While we wait for the FED, decision and statement in 20 minutes ( 2:00pm EST), there was an interesting aside earlier from CNBC’s Larry Kudlow on PEBO’s meeting with his team of economic advisers today…

Kudlow on CNBC indicating he has heard that PEBO and his economic team meeting today to plan out ‘massive mortgage buyout’ plan…..”gigantic piece’, something Glen Hubbard wrote about in WSJ a month ago…HOLC HOLC baby

NEW YORK - OCTOBER 15: R. Glenn Hubbard (L), chairman of the Economic Club of New York, and Maria Bartiromo, financial journalist (upper L) watch Federal Reserve Chairman Ben Bernanke (R) as he speaks to the Economic Club of New York October 15, 2008 in New York City. Chairman Bernanke addressed the fiscal crisis and outlined the Fed's response to the recent economic upheavals. (Photo by Chris Hondros/Getty Images)

So let’s take a look at Hubbard’s position on housing to get an idea of what the econ A Team is putting together as part of the 1 trillion (new whisper number) econ stimulus to be signed January 20th immediately following the swearing-in-

From AEI, a piece on stabilizing the economy and addressing housing by Hubbard on October 2, 2008:

How does Hubbard see the housing issue in relation to the economic picture and what is the root of the problem?

We are in a vicious cycle: falling housing values cause losses on securities, which reduce bank capital, thereby tightening lending and causing house prices to fall further. The cycle has spread beyond housing, but housing is the place to fix it.

Housing starts are at their lowest level since the early 1980s, while there are more vacant houses than at any time since the Census Bureau started keeping such data in 1960. Millions of homeowners owe more on their mortgage than their house is worth. Foreclosures are accelerating. House prices continue to fall, weakening household balance sheets and the balance sheets of financial institutions.

But this can stop. The price of a home is partially dependent on the mortgage rate–a lower mortgage rate raises house prices…

LET ME JUMP TO MY FAVORITE PART-THE HOLC!!!!:

Now, what about mortgages on homes that are worth less than the total amount of the loan? These mortgages could be refinanced into a 30-year fixed-rate loan to be held by a new agency modeled on the 1930s-era Homeowners Loan Corporation. New mortgages would be made of up 95% of the current value of a home.

The government might use two approaches to mitigate its losses. It could offer owners and servicers the opportunity to split the losses on refinancing a mortgage with the new agency. Servicers would have to agree to accept these refinancings on all or none of their mortgages, to avoid cherry-picking. Or the government should take an equity position in return for the mortgage write-down so that the taxpayers profit when the housing market turns around.

WOOT HAPPY DANCE NOW HAMMER -TIME!

oops sorry, back to the piece:  here is the bigger portion of the program, which references a 10 yr Treasury yield much higher than it is now, this plan would probably call for 4.50% mortgage rates now…

…We propose that the Bush administration and Congress allow all residential mortgages on primary residences to be refinanced into 30-year fixed-rate mortgages at 5.25 percent (matching the lowest mortgage rate in the past 30 years), and place those mortgages with Fannie Mae and Freddie Mac. Investors and speculators should not be allowed to qualify.The historical spread of the 30-year, fixed-rate conforming mortgage over 10-year Treasury bonds is about 160 basis points. So a rate of 5.25% would be close to where mortgage rates would be today with normally functioning mortgage markets. One of us (Chris Mayer) recently published a study showing that–assuming normally functioning mortgage markets–the cost of buying a house is now 10% to 15% below the cost of renting across most of the country. Rising mortgage spreads and down-payment requirements are what’s still driving down housing prices. We need to stop this decline.

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