Posted on 2nd Feb 2012 @ 9:27 AM

Given the current political climate, it was inevitable that some bank-bashing might occur as part of the theatrics surrounding this year’s State of the Union Address.

Mortgage lenders were an expected target, and President Obama did not disappoint. “We’ve all paid the price for lenders who sold mortgages to people who couldn’t afford them, and buyers who knew they couldn’t afford them,” he declared. “That’s why we need smart regulations to prevent irresponsible behavior.”

Obama then promised to send to Congress “a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low rates.” He promised, “No more red tape. No more runaround from the banks.” Other than that, the proposal remains remarkably vague.

Based on what little information is available, analysts are assuming the plan would apply to mortgages held by private institutions, as well as Fannie Mae and Freddie Mac. Some estimate there might be as many as 800,000 loans that would qualify for the special refinancing provision.

One problem: Congress would have to enact the program. Given the partisan divisions in the current House and Senate, it is hard to imagine anything like the refinancing program being enacted prior to the November elections.

“A Small Fee”

There is even less chance that Congress will pass the other half of President Obama’s proposal — “a small fee,” as he put it, “on the largest financial institutions.” Such a fee would pay for the mortgage refinancing program and would “give those banks that were rescued by taxpayers a chance to repay a deficit of trust.”

Maybe so, but the White House should recall that a similar bank fee proposal was floated as part of the 2010 State of the Union Address. In 2010, the justification for the fee was the perceived need to repay expected TARP losses — losses that ultimately disappeared as TARP largely paid for itself over time. But even before that outcome was obvious, the proposed big-bank fee had collapsed under the weight of political opposition.

In today’s partisan environment, a perceived tax hike of any sort would be anathema to most Congressional Republicans. Even Democrats might question the wisdom of burdening the largest banks with a fee that their foreign competitors would not have to pay.

Financial Fraud

Finally, President Obama promised to take strong action against financial fraud. A new financial crimes unit consisting of “highly trained investigators” will crack down on large-scale fraud.

The President also promised to enact tougher penalties for fraud and to create a special unit of federal prosecutors and state attorneys general to coordinate and strengthen fraud enforcement efforts. How this will differ from the Financial Fraud Enforcement Task Force that the administration announced with much fanfare back in 2010 remains to be seen.

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