It makes "fixing" the GSEs difficult - or impossible. Remember that a lot of these loans are underwater. Nobody's going to take them at the coupon everyone wants to see without a guarantee by the government, which means the GSEs now become permanent wards of the state. Can that objection be overcome? I don't know - that could be a lot of fun politically.
The premise here is that this "permits" a huge prepay of the Fed balance sheet, which it can then roll into Treasuries. But why would The Fed want to do this? Well, it might to get them off its balance sheet and fund the Federal deficit, but remember - the Fed likes the money and so does Treasury from the "rebates", which would end. Further, I wouldn't call a 10 year Treasury rate of 2.2% (as of today) something to be worried about when it comes to deficit spending!
It sounds entirely to fantasmagorial to me, and at best it gets you 1/2 of 1% of GDP if the figures provided are correct. That's not much, and I bet the damage done on a mark-to-market basis for pension funds and similar holders far outweighs that consideration.
You're free to believe in this one if you want, but not only do I not buy it, but I don't think it does anything of value for the economy or the homeowner, and it most-certainly does screw pension funds - including federal and state pension funds.
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