Analysis: McCain’s mortgage-buying plan (Update)

It wasn’t 10 minutes into the debate last night when John McCain dropped a bombshell plan under which the US Treasury would begin buying up trouble mortgages directly from banks, and then begin dealing directly with homeowners.

A report from the AP:

WASHINGTON (AP) – John McCain’s proposal to buy up bad home mortgages would use nearly half the $700 billion from the recent Wall Street bailout package to assist Americans directly, instead of indirectly by rescuing the nation’s financial markets.

The Republican presidential candidate announced during Tuesday’s debate that he would order the federal government to spend $300 billion in federal funds to buy the mortgages and allow financially troubled homeowners to keep their houses.

Democratic nominee Barack Obama last month sounded a similar theme, proposing that the government consider taking such a step.

But McCain’s approach was far more categorical.

“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,” he said.

The proposal, which he called the American Homeownership Resurgence Plan, is as much a policy plan for the future as it is a political tactic for the present.

The economy has been a key factor in helping Obama pull ahead of McCain nationally and in key battleground states. What’s more, Americans reacted with helpless outrage at the need for a $700 billion rescue for the country’s financial institutions.

Many Republicans voted against the package, objecting to its size and to government intervention in the free market economy. McCain’s step would represent an even greater role for government and potentially an even greater financial loss.

McCain made clear he would use the plan to distinguish himself not only from his rival but also from President Bush, an increasingly unpopular figure as the economy sinks.

“It’s my proposal,” McCain said. “It’s not Sen. Obama’s proposal. It’s not President Bush’s proposal.”

The basics of McCain’s proposal seem to have come from a Wall Street Journal article which outlines the problem of falling home prices and the need for the government to stabilize them. It’s lengthy so read it if you want to learn more.

The real kicker on this plan was that I saw Mitt Romney, one of McCain’s major economic advisers, after the debate say he wasn’t aware that McCain was going to mention it. I’m wondering if this was a spur of the moment type thing or perhaps McCain with close advisers planned it accordingly.

Sound off below, what did you think of McCain’s proposal? Do you care?

Update

The McCain campaign now confirms the $300 billion it would cost for this plan is NOT on top of the already-approved $700 billion, it would be a part of it. McCain did not adequately explain that last night leaving me, and countless others, asking why he wanted an additional $300 billion? Well he doesn’t, but he should have been more clear.

Report from the Atlantic:

On a conference call with reporters, McCain policy chief Douglas Holtz-Eakin spelled out how McCain would pay for his plan for the government to buy troubled mortgages and replace when with more favorable fixed-rate mortgages at minimal direct cost to the homeowners. The government could use some of the $700 billion authorized for the bailout and tap other accounts, although the campaign estimates that, owing to negative equity — the government can’t magically turn bad mortgages into good ones without taking a hit — would be $300 billion. The McCain team hopes that by buying mortgages directly, the government wouldn’t have to buy as many distressed assets from big banks, thus reducing the net cost. McCain claims this idea as his own, although the bailout/rescue bill already gives the government the authority to deal directly with homeowners, and Obama has suggested that the government do the same — although McCain’s certainly being more aggressive here.

So there you have, it clarification. McCain’s plan is part of the already-approved $700 billion, not on top of it.

  • Babs

    You know, call me stupid, but when I heard McCain say this last night I honestly thought he was just talking about the portion of the $700 billion bail out that was already earmarked for mortgage buyouts. All I thought he was doing was detailing how he wanted that portion of the plan implemented. And I haven’t seen a statement out by McCain this morning one way or the other.

    Did he actually say this is a new and separate spending bill? If he’s going to “instruct the secretary of the Treasury”, to me that meant he was going to instruct the guy we’ve already authorized to hand out the money we’ve already authorized.

    I’ll be listening out for a clarification on this one.

  • EricF

    Babs i think the big thing you are missing is that McCain wants these mortgages renegotiated at the deteriorated market price and at a fixed rate. in other words he wants to undo the damage done by dems.

  • EricF, please explain what you mean by “the damage done by dems.”

  • Babs

    Okie, dokie, McCain has posted the new plan on his website, and I’m not so stupid after all. Here is is:

    http://www.johnmccain.com/Informing/Issues/Read.aspx?guid=b9af0d4c-9c0e-4a97-b27f-19df8cfec83d

    And here’s where we pay for it, just as I understood last night:

    “The new mortgage would be an FHA-guaranteed fixed-rate mortgage at terms manageable for the homeowner. The direct cost of this plan would be roughly $300 billion because the purchase of mortgages would relieve homeowners of “negative equity” in some homes. Funds provided by Congress in recent financial market stabilization bill can be used for this purpose; indeed by stabilizing mortgages it will likely be possible to avoid some purposes previously assumed needed in that bill. ”

    Everyone should read this plan. It makes a lot of sense, and I see a light at the end of the tunnel with this plan.

  • EricF

    JustinB i could easily explain to you what i mean but i think this video does a pretty good job…

    http://www.youtube.com/watch?v=_MGT_cSi7Rs

  • BillM

    This is absolutely ridiculous that we are REWARDING financially irresponsible people.

    1. Most of these mortgages are ARMs. What part of Adjustable did they not understand? I’ve heard these homeowners on the news complaining that they didn’t know their payments could go up this high. If I’m about to sign a piece of paper that puts me in $500k debt, you can bet I am going to understand EVERYTHING in that contract. And then there are the people who understood perfectly well what they were getting into and were just assuming their house value would skyrocket. They LOST that bet. They gambled. They lost. And now the gov is giving them a do-over. I’m going to go to Vegas and put my life savings on red at the roulette table and when it comes up black, I’m going ask the gov for my money back.

    2. We need to stop the foreclosures. I am for the re-negotiating of mortgages into fixed rates. Do I think those people deserve even that? No. But it should solve the problem.

    I am sick and tired of being responsible and being penalized for it.

  • Chris in Cincy

    while i do understand your excitement over the unusual clarity of this plan by john mccain, i must point out that in the wall street journal article it states quite plainly that for this program to work effectively it would need over a trillion dollars to back the program and even then it wouldnt solve the problem, only prevent further escalation and achieve moderate recoil. john mccains attmept to chuck 300billion dollars at a trillion dollar problem is pathetic at best and nothing more than a political tactic to win over gullable conservatives who dont bother to do research or know how to read.
    the whole thing is bs.
    and any candidate who thinks that ‘fixing social security is easy’ and ‘all it takes is reaching across the isle’ (paraphrasing) is overwhelmingly ignorant and moronic. if no president since social securities conception has been able to fix it, what makes this guy think its so easy. his nobel prize winning economic background? wait.. no… he doesnt have that.
    if mccain/palin get into office, we’re all doomed.

  • Babs

    Chris in Cincy, could you give me a link to a WSJ article about this new plan? I’ve been to the site, and can’t seem to find it.

    BillM, I’m not in disagreement with a lot of what you say. But these things listed in the plan close the gap a bit on some of this:

    1)Live in the home (primary residence only)

    2)Can prove their creditworthiness at the time of the original loan (no falsifications and provided a down payment).

    Number 2 is the biggee. Reports say that some of these bad mortgages – well, a lot of them – were given to people whose income was listed as welfare or unemployment income. Also, there was no down payment involved – they had no equity going into the loan. AND they did not have a sufficient credit rating to buy a house to begin with. THESE PEOPLE ARE SHUT OUT OF THIS PROGRAM.

    Number 1 also shuts out flippers, renters, and speculators.

    I say it’s a good hand up to good risks, and no hand out to bad risks.

    Should they have read the fine print better? You betcha. 😉 But also, imagine that some of these could have been young newlyweds without any business savvy, but with a slick realtor looking for a commission check. Oh yeah, that happens a lot.

  • You know, call me stupid, but when I heard McCain say this last night I honestly thought he was just talking about the portion of the $700 billion bail out that was already earmarked for mortgage buyouts.

    Babs, you’re not stupid! McCain wasn’t clear last night so it sounded to me like he was speaking of $300 billion more. I read others scratching their heads today as well.

    You were correct, the story has been updated above since the $300 billion is part of the already-approved $700 billion.

    Thanks for checking me!

  • Babs

    I thought it was just me, Nate! The commentators on Fox last night was saying the same thing you were, in fact Frank K. said it was like he dropped a grenade in the middle of the room. *ROFL* I was the one left scratching my head last night.

    What do you think of it now that it’s all laid out?

  • Stalin

    Regardless of what he meant this is a bad idea. He would be rewarding idiots for taking out loans that they can’t afford. Is he also going to reward me for being stupid enough to bet on the CUBS!!!!!!!! Do I get the cost of my tickets back?

  • IndiMinded

    If we have to bail someone out, I mean chuck money at these problems one way or another, I guess I’d rather help homeowners pay their mortgage then just buy up their bad debt. I won’t say I like the idea, but it’s the best bad idea I’ve heard so far.

  • Babs

    Stalin, have you READ the plan? I’m surprised you think it’s a bad idea. It’s not like that at all. All it really amounts to is a re-finance on loans for people who meet the criteria. It’s not like they don’t still have to pay their mortgage payments.

    It’s the best I’ve heard too, Indi, because it shuts out the speculators, flippers, and land lords. And they have to have paid down liquid equity to get the home to start with, and have good credit, or they can’t qualify.

    As I understand it, it’s basical just a re-fi to a fixed rate.

  • EricF

    BillM i think there is a crucial point you are over looking. the majority of the people given these loans came from very poor areas and this was maybe their only chance of getting out. these people were exploited for monetary and political gain. its easy to tell people to pull themselves up by their bootstraps but when you are surrounded by desperation all or most of your life it is very easy to get consumed and become part of that desperation. im not saying these people are all innocent or that they werent irresponsible but i am saying that they were given a chance to get out and they took it.

    i cant say that i blame them.

  • Jim C

    Why is my tax money going towards helping pay for your mortgage? ‘your’ referring to those people who were irresponsible and buying outside of your means.

    In the mean time, I bought a house within my means and don’t get rewarded for that. Will the US Govt help refinance my mortgage, or should I deliberately foreclose first to get this benefit?

    Pathetic, unfair!

  • OBAMA_SUCKS

    stalin, its been 100 years for the cubs. I never bet on them, they end up being the worst bet come playoff time. I won my money back on the Devil Rays though!

  • U.S.A.

    Are most of you going to be gone when on November 5 I post the words “I told you?”

  • Dreadsen

    JustinB

    That video that EricF put up is highly edited. and has been debunked already. There is a room full of people. It doesn’t show the Dems who were actually for it or the Republicans who were against it. It edited them out and only played the ones who were debating it. All bills have people for it and against it on both sides. This one carefully only showed a few dems and a few Republicans. Let me give you an example.
    Go on google video and look up the hearings on executive powers. IT is in the same room. it was 4 HOURS LONG. If you watch the entire 4 hours you come to the conclusion that foul play has happened. But if you are careful and select who you want to cite and how much of them you want to allow you can create a totally different message. Usually these hearings are about that long on issues like this.

    But they took and framed 8 minutes of it.

  • Dreadsen

    JustinB

    http://www.newsweek.com/id/161936

    It was both parties fault. This article debunks the democrats attack that it’s the Republicans fault but it also debunks the attack that it was the democrats fault.

  • Babs, “But also, imagine that some of these could have been young newlyweds without any business savvy, but with a slick realtor looking for a commission check.”

    Respectfully, I disagree. Fortunately though, that is not the way capitalism works. The constitution does not state that the federal government has to buyout a mortgage because people got suckered into, which is also a debatable issue. My husband and I are young newlyweds yet we are not in this situation. I drive Nate crazy with my anal retentiveness on reading documents before anything is signed. It took me two days to read, reread and then research all of my questions pertaining to our lease and landlord tenant law in the state of VA. We pulled out of one lease before signing b/c the landlord nor the agent read the lease in full. Unacceptable. Also there was an issue with dual agency and that just makes me uncomfortable.

    The real bottom line is that I, as an individual, should not have to pay for someone else’s mistake. I don’t ask for people to pay for mine. I disagree with this bailout completely, regardless of who it goes to.

    Lessons aren’t learned when we rely on Uncle Sam to write a check to eliminate our risk. Plus, we rent a home, will the government pay our rent if we don’t want to? Where does it end? Another thing, how does it benefit me as a renter for the government to buy up mortgages? I get screwed because someone else bought a house they couldn’t afford. It’s not right.

    We made the right decision to wait before buying a home, until we could afford it. So much for responsibility being rewarded.

    I realize what you’re saying but where do we draw the line? McCain continues to make conservatives uneasy. He should have never voted for this God awful bill.

  • Chris in Cincy

    babs, the wall street journal report was linked by nate in his original report, at least thats how i got to it. but just to make things a little easier, you can also find it here:

    http://online.wsj.com/article/SB122307486906203821.html

    not to be crass, but since when did being a p.o.w. become a qualification for presidency? i thought it was generally a qualification for post tramatic stress syndrome or some other psychological disorder. can we please, for the sake of our country and my own sanity, have someone intelligent running this country? please? is that really too much to ask? or do you all really want a “hockey-mom” in the white house? are they going to put bullet-proof glass in her mini-van too?

  • Babs

    Chris in Cincy, being a POW doesn’t qualify you to be President. Neither does being the Editor of a college newspaper. 22 years in the military adds much to McCain’s resume, at a time when we are fighting 2 wars and depending on foreign countries for the majority of our fuel.

    Come on now, even you can admit to that.

  • Chris in Cincy

    i could agree with you on that to a certain extent, yes. were mccain the some top dawg who successfully lead strategic campaigns that secured the success of our military forces in some great war, AND that that was what he harped about the majority of the time, yes.
    instead, he was a normally ranked soldier, he crashed a lot of planes (costing tax-payers millions in wrecked equipment), and all he ever talks about is how he was in a p.o.w. camp for 5 years being tortured.
    no dont get me wrong, i feel bad for the guy – most definitely, but i dont think its anywhere near the same qualifications.

    can you admit that?

  • Babs

    Yes, I could admit that if it summed up his military career. Take a look a the article the MSNBC (yes, I citing an MSM article for your pleasure) did on the release of McCain’s naval record by the navy. Read it all, and then tell me if you can admit you’re misspoken. I don’t think that Captain should be referred to as “normally ranked soldier” as most never see that title, and the Navy’s Liaison to Congress is no normal title either.

    http://www.msnbc.msn.com/id/24518450/

  • Chris in Cincy

    alright, so thats one side, the positive side. and ill even admit it was wrong of me to call him normally ranked as a captain, your right that there are many soldiers who never achieve that rank in their careers, i sincerely apologize. however, its nice that he got a lot of medals, and that he was a liason to congress, but none of that mentioned anything about leadership – which is what i know i want in my president. nor does it mention any of the negatives of his military career. (and liason to congress on legislative matters doesnt necessarily prove any understanding of military strategy) now im not saying obama has any proven spectacular military leadership, but hes not the one doting it as some supreme qualification for office. im still not convinced mccain has any idea how or any real plans to get us out of iraq and lead our military forces. the fact that he refuses to commit to a withdrawl time, or any timeline for that matter, seriously frightens me. how many more billions of dollars does he plan to waste on iraq??

  • Babs

    Chris in Cincy, I’m not a military genius of any sort, but it would seem to me that to telegraph the news of when you might be withddrawing to the enemy would be pretty dumb, wouldn’t it? If you listen to McCain enough to get to know him, you can’t believe that he likes war, he hates war just as we all do. And he hates spending, unlike Obama. Does it really make any sense to you that he would purposely 1) keep spending billions recklessly and 2) keep us in a war no one hates more than he does? A little common sense tells us that’a a ridiculous argument made by his opponents for no other purpose than to win the election. These idiots that call McCain a warmonger know better, they’re just trying to win an election anyway they can. Talk about mudslinging. This is mudslinging of the worse kind.

    And by the way, do you think that soldiers with no leadership abilities make Captain, or soldiers with no leadership abilities become Naval Liaisons to anything? The term liaison itself is indicative of a person able to reach across to another group and work together. And that’s part of McCain resume – not all, but a part. A part that Obama has none of.

  • You’re right Babs, you’re not a military genius and neither is McCain.

    McCain claims to know how to get Bin Laden, so why hasn’t he told Bush how to get him then? Also he claims to know how to win wars, which war has he been in that he won? He also claims he can bring the troops home in victory and honour, surely the troops would be coming home with honour regardless and McCain hasn’t outlined what ‘victory’ equals.

    I’ve served in the military and I wouldn’t feel comfortable at all having some grumpy old duffer with anger management issues and a finger near the ‘new-clear’ button and a VP who’s dumber than a box of rocks in charge of me.