The Subprime Plan: Now, It's Political

The Paulson subprime mortgage plan, it would seem, is now the Bush subprime mortgage plan.

According to the WSJ, the plan "includes" a non-binding agreement by servicers and investors to freeze the teaser rate on some loans for five years. That's the main plank of the policy, and is the part that most of the media, including the NYT, concentrates on. The plan explicitly excludes anybody who's delinquent on their payments, which removes the potential moral hazard problems.

But wait, there's more! This is the bit which is still extremely unclear to me:

For other borrowers who are in somewhat better shape, the White House also wants to speed up refinancings, through the Federal Housing Administration and other sources. For example, the administration wants to allow state and local governments to use more tax-exempt-bond programs to fund refinancings, a move that Congress would have to approve through a change in tax law.

This is not being reported by most news outlets covering the plan, so it counts as something of a WSJ scoop*, although details are obviously very hazy. The idea that the White House would want to dragoon state and local governments into funding refis seems – well, let's just say that it seems like a complicated solution to an ill-defined problem.

In any case, the whole subprime football has now been punted squarely from Treasury to the White House, where it's rapidly transmogrifying into a political punching bag. Given the fact that we're in the middle of a presidential election campaign, expect much more heat than light on this issue from here on in. For real economic analysis of the plan, I'd stay away from anything smelling of campaign reporting, and stick to the likes of Dean Baker.

*Update: It turns out that by "scoop", I mean "ability to read Treasury press releases". Here's the relevant part of Paulson's speech on Monday:

Today, we are proposing to allow state and local governments to temporarily broaden their tax-exempt bond programs to include mortgage refinancings; if enacted, this will reduce the cost of innovative mortgage programs and allow these programs to reach more struggling homeowners.

I have no idea what Paulson is referring to when he talks about these "innovative mortgage programs" – can anybody elaborate at all?