon MBS are prepaid. Investors [read Federal Reserve]  in those MBS securities will be forced to re-invest the proceeds.

As far as socialist plots go, this one sounds as good as any other. So why aren't homeowners refinancing? Two reasons: 1) Closing costs are still a bit too high to cover interest savings. 2) A lot of home owners are making payments but out of work, they wouldn't otherwise qualify.
3) The other problem here is that many home owners are still with the community bank, they don;t get the goodies.

But, we are talking about a select group, mortgages on file at the government offices of Freddy and Fannie. The process should be simple, a little software, don't bother informing the home owner, just cut their interest rate.

The tax payer will be earning $85 billion less, and the homeowners saving $85 billion. The $85 billion will be covered by the 12 member appointed Congressional bankruptcy committee. So someone out there should lose their Goodies in favor of the homeowner.