Thursday, October 9, 2008

McCain Proposes Massive Program to Fight Mortgage Crisis

After questioning earlier this year whether federal money should be used to help homeowners at all, Republican presidential candidate John McCain has announced a plan to purchase failing mortgages directly from homeowners with $300 billion in taxpayer funds.

The Obama campaign quickly denounced the proposal as “erratic policy-making at its worst.”

The Arizona Senator first announced the program during Tuesday’s presidential debate.

"I would order the secretary of the Treasury to immediately buy up the bad home-loan mortgages in America and renegotiate at the new value of those homes — at the diminished values of those homes — and let people be able to make those payments and stay in their homes," said McCain.

The proposal to buy up troubled mortgages would use nearly half the $700 billion from the recently passed bailout package to directly assist struggling homeowners, rather than focusing the federal funds towards rescuing the nation's financial markets.

"Is it expensive?" McCain asked during the debate.

"Yes. But we all know, my friends, until we stabilize home values in America, we're never going to start turning around and creating jobs and fixing the economy."

As subsequently outlined by the McCain, the program would have the federal government pay both borrowers and lenders in full, allowing the borrower refinance into an FHA-backed loan and let tenders remove the bad mortgages from their balance sheets.

Where the Hope for Homeowners program demands that lenders lower mortgage balances down to 90% of the home's current value, McCain's plan would reduce loans to 100% of a home's current value.

Under his proposal, the cost of the writedown would be picked up by taxpayers rather than by the lenders.

To qualify, mortgage holders would have to prove they lived in the home and had good credit at the time of the original loan, as well as provide evidence that they are either delinquent or likely to become so in the near future.

They would also have to prove that they had provided a substantial down payment and adequate documentation to obtain the mortgage.

Eligibility for the program would not be affected by how sensible or fair the original transaction may have been.

McCain’s announcement represents a significant reversal from the initial position he took when he delivered his key economic policy address in March.

"I have always been committed to the principle that it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers," said McCain at the time.

"Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy."

As part of that speech, McCain added, "I will not play election-year politics with the housing crisis."

After McCain was roundly criticized for his hands-off approach to the crisis, he proposed a week later spending up to $10 billion for government-backed mortgages for "well-meaning, deserving homeowners" facing foreclosure.

When Obama offered a plan earlier in March that included aggressive regulation of financial institutions, relief for struggling homeowners and a $30-billion economic stimulus package, McCain criticized it as a "multibillion-dollar bailout for big banks and speculators."

"There is a tendency for liberals to seek big government programs that sock it to American taxpayers while failing to solve the very real problems we face."

To an extent, the roles played by the two candidates have reversed as the Obama campaign criticized the details of McCain’s plan for its burden on taxpayers, calling it “erratic policy-making at its worst.”

“John McCain wants the government to massively overpay for mortgages in a plan that would guarantee taxpayers lose money, and put them at risk of losing even more if home values don’t recover,” said Obama economic adviser Jason Furman.

“The biggest beneficiaries of this plan will be the same financial institutions that got us into this mess, some of whom even committed fraud.”

Although the Obama campaign argued about the details of the plan, the candidate apparently endorses the premise – having proposed it himself last month.

At a news conference on Sept. 24, Obama said, "We should consider giving the government the authority to purchase mortgages directly instead of simply purchasing mortgage-backed securities."

Less than a week later, he said he would "encourage Treasury to study the option of buying individual mortgages like we did successfully in the 1930s."

"Since this beginning of this crisis, Barack Obama has demanded that any rescue plan must protect taxpayers and ensure that they share in any profit once the economy recovers, and he worked to include that principle in the plan that passed Congress,"

According to Real Clear Politics, McCain is currently behind 5.1% in an average of national polls, and faces major challenges in several battleground states that are among the hardest hit by foreclosures.

Several states listed by RealtyTrac as among the top ten foreclosure rates in the nation are being hotly contested in the presidential race, including Nevada, Florida, Michigan, Georgia, Ohio, Colorado and Indiana.

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