Housing

Mortgage Buyout Plan Changes by the Hour

John McCain made news Tuesday night during the town hall-style debate with Barack Obama when he announced his plan to buy up bad mortgages at the taxpayer's expense. The plan, […]

John McCain made news Tuesday night during the town hall-style debate with Barack Obama when he announced his plan to buy up bad mortgages at the taxpayer's expense. The plan, the McCain Homeownership Resurgence Plan, would spend up to $300 billion of public monies to purchase mortgages directly from homeowners and lenders, purportedly to eliminate uncertainty in the housing market.

But how can we establish certainly in the market when there's seemingly little certainty in his approach to this plan?

Under the McCain proposal, the old mortgage would be replaced with a new one that is FHA guaranteed, fixed rate, with terms “more manageable for the homeowner,” according to the McCain Web site. McCain goes on to say that funds provided by Congress in the recent $700 billion bailout bill can be used, but adds that by stabilizing mortgages (assumedly by employing the McCain plan) “it will likely be possible to avoid some purposes previously assumed needed in that bill.”

Well, now we're not so sure.

McCain's first proposal appeared to state that the government should purchase the underwater mortgages at market value, but he then changed his tune Wednesday, when his campaign announced that those very mortgages would actually be purchased at the original cost to the bank.

So, we're left to assume that by doing this, the banks would not take a hit. Or, as Joe Biden eloquently said in Missouri Thursday: “That's not bailing out the homeowner. You're bailing out the bank!”

The McCain plan sounded like a nice idea at first, but now it simply sounds like politics. On Tuesday, immediately after the debate, Rooflines' Alice Chasan asked:

How would the McCain proposal work? Is he referring to a write down or something else? He said “we have to go out into the housing market and buy up these bad loans.” Where did this come from?

Does anybody know how this jibes with his party's antipathy toward assisting individual homeowners in distress?

Perhaps he was really dial testing the proposal to see how the post-debate snap polls would respond to the Resurgence Plan. Since the McCain-Palin rallies are preoccupied with vitriolic sentiment that has nothing to do with the American homeowner or tenant, maybe he saw Tuesday's arena as a place to dangle a policy proposal, only to duck back into the extreme booth under the GOP tent the next day, distracting Americans with irrelevant nonsense.

I can deal with the politics; I can deal with the ugly campaigning; I can even deal with lying on the trail for political gain — that stuff's one-on-one that (hopefully) only fires up the base that would never support McCain's challenger anyway. What is incomprehensible here, is how, when there are 12 million mortgages estimated to be worth more than the current value of their homes and with the nation's economic stability in question, the GOP can allow its standard bearer to be out on the trail — at the debate — waving this stuff around when it so fundamentally affects so many Americans, their livelihoods, and their futures?

The Wall Street Journal's editorial on October 9, The Next $300 Billion, despite overly praising McCain for getting “the diagnosis right” by recognizing that “the economy won't recover until home prices find a bottom,” criticized the proposal for offering “no upside for taxpayers.”

They take all the losses up front and don't participate in any rebound in house prices, so borrowers who overextended and lenders who made reckless loans are made whole, and taxpayers get the bill. At least the $300 billion FHA program imposes at least a 10% haircut on lenders.

The FHA program refers to a $300 billion Federal Housing Administration mortgage program slated to start this month. Further, the $700 billion bailout plan signed by President Bush last week already gives the Treasury secretary the power to buy up bad mortgages, though it's yet to be seen how the Treasury will exercise its authority in that regard.

But then there's this: McCain's plan might not be as fresh as it sounds. The New York Times Wednesday reported on the proposal's origins:

The mortgage renewal idea actually originated with Senator Hillary Rodham Clinton, said Charlie Black, a senior adviser to Mr. McCain. And Mrs. Clinton, who proposed the idea in a recent newspaper column, borrowed it from a Depression-era New Deal agency, the Home Owner’s Loan Corporation.

We receive campaign material from all candidates, local and national, and Politico was right when it drew attention to a key distinction between the McCain camp's releases Tuesday, and subsequent Resurgence Plan material issue Wednesday:

The document posted and e-mailed by the McCain campaign on Tuesday night says at the end of its first full paragraph: “Lenders in these cases must recognize the loss that they’ve already suffered.”

By Wednesday, of course, that last sentence was gone, only to be replaced with a reminder of the actual truthiness of McCain's plan and overall campaign strategy.

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