McCain Mortgage Plan Draws Doubts

Washington Post: Experts Say $300 Billion Estimate Is Unrealistic

(Washington Post)  This story was written by Dina ElBoghdady.

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Sen. John McCain's proposal to have the federal government directly buy and refinance troubled home loans would cost about $300 billion, his campaign said yesterday.

That money would come from the new $700 billion Wall Street bailout and a $300 billion refinancing program enacted as part of a housing bill adopted this summer.

Many details of the plan were unclear yesterday, but the few that emerged led some mortgage industry experts to criticize the plan as flawed and say that the $300 billion estimate is unrealistic given its scope and the magnitude of the housing crisis.

McCain talked about the plan during this week's debate with Democratic presidential rival Sen. Barack Obama. He said that as president he would order the Treasury Secretary to "immediately buy up the bad home loan mortgages in America and renegotiate at the new value of those loans."

The idea of having the government buy bad loans and rework them has surfaced before. McCain floated the concept months ago and Obama pushed a similar idea as recently as September. But Douglas Holtz-Eakin, McCain's senior policy adviser, said this version is more substantive.

McCain said he wants to buy the mortgages and refinance them into more affordable 30-year, fixed-rate loans backed by the Federal Housing Administration.

Under the $700 billion bailout plan, the Treasury Department already has authority to buy residential mortgages as well as mortgage securities. And under the housing bill, the FHA already can refinance troubled loans, building on an effort underway since last year.

But the problem is this: Many borrowers these days are struggling because they are under water, meaning they owe more than their homes are worth. Helping them has proved tricky because someone has to take a financial hit in bailing them out.

To protect itself, when the FHA gets involved now with refinancing a troubled mortgage, it will insure a loan for only up to 90 percent of the home's current value. Lenders must voluntarily agree to forgive the rest of the debt for borrowers who have no equity.

Many lenders have resisted, which explains why only 1 percent of the 369,000 people who have refinanced through the FHA in the past year were delinquent.

McCain plans to overcome lender resistance by bypassing them, Holtz-Eakin said yesterday.

That means the government could end up buying these loans at face value. For instance, it may potentially buy a loan in which the borrower owes $250,000 on a home that's worth $200,000.

The FHA, and potentially the taxpayer, would then foot the bill for the difference.

Alan Blinder, a former vice chairman of the Board of Governors of the Federal Reserve, said he and others have supported the government buying loans at a discount and then restructuring them. But buying them at face value is a dramatic departure, he said.

It is "outright loss for the taxpayer," said Blinder, an Obama supporter who said he has answered queries from the Obama campaign. "I don't see why anybody, Republican or Democrat, would want to do that. Ironically, you would be giving the biggest gifts to the lenders who made the worst mortgages."

The losses will grow if home values continue to drop, said Abdullah Yavas, a real estate professor at Penn State University.

"The more the property value goes down, the bigger that loss will be," said Yavas, who is not affiliated with either campaign.

But Holtz-Eakin said taxpayers have to cover the loss because the economy has deteriorated so rapidly. "That's the only way to get a rapid and broad-based response."

About six months ago, McCain pitched a plan in which lenders would have forgiven part of the debt. "In the end, the lenders didn't," Holtz-Eakin said.

The Obama campaign yesterday called the initiative "erratic policymaking" that would have the government "massively overpay for mortgages."

The Bush administration did not comment directly on the plan. Treasury Secretary Henry M. Paulson Jr. and White House spokeswoman Dana Perino said in separate briefings that they had not seen details.

Yesterday, McCain's campaign said its Home Resurgence Plan would target people who financed their primary residence and who did not falsify documents or avoid a down payment. Ultimately, the plan would help stabilize home values, campaign officials said.

Chris Mayer, a real estate professor at Columbia University, said $300 billion won't be enough to achieve McCain's goals.

"There's over $400 billion in negative equity sitting around the country right now and $300 billion is not going to come close to the magnitude of solving the problem," he said.

And, he said, it won't help potential buyers who can't find a loan because credit has dried up.

John McIlwain, a senior fellow for housing at the Urban Land Institute, said that reworking these loans might be the fastest solution to the housing crisis. "But it was not something I expected to hear from a conservative Republican."

During the debate, McCain took ownership of the idea and its costs. "Is it expensive? Yes," he said.

"And it's my proposal," he added. "It's not Senator Obama's proposal. It's not President Bush's proposal."

[ginest1]

No...If you are a homeowner who decided that a 250K mortgage was within your budget and later found out otherwise then to bad for you. I the taxpayer wll not bail you out. And the government should not either.

I live within my means. And so should you. And so should the government. I have no debt yet live pay day to pay day. If I were as reckless as the government with my financies I would be labeled a credit risk.

This bailout....***. They say banks won''t lend. More ***... At the end of the dot com bubble(remember 1999-2001)when high tech nose dived, the market turned to real estate. And now just like high tech the bubble has burst.

So who do we bail out? Give me 700 billion and I''ll do this. First of all if I had this kind of money why would I need a bank. If I were to provide loans at say 2.5% who would not be interested. Large and small business, home mortgages, auto and any other needs including the rip off credit card companies. Think of the money we would save.

And for all you fat cat CEO''s. Send your companies over seas. Then get out of the way. Because you and your product will be replaced.

[clovisbuford]

It should. It''''s a socialist grab that is worthy of a democrat.
Posted by LibH8er at 01:24 PM : Oct 10, 2008 evidently its a plan you think is irresponsible , but its your candidate ''s plan , then you blame it on democrats .. remeber that whoole personal responsibility schtick ? except when it comes push to shove the real republican party is Profits go to the rich , losses go tyo the tax paywers , how do we know this? read a news paper watch the news. The plain fact of the matter deregualtion is claptrap . Dont get in the way of buisiness with government regulation" thats akin to saying don''t pull out a gun if you are being robbed , you are interfering with the robbers buisiness. Republicans are investing tax payer money in bad paper , and otehr measures , its gonna happen we are gonna be as tax paywers invested in some of the nations largest banks , youwatch as the Fed invests directly in banks. it shows what a spectacular failure Republican policies and deregulation are .. its not theororetical at this point , its the headlines .

[libh8er]

It should. It''s a socialist grab that is worthy of a democrat.

[karela33]

McCain said this was supposed to help homeowners, but now he "tweeks" his plan so that tax payers take it on the chin so that his plan can pay banks far more than the value of the homes. In Florida, homes that were selling for $290,000 a year ago are now selling for $90,000. There are millions of homes like this all over the country. The lenders made bad mortgages because they got greedy. The tax payers should not be paying three times the market value to banks. If we use the money to buy mortgages, we should help as many homeowners as possible. We can''t do that if this is just a bailout for banks that''s being sold to us a helping hand to homeowners. Let''s see, shall we buy the mortgages for three homeowners at market value? Or shall we buy one mortgage at the bad loan value? We''d run through the money pretty fast at that rate and there would still be millions of people losing their homes and the economy would still be tanking--except for the banks. The banks wouldn''t get all of their money by selling at market value, but it''s better than not getting anything. And they made the loans.

[harbinger09]

This is funny--McCain made Republicans embrace a former mistress as potential first lady, illegitimate teen pregnancy, an Airhead for a VP and now they must embrace socialism and helping out the poor with a 300+ billion dollar mortgage bailout--before its over, the Republican party will seem more liberal than the Democrats and the Republicans have to swallow it--because he is all that they have.

Paying for a public bailout, supporting airhead females for VP and championing pregger teens indeed--what were those conservative values again? Hypocrites.

[harbinger09]

McCain is an idiot.

[misha128-2009]

It should draw cries from all as McCain acts decisively and against the interests of taxpayers to protect Wall Street CxO''s salaries and golden parachutes. Keating Five Deja Vu all over again.

[jackie20085]

LET FACT SPEAKS OUT!

Educational Background:

Barack Obama:
Columbia University - B.A. Political Science with a Specialization in International Relations.
Harvard - Juris Doctor (J.D.) Magna *** Laude

Joseph Biden:
University of Delaware - B.A. in History and B.A. in Political Science.
Syracuse University College of Law - Juris Doctor (J.D.)

John McCain:
United States Naval Academy - Class rank: 894 of 899

Sarah Palin:
Hawaii Pacific University - 1 semester
North Idaho Community College - 2 semesters - general study
University of Idaho - 2 semesters - journalism
Matanuska-Susitna College - 1 semester
University of Idaho - 3 semesters - B.A. in Journalism

[misha128-2009]

This is evidence of a $300 billion dollar reversal of a mistake made by Senator McCain when he insisted there be an insurance option to the bailout -- this could and probably will make the banks whole rewarding the bankers that acted inappropriately.

[dboyer7-2009]

McCain is reckless, erratic and does not put Country first. He puts his campaign first. I am middle class, a decorated Vietnam Veteran (including a Purple Heart), never filed for bankruptcy, pay my credit card debt on time, pay my mortgage on time: what does McCain have for Americans like us? Nothing!! McCain''s plans give tax breaks and financial support to the rich, big oil companies, bankers (like Keating),lobbyist (like his campaign manager). Obama will give us middleclass a break on taxes, he supports Veterans and will make the financial/medical firms accountable. McCain did not even vote for the last Veterans Bill. Now a $300 billion break to financial firms. What a pathetic old man. Go Obama/Biden

[republcnred1]

Well I can see that some of ya''ll
aninmadison & noloyalisti must be paid Bhussein O bloggers, anyone with an education would know that the bailout is not going to the banks....no wonder the Obama campaigne is pulling at straws...go get educated..geesssss.

[noloyalisti]

This jerk is an angry white dude with the Government of Pigs (GOP) party, the party of war and death and spending (for corporations). He is in the same party as Butch and Cheney, the war criminals. How can you believe him or any of his depraved cohorts?

[DCropp]

I refuse to pay for another bailout.

I''m sick and tired of McCain. Has something happened to his short term memory?
Day 1, the bailout goes to the banks.
Day 2, a different bailout must be paid for by the banks.
Day 3, the bailout must be paid for by the taxpayers and given directly to the banks who wrote the bad loans.

How much more money of our money does McCain want to give to these banks?

[strangeworld]

McCain should be on stage apologizing to the citizens of the USA for his role in the deregulation that caused this breakdown of the US economy. McCain has no honor - he chooses to ignore his role in causing financial hardship to the American voter. McCain''s financial guru called the US a nation of whiners. I can''t imagine anyone who''s hurting financially due to republican policies voting for McCain.

[abearific]

So, instead of all this crazy bailout stuff for mortgage lenders, why don''t we just have the lenders modify existing home mortgages to become 40 or 50 year amortized instead of 30. That way, you keep your home, your payment drops, the bank still makes money and doesn''t have to foreclose upon it, you can pay a little extra to bring down the principal of the mortgage so when you finally have equity in your home you can refinance to a 30 year mortgage. Banks should also allow a 6 or 9 month "grace period" that allows people recently laid off from their jobs to tack that extra time they cannot make mortgage payments on to the end of the mortgage. That way they can look for a job, catch up all of their bills, and restart the payments just as promised. No good is coming out of banks foreclosing upon homes that are worth a fraction of what is owed on them. Any way that we can help homeowners stay in those homes and keep making payments will help our economy from further deteriorating.

[dburfears]

DOUBTS? Try "CRIES OF INCOMPETENCE AND INSTABILITY"

McCain''s mortgage plan is to GIVE FULL VALUE TO THE FAILED MORTGAGE COMPANIES that wrote the bad loans! So they LOSE NOTHING?

So McCain wants to MAKE THE CRIMINALS WHOLE (THEY LOSE NOTHING) and McCain wants TAXPAYERS PAY $300 BILLION FOR TO LINE THEIR POCKETS?

McCain is OUT OF HIS MIND. The question is, which Washington LOBBYIST told him to do this for their BANKER CLIENTS?

SHOULD AMERICANS BE ANGRY? DUH!