McCain: I'll buy your mortgage

Interesting curveball from Sen. John McCain in the presidential debate: an economic proposal he's either just come up with, or has been waiting to unveil. From the Los Angeles Times:

McCain offered one of his most significant proposals of the campaign, saying he would order the Treasury secretary to immediately "buy up the bad home loan mortgages in America and renegotiate ... at the diminished value of those homes, and let people be able to make those ... payments and stay in their homes."

McCain's $300-billion plan, a turnabout from an earlier position, would require a radical shift in the government's approach. It raised several questions the McCain campaign could not immediately answer, including what its potential impact would be on efforts to remedy the global credit crisis.

From a separate Times' article on the proposal:

McCain's campaign issued a 1½-page fact sheet to explain his call for the massive federal intervention, which it called the American Homeownership Resurgence Plan. The campaign noted that the $700-billion financial rescue package approved by Congress last week gives the Treasury Department authority to directly buy mortgages, but added, "It may be necessary for Congress to raise the overall borrowing limit."

The Obama campaign, evidently wanting a piece of the idea, said Sen. Barack Obama had already suggested the Treasury use its new powers to buy individual mortgages.

From the New York Times:

Mr. McCain sought to break through by highlighting a proposal under which the Treasury Department would buy up mortgages that had gone bad, and in effect refinance them at prices homeowners could afford.

Your thoughts? Comments? I'll add more details and reaction to this post as the day goes on.

-- Peter Viles

Photo credit: Associated Press

Comments

[YES!]

GREAT IDEA, MCCAIN!

I will stop paying my mortgage immediately!!!!!!!!!
I actually don't mind my mortgage, but why not stop paying and let the government re-finance me at a lower principal and lower rate!

Great idea, I love it, let's all default!

[latesummer2009]

So much for "less government" and letting the "market take care of itself". Which is exactly what needs to happen, in order to get through this mortgage mess. Unfortunately, people that bought in the 2000s are in for a rough time. That is the soulution, as the Fed's magic bullets are not working anymore.

Westside RE takes it's punches next.

http://www.westsideremeltdown.blogspot.com

[Digitalian]

McCain is toast.

[Dan]

My thoughts? This is insane.

I haven't bought because home prices are out of whack with regards to income.

Home prices became inflated because (amongst other things) money was cheap/easy.

Now if in order to fix things, McCain is going to take money out of my 401K (by reducing peoples' mortgages that were supposed to be bringing in $$$) and reinforce the cause of the problem?!?!? WHAT?!?!?

2 thoughts:

1) *Owning* a home is not a right. One who cannot pay for his house does not have an inherent right to stay in that house.

2) This only re-inforces and rewards the bad decisions made by irresponsible buyers & lenders. Why make that *MY* problem?!?!?!

Does anyone remember the movie "Falling Down" with Michael Douglas from the mid-90s. Great movie. At the end of the movie, he's standing on Venice Pier, kind of in disbelief & confusion, after he's seen all sorts of bad stuff going on in L.A.... and with police aiming guns at him, he says, bewildered, "You mean *I'm* the bad guy?"

So my parting thought is:

"You mean this is *MY* problem?!?!?!?!"

[Jonathan]

I like it. Rewrite people's mortgages so that you reward irresponsibility. My friend who bought a 1.3M house he can afford will hate this.

[normanpheeny]

I was so furious after that comment, I stopped watching the debates. McCain just lost my vote and I was a strong supporter. Obama will never get my vote, so my chad mark will go next to Barr. Yes, a "wasted" vote, but if more people do this, it could send a message to both parties.

[Soylent Green is Sheeple]

Wow. Let me get this straight ...

McCain comes up with something incredibly stupid ... and doesn't know how it will affect the current crisis ... or how he will pay for it.

Obama says, not so fast, I was here first?

Is there anyway I can short humanity?

[someday the ants will eat grasshoppers]

Let's just hope these are political lies on the part of McCain. How does giving my tax money to people who can't afford what they bought fit with the American dream? The only way to lift housing prices (which are still above historical averages...so why do they need it?) is to stimulate the creation of jobs with good wages so that people can truly and honestly afford what they buy. Giving money directly to the most delinquent borrowers? I feel like I'm taking crazy pills!

[bigunit]

I enjoyed CNN's Alex Castellanos' comment on the proposed program: "Pretty good deal for a country that is broke."

Another question: When can I begin stop paying my mortgage?

[Tim K.]

So many problems with this proposal. First of all, what's the criteria for who gets to be bought out and re-negotiated? If I'm just a little unhappy with my mortgage, and just slightly underwater, can I get my mortgage re-assumed by the gov't? If I re-financed and pulled out a ton of money on a sky-high appraisal during the peak, does that qualify too? What if I promised you I only spent it on cancer treatments to save my dying kids? Would that give me as much sympathy and priority as the poor person making minimum wage who bought a $500K house and has no other health problems?

This proposal *sounds* wonderful, but in reality, it will do nothing to address what the real people with money are afraid of, and that's their stock portfolios going down.

It's also unimplementable.

[Cal]

I thought it was cute that he thought it would only cost $300 billion

[Jerry]

I give up!!! The stupidity of politicians will never cease to amaze me. Instead of a quick housing downturn; we will get a long dragged out housing slide which will last years. Trying to manipulate the market and prop up housing prices will just make the fall much more harder.

[Tudor Ford]

Saw this train comin'. Sigh.

[Irrational buyer]

This is a great plan by McCain to keep current owners in their homes, though I wish he would have told the other half of the plan. The best way to increase housing affordability and still keep houses at current prices is to devalue the dollar by 50%. This'll also cut the national debt in half! Bernanke's working day and night do this as we speak.

"Some" people might be opposed to this because it would decimate their savings, but losers who save instead of maxing out their debt need are a threat to this great nation.

[Craig]

It is a wasted step and a waste of time. The only quick way is for the holder of the mortgages to restructure the loans to 40 or 50 years loans--determined by how much the owner can afford to pay.

[Giacomo]

I was hoping McCain would take a stand for personal responsibility (didn't Palin telegraph something like that?). Very disappointing.

In addition to being wrong on principle, his position on bailing out homeowners is a losing election tactic: he will never be able to compete with Obama when it comes to pandering. Obama already has corralled the "poor me" vote.

[Chuck]

This has been a crazy ride, people. We've gone from home ownership as guaranteed wealth to the government offering to buy everyone's house back from them. This blog has been one in a collection of voices predicting a day like this would one day arrive It's going to get ugly from here on out I fear.

[tonylogan]

If anyone doubted we are doomed, this "announcement" by McCain should serve as confirmation.

The question had to do with soaring costs for retirees, and they are more affected by high home prices (high property taxes, inflation on other goods) than they are by declining home prices.

The one good thing in this is that even though he said it, it does not mean they could actually get it done. How many bailouts have we had so far that have had no effect whatsoever?

Vote for third party, vote out all those voting for bailout.

[Ken]

It depends on how you go about "buying" a mortgage. After all, one of the current problems is that these things have been sliced and diced into so many derivatives that their "ownership" is scattered across half the financial industry. So if one of the requirements is that the banks finally open their books so we can figure out who owns what, I'm all for it - while also thinking that will never happen, except in a "you can look at my books when you pry them out of my cold, bankrupt hands" way.

On the other hand, it could be done from the homeowner side, providing them enough money to pay off the current mortgage and setting up a new one (with the government?) in the process. This was used in the last - er, sorry - in the Depression, to some good effect. To evaluate that, it would be helpful to know the number of bad mortgages and amount owed on each, or at least an average value. Even $300 billion might not go far, if there are a lot of jumbos in trouble (and remember, some of the ARM products have just begun to reset).

[Ken]

It depends on how you go about "buying" a mortgage. After all, one of the current problems is that these things have been sliced and diced into so many derivatives that their "ownership" is scattered across half the financial industry. So if one of the requirements is that the banks finally open their books so we can figure out who owns what, I'm all for it - while also thinking that will never happen, except in a "you can look at my books when you pry them out of my cold, bankrupt hands" way.

On the other hand, it could be done from the homeowner side, providing them enough money to pay off the current mortgage and setting up a new one (with the government?) in the process. This was used in the last - er, sorry - in the Depression, to some good effect. To evaluate that, it would be helpful to know the number of bad mortgages and amount owed on each, or at least an average value. Even $300 billion might not go far, if there are a lot of jumbos in trouble (and remember, some of the ARM products have just begun to reset).

[Grace]

Where do I sign up?

[ToadB]

It's idiotic. For starters, I don't think it will be as popular as he thinks. There are throngs of people who didn't buy homes they couldn't afford, didn't use their existing homes as cash machines, but they also suffer from this economic melt down. They sure as hell don't want to pay for other people's greed.

In addition it misses the fundamentals: housing prices - especially in the hot zones like LA - are still too high. Propping up the prices would not help the economy, just freeze the housing market.

And finally, I don't think it's even possible to do. The economy is in the crapper, unemployment rising, recession moving in, dollar tanking, the national debt is out of control. There is not enough money to execute this harebrained plan.

[TakeFive]

Damn near had an embolism when McCain floated that proposal. Best case, this is just pandering that has no chance of happening.

But this is just the natural extension of where we’ve been heading for a long time. If a wildfire or hurricane threatens your house, the taxpayer pays to protect it. If it’s destroyed the taxpayers give your hotel vouchers and gift cards while your home is rebuilt.

It’s Katrina relief on a national scale. Doesn’t matter who you vote for at this point – they’re both liberal, wealth-redistributing socialists.

[Pauli]

So Joe Deadbeat, who's in default, gets his principal knocked down to $200K, while his next-door neighbor Jim Strapped, who's been working 2 jobs and living on ramen noodles to keep his payments current, still owes $400K on an identical house? What about John Frugal, who's been living small while saving a down payment, unable to save anymore because of tax hikes to fund Joe Deadbeat, who's tax-deductible payments are now also cheaper than John's non-deductible rent?

I'd call this invidious proposal the Riots and Civil War Instigation Plan.

[Clear-Eyed Policy Wonk]

Isn't this buy-up option already part of the bailout plan, which gives Treasury Secretary the legal power to do it? I read elsewhere that McCain's camp is saying that they would pay for it through $300 of the $700 billion just approved. Anyone else know more about this?