BUYING VOTES...or is it simply blackmailing the American Voters?

James Pethokoukis hears rumors of an August surprise coming from the White House, one that will attempt to win backs the hearts and minds of voters dismayed at the failing economic policies of the Obama administration.

With the government fully in control of Fannie Mae and Freddie Mac, Barack Obama may issue an order to forgive portions of underwater mortgages processed through the GSEs, where negative equity approaches $800 billion overall.

Some financial houses have begun quietly preparing for the possibility: Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion.

Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.