Assessing the President’s Mortgage Plan  The president’s new
mortgage-relief plan contains clever elements that might indeed
help homeowners. However, the superfluous threat of inviting
judges to rewrite contracts must dilute the collateral behind
troubled mortgage-backed securities. That, in turn, would
jeopardize the endangered capital of banks, pension funds and
other holders of such securities, including the Federal Reserve,
Fannie Mae and Freddie Mac.  The simplest yet arguably most
potent part of the strategy is the plan to allow Fannie and
Freddie to refinance conforming loans (up to $729,750) without
the quaint requirement that the refinanced loan be no larger
than 80% of the value of the house. This change provides access
to today’s low mortgage rates even to “underwater” borrowers —
those who owe more that their houses are worth. Although such
borrowers have no skin in the game, President Obama assumes or
hopes that their reduced payments will result in fewer defaults.
A second part of the plan pro