The Obama administration’s housing plan leaves one group out in the cold: renters.

The government plan would allow some homeowners to refinance even if they don’t have equity in their homes, while it would subsidize the cost of lower monthly mortgage payments for borrowers at risk of default.

That has upset some who sat out the housing boom and rented, only to see taxpayers come to the rescue of some homeowners who are in over their heads. On average, renters have had higher housing payments as a share of income than homeowners did as a whole before the recession began, says housing economist Thomas Lawler.

Unemployment is also highest among age groups most likely to rent: unemployment reached 12.9% for 20-24 year old workers in February, and 8.7% for 25-34 year old workers, compared to a national average 8.1% unemployment rate.

Still, home price declines have ushered in housing affordability that is near its lowest level in decades in several housing markets. The stimulus bill enacted last month offers an $8,000 tax credit for first time home buyers and expands funding for rental programs offered through the Department of Housing and Urban Development.

And more help could be on the way for renters who now face eviction because their landlords have gone into foreclosure. In Congress, Rep. Keith Ellison (D., Minn.) has introduced a bill that would require anyone who buys a property at a foreclosure sale to give a tenant 90-days notice before eviction.

Freddie Mac has also finalized its guidelines that will allow non-owner tenants to continue renting in homes that have gone into foreclosure on a month-to-month basis. Freddie will also allow owners who have lost their homes to foreclosure to rent the homes under similar leases.

The degree of the economic downturn of the last year is surprising even to Warren Buffett, often called the world’s best investor.

“It has fallen off a cliff,” said Buffett, chairman of Berkshire Hathaway, in an interview that aired on CNBC’s Squawk Box early Monday. “Not only has the economy slowed down, people have changed their behavior like nothing I have ever seen.”

Buffett said that so far, the message from the government has been “muddled,” but that the government will play a big role in turning the economy around, though he said it won’t happen fast. “You can’t turn around on a dime,” Buffett said. He said people’s changed habits have been good news for companies like Wal-Mart, and bad new for luxury goods, like high-end jewelry.

He added that inflation “has the potential” to be worse than the double-digit rates of the 1970s. “It depends on the wisdom of our policies, what we do with” new government spending. Buffett said that Republicans need to stand behind the Obama administration, but Obama and Democrats should not use the crisis “to roll Republicans.” – Lavonne Kuykendall

In this guest post Ricardo J. Caballero, the Ford International Professor of Economics at MIT, offers an alternative scenario for banks that fail Treasury’s stress tests.

A central aspect of the Obama administration’s financial stabilization plan is to stress test the major banks and to recapitalize the ones that do not fare well. Analysts’ responses to this plan have been lukewarm at best. Some claim that the aggregate scenarios used for the tests are too rosy. Other analysts think this to be a creeping nationalization policy. Either way, the news for the stock market is awful and, as a result, we have observed massive wealth destruction since the plan’s announcement. Rather than help to contain fear, uncertainty has now risen to a new level, further complicating the financial health of the very institutions that were supposed to be stabilized under the plan.

I argue here that these perception problems can be solved by more directly addressing the core fear issue. This requires a clear policy principle: Whatever we do, financial institutions should not be left holding the downward aggregate risk.

Under this basic principle, the stress test policy would be slightly modified as follows: Each bank would be subject to stress tests as planned (I would advise giving some weight to even more extreme aggregate scenarios than those that have been proposed). In this case, however, the result of the stress test should not be used to determine how much more capital the bank may need in an extreme scenario. Instead, it would be used to determine how much insurance the bank needs to buy from the government to protect itself against these scenarios.

The immediate impact of such an apparently small modification would be to narrow the risks perceived by banks and their stakeholders. This would encourage banks to lend because the insurance policy would replace the need for massive self-insurance induced hoarding. It would also encourage private recapitalization. By insulating the financial system as much as possible from the downward risk of the current macroeconomic environment, the policy would break this deadly downward spiral where a worsening macroeconomic environment weakens financial institutions, which in turn further weaken the macroeconomic environment, and so on. With this principle firmly in place, survival risk would be extensively reduced allowing investors to make their decisions based on the long-term prospects of the particular institutions. Without this, investors and banks will remain mired in uncertainty and fear, relegating the natural forces of recovery (and there are many of them) to the sidelines.

A key dimension of the policy principle is to think not only about the particular institution in trouble but about the systemic implications of the policy. For example, some could argue that one way of breaking the perverse feedback between the health of a financial institution and the macroeconomic environment is to nationalize the bank (which means almost by definition, that the full insurance for the losses rests upon the taxpayer). However, while this would indeed work for an individual bank, it would exacerbate, rather than reduce, the aggregate risk faced by non-nationalized institutions because now, a negative macroeconomic shock would make it more likely that they too would be nationalized. It is important not to fall into a fallacy composition where what is good for one institution in isolation may be just the opposite for the system as a whole. In other words, the principle goal should be the removal of the aggregate downward risk not only from individual financial institutions but from the leveraged institutions as a whole.

Who should pay for this insurance? Those most directly protected by the policy. Certainly the shareholders are first in line, but there is no reason to stop here. All preferred shares and debt that are being discounted by uncertainty should also contribute, perhaps by retaining some of the interest payments to service the insurance policy. The government should charge fairly for this insurance, using the same probabilities it assigns to the different scenarios used in the stress tests, and it should mandate that the banks acquire this insurance once they have converged on the particulars of the stress test.

Chief financial officers at U.S. companies expect the recession to persist for another 14 months as they expressed record pessimism and anticipate weaker results this year, according to a quarterly survey released Wednesday.

The 1,268 CFOs polled also are concerned about the actions of the Obama administration and Congress, and only one-third feel federal efforts to stimulate the economy have helped. A similar amount feel the economy is worse off.

The latest results of the Duke University/CFO Magazine Global Business Outlook are especially gloomy, with more than two-thirds of the respondents saying they felt “more pessimistic” about the economy during the last quarter.

“This is very troubling,” said Kate O’Sullivan, senior writer at CFO Magazine. “Throughout the history of our survey, CFOs have shown a remarkable ability to predict future economic conditions.”

Only 35% of respondents expect the economy to begin recovering in 2009, with most expecting a rebound to begin in 14 months. On a scale of 0 to 100, the CFOs rated the economic outlook at an all-time low of 40, the survey said. European and Asian CFOs are also pessimistic, rating their economies at 43 and 47, respectively.

According to the survey, employment is expected to fall 5.6% in the U.S., 7.6% in Europe and 3.2% in Asia in the next year. Domestically, “this represents a staggering 7.6 million job losses,” said international-finance professor and survey founder Campbell Harvey.

Weak consumer demand and financial market woes are major external concerns for CFOs. Working capital management is a primary internal concern.

The credit crunch is still buffeting companies, the survey found, with some 40% of AAA- or AA-rated companies saying credit-market conditions are hurting their firms. Among companies with junk-territory ratings of B or lower, 77% said yes.

Finally, 53% of CFOs say their companies would be worse off with a national health care system, compared to only 19% who say their businesses would be better off. –Mike Barris

Dawn Wotapka reports:

Tennessee’s Republican Party is trying to tap into the resentment that some Americans are feeling about the Obama administration’s foreclosure prevention program.

Thursday, the Nashville-based organization began selling bumper stickers reading “HONK If you’re paying my mortgage.” In five days more than 4,000 have been purchased, according to Bill Hobbs, the party’s spokesman. He said that this beats the 3,500 stickers the party sold last fall that read YOUR WALLET The only place Democrats want to drill.

“It was the right time, given all the backlash in the public to the mortgage bailout,” he said.

The Los Angeles Times’s L.A Land blogger wonders why the slogan isn’t “HONK If I’m paying your mortgage?” Mr. Hobbs said there are two reasons: It would be rude to call the drivers behind you a “deadbeat,” and the party wanted readers to think about being forced to pay other people’s mortgages.

Mr. Hobbs said the party sensed a growing sentiment, particularly after CNBC reporter Rick Santelli’s Feb. 19 rant against the plan on the floor of the CME Group in Chicago, which has made the rounds online.

Dubbed the “Tea Party,” it has sparked a grassroots effort decrying the President’s stimulus plan. At a Nashville “tea party” protest against the stimulus on Friday, 300 stickers were snapped up.

They sell for $5 bucks a pop, or $12 for 3. The money, nearly $10,000 so far, supports the party. “This is not a huge fundraiser for us,” Mr. Hobbs said. But “this is politics, so every dollar helps.”

There’s two big groups of people who may see little relief from the provision from President Obama’s housing plan that would allow more borrowers to refinance: jumbo borrowers with loans that are too big for government financing and homeowners whose first mortgage exceeds 105% of the value of their home.

But just how many borrowers could be excluded?

First American CoreLogic estimates that around 4% of all borrowers have loans that exceed conforming limits, which are set at $417,000 in most markets but rise to as high as $729,750 in the most expensive housing markets.

That share grows in high-cost states. In California, the research firm estimates that some 17% of borrowers have loans that exceed the conforming limits, and in New York, around 8% of borrowers have jumbo loans. A Credit Suisse report in September estimated that one in four jumbo borrowers are “underwater” with mortgages that are worth more than the value of their home.

Meanwhile, around 25.9% of all mortgage holders fall between the 80% to 105% loan-to-value that the refinancing provision targets, according to real-estate Web site Zillow.com. But nearly the same number of borrowers, 24.6%, have loan-to-value ratios that exceed the 105% limit and wouldn’t be eligible. – Nick Timiraos

The Obama administration’s housing bailout grabbed the headlines. Here’s the WSJ coverage: Housing Bailout at $275 Million, Plan is Heavy on Incentives to Modify Loans, Why the Bailout Will Fail (MeanStreet) And other commentary.

Here’s a look at what else was going on:

LOCAL MARKETS
In the Hamptons, foreclosure notices and deep price cuts are becoming increasingly common, and local businesses are suffering, too. (WSJ)

In the D.C. area families who can’t afford to move are cramming into smaller spaces. (Washington Post)

California leading country in loss of home values. (LA Land)

The New York Observer weighs in on the psychology of Manhattan real estate. But the best part of the piece is the lead anecdote in which a woman applying for an apartment uses her unemployment check stubs as proof of income. (The Observer)

Peruse the nicest looking buildings in San Francisco (The San Francisco Chronicle)

BUYERS AND SELLERS
Business Week has mortgage advice from an ex-con. Michael Sichenzia served four years in a New York State penitentiary for mortgage fraud. Now he runs a business helping homeowners renegotiate mortgage terms. (Hot Property/BusinessWeek)

America’s most miserable cities (Forbes via MSNBC) America’s most affordable cities (CNNMoney) and our favorite listicle of the week: The 10 dumbest green buildings on Earth. We’ll spoil the surprise by mentioning that at No. 1 is a “green” gas station. (GreenBuildingElements)

HIGH-END LISTINGS
Los Angeles developer Mohamed Hadid lists a 48,000-square-foot mansion in the city’s Bel-Air neighborhood. Located on 2.2 acres, the house includes a music room, a library, a ballroom, a Turkish hammam, a gym, a pool, and a tennis court. Click here to see photos of the property. (WSJ)

Al Berg, the co-founder of eyewear manufacturer Marchon bought an oceanfront penthouse on Miami Beach from radio executive Scott K. Ginsburg for $8.6 million. Mr. Ginsburg accepted 54% less than the original asking price of $18.5 million. Click here to see photos of the unit. (WSJ)

The widow of journalist Ed Bradley, who appeared for more than a quarter-century on CBS’s “60 minutes” asks $7.4 million for their nine-room New York apartment. The 3,600-square-foot unit, located in the St. Urban in Manhattan, has four bedrooms, three bathrooms and a maid’s room. (WSJ)

Model Ines Misan lists her four-bedroom, four-bathroom house in Malibu for $1.995 million. The 3,311-square-foot house includes a garden with plants native to Ms. Misan’s home country of Latvia. (Los Angeles Times)

Music executive Randy Spendlove lists his Beverly Hills home for $4.395 million. The 5,622-square-foot house has six bedrooms, five bathrooms, a gym, a pool and an outdoor entertainment area. (Los Angeles Times)

A proposed law to amend Iceland’s central bank management will likely come into effect in a few weeks, said Kristjan Kristjansson, a spokesman at the Iceland Prime Minister’s Office.

Bernanke

“It could be a week, or two weeks,” said Kristjansson Monday.

Iceland’s new Prime Minister Johanna Sigurdardottir has asked the central bank’s board of governors, headed by board Chairman David Oddsson, to resign as she works to restore confidence in Iceland after the country fell into crisis in autumn.

She also last week proposed a bill altering the management structure of the central bank, which includes reducing the number of governors to one from three, and which creates minimum requirements for that one governor, at the very least, to have a master’s degree in economics.

Oddsson, who is a trained lawyer and whose appointment to the post was widely seen as political in nature, Sunday said in a letter to Sigurdardottir that he refused to step down.

Kristjansson said Oddsson can legally stay in power until the new legislation takes effect.

In the U.S., Ben Bernanke’s term as Federal Reserve chairman expires January 2010. Larry Summers, the economist serving as head of Obama’s National Economic Council, is widely seen as aspiring to succeed him at the Fed. –Joel Sherwood

A roundup of economic news from around the Web.

Compiled by Phil Izzo