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.