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

[Lou]

Any real Republican should be completely ashamed of this.

[RealtorDaveE]

As a Realtor, I'm conflicted about McCain's proposal. Our unprecedented abrupt decline in home values was preceded by unpecedented reckless 100% financing. Many California homeowners have property currently worth hundreds of thousands of dollars less than they owe on it--and their mortgage payments are about to reset. Who wouldn't be tempted to walk?

But many of these homeowners put themselves in this position with reckless cash-out refinancing. Others lied about their income, although many didn't realize their lender was lying for them on the application (some lenders also forged signatures on the app.).

From a moral viewpoint, I'd like McCain's program restricted to homeowners with purchase money loans who can actually qualify for the new loan. From a practical point of view, that may not be broad enough.

Eventually the various bail-out plans will bring us a price bottom, possibly sooner than many expect. It is a good time for potential buyers to at least get ready for the bottom we all know will eventually come.

My business partner and I are teaching a $5 buyers' class for the City of Lakewood's Community Services Department this Saturday morning from 9 - 11, and everyone's welcome.

No, we're not selling anything--it's just an annual class we do for the community. (The sellers' class isn't until January 24.) We were both teachers before we were Realtors, although that was 26 years ago for me. Given the current market, maybe I should have stayed in the classroom.

Details at:

http://SoCalRealEstateNews.com

[Cycling in Hollywood]

sheer insanity

i was one who DIDNT get a crazy loan, now hoping ill be able to afford a house in LA someday

[MBWatcher]

This McCain plan has huge moral hazard problems and could actually speed home price declines. Homeowners trying to get out of bad mortgages have every incentive to claim their properties are worth less than they are, and the gov't has some incentive to go along – after all, they've got free money and they're trying to prevent foreclosures.

More:

http://mbcon.blogspot.com/2008/10/buy-up-bad.html

[syscom3]

As long as the mortgage can be refinanced by people with good credit, could afford a traditional 30 year mortgage at the going interest rate, and the house is appraised at the current market rate ....

Then I have no problem with it.

[Whaaa?]

Absolutely scandalous attempt at vote buying. Rewarding greed, punishing prudence.

What's not to like.. assuming you are a greedy overleveraged gambler who made bad bets, who has a vote for sale.

[anonymous]

This isn't the first time McCain has pitched Obama's ideas as his own. If McCain wins the election, the world financial markets will have no more faith in the United States and we're going to have a depression.

[Bryan Morris]

McCain's campaign is imploding and his mortgage proposal appears to be another desperate Hail Mary pass kind of thing like choosing Perky McGunderson to be his running mate. I'm a life long Democrat and an Obama supporter but I really felt sorry for McCain while watching the debate last night. He veered from disingenuous attacks on Obama to worn out and discredited Republican talking points to scattered and semi-coherent arguments that he didn't even complete before jumping to another topic. I've beening answering surveys about the election for a few months now and one of the questions is always whether I am concerned about McCain's age. Up until now, I've always answered no on that question because I'm interested in a candidate's policy positions and not his or her personality. After seeing last night's performance though, I am concerned about McCain's age. Sorry, but he just seemed old and kind of confused.

The Republicans, at the behest of their real constituency - the wealthy, are primarily, but not without Democratic collaboration, responsible for driving the U.S. economy off a cliff with laissez-faire, deregulation uber-alles policies for the last 30 years. McCain seems to symbolize his party's complete inability to either recognize just how bad things are for everyone who works for a living, or how to get the country out of the mess they've made out of it.

And that business of referring to Obama as "that one" was only one step above saying "you people". Which is only a couple of steps above using the n-word. Yuck.

[Hula Girl]

Why not? He needs more houses. How nice for those of us who bought responsibly.

Ladies and gentlemen I introduce the latest Parker Bros. game: Conopoly.

[Nick]

Not much McCain could have done worse than that, at least as far as I can imagine. I mean, intellectually I know Obama would do exactly that and much worse, but coming from McCain it just seems like a betrayal of the only reason people might want to vote for him (that is, not being a socialist). If they're both going to be socialists promoting massive idiotic government manipulation of markets, you might as well vote for the guy who's not bringing along a religious fanatic to run the country if he becomes unable to.

As I said, I know intellectually that Obama's plans are still far worse, but it's a whole lot easier to accept the idea of having a socialist leader when the supposed alternative candidate is also espousing socialism, and at least Obama has been relatively consistent in his positions. I'm not sure McCain could have said anything worse for his dwindling chances, and as someone who is very apprehensive about our impending conversion to a socialist country (the Change that's coming, as Obama puts it), that makes me sad.

[150 Multiple Choice Questions]

You can probably just copy and paste the responses from the "5.25% 30 year mortgages for everyone!" story, this "idea" is the same thing.

All this bluster is kind of like the junior high election where the candidate who says they're gonna shorten the school day and lengthen lunch wins! What's hard to tell is if McCain and Obama really mean they'll do these idiot things or really think absolutely stupid ideas like this will work. As we all know, there's little to no accountability so they might as well say whatever they need to. And they do.

Hopefully some senator's 6th grader will explain to D.C. (and CNBC) that you cannot artificially support asset prices and their continued attempts to magically "save" the economy are making it worse.

[donna]

Doesn't Cindy own enough houses already?

[The Original RZ]

I don't like it. It'll keep home prices up due to fewer foreclosures. I know that's a mean sentiment, but no one is looking out for those of us who have been saving to buy and neither bought something we couldn't afford nor signed a contract we didn't understand.

[Tom K]

Yep I will also stop paying my mortgage and would encourage others to go out and buy homes they cannot afford and immeadiately not make a single payment. I will look for a 2 million home on my family income of 125K and then not pay a dime. Yeah this plan will work,

[dino]

I am maxing out my cards, going to Hawaii and buying a new car I want to live it up before McCain comes to my rescue.

[some renter, LA,CA]

I have a crazy Idea, since everybody seems to be trowing money around except to the right people. I wonder if a $100K rebate to 1st time home buyers work? or a rebate worth 20% of the home value? would they even consider it? should it be without paybacks?

[Tom]

Maybe a better "out" to this mess is to work with banks to modify loans into lower fixed rate mortgages instead of modifying principal. That way those that put large down payments aren't slapped in the face and you still have to pay for what you signed up for but there is some relief for nearly all mortgage holders. The banks still earn money, albeit less, and wouldn't consumer confidence rebound?

[plastic fantastic]

Once again the 'leaders' fail to recognize the problem, which is that home prices got TOO HIGH because of excess credit and lax lending standards. The solution is to let home prices fall to fundamental value (along with all the garbage MBS). The government's role should be in limiting damage to the economy that results from this necessary adjustment, NOT in PREVENTING said adjustment. But of course no govt official will speak the truth, even those that recognize it, becuase they are all vested in maintaining the status quo. So, instead of a quick but painful recession, the lost decade is going to become the lost lifetime for America. What a disgrace for those in power, on both sides of the isle, and for those deep pockets that keep them there. None of them get my vote, or my dollars, for the forseeable future.

[dino]

I dont's understand the comments by McCain supports who seem to be surprised. Hey, this is the same guy that voted 95% of the time with Bush.

While everyone has been part of the problem, Dems and Reps, it is the Bush Whitehouse that got us into this last crisis.

He said he would NOT tax us, yet Gasoline is 4 bucks a gallon (Don't you realize that is just another form of taxation????--the beautiful things is it goes straight into his buddies' pockets..that money will never come to us!)

Now they tell us our gas money goes abroad to terrorist states--well aren't those governments the ones Bush called " Allies"?

With the money the Oil companies are getting out of Iraq alone we could solve the crisis, fix health care, and allow every American to realize their dreams. But this is about Greed.

So please don't sound surprised about McCain and Palin...they are puppets of the oil companies just like Bush Cheney.

I don't know if Obama is going to get us out of this, but I am most certainly not going to vote for McCain...I can't. Ethically and Morally they are dead wrong...the republican Party has lost its way. Until they find it, I will vote Democratic for President and for the new guy in Congress.

[tarbubble]

sung in a schoolyard tune:

we don't have the mo-ney,
we don't have the mo-ney,
our national debt
is ten trillion,
we don't have the mo-ney!

unless, of course, we raise taxes...

[wally]

Is this the single dumbest idea of the campaign so far?

[puckhead]

This is such a MAVERICK plan. After all, what do you expect from McCain and Palin? They both are such MAVERICKS. Oh, did I mention that McCain is a MAVERICK. I love this election. It's been very entertaining. Let me know when I can short financials again.

[Mark]

Well, unless this imbesile is planning on using his own money to buy up "Bad" mortgages....it would appear that I am actually buying back the "Bad" mortgages along with the rest of the US taxpayers...so with that being said, I feel that it's my "Right" to have all of the losses that I have incurred in the stock market covered by the tax payers as well....since after all, it's not my fault that I didn't read my contract and understand that all investment has substantial risk for losses......right?? Does anyone, anywhere realize how stupid that this actually sounds?? Oh right, I forgot, we're in the period that it's not my fault or responsibility....soneone did it "To" me....have the citizens of the US have really become such soft blivots?????

[RB]

so I guess I ought to starting thinking about jumping into the housing market. I'll buy a million dollar place and secure an 8% 30 year fixed loan. however, I know full well I can really only afford a $150,000 house and 3.5% works a lot better for me. if McCain is elected and he's promising to buy my mortgage, hell, I'm "all in".

[YeeHa]

Didn't these people agree to PAY too much for that house, probably caught up in the get-rich-quick mania that prevailed? Didn't many of them barely qualify for these crazy tricked-up loans? Good ol' supply and demand. The people that had always demanded a home loan finally got one because the greedy suppliers of loans quit applying standards and quit saying no. And Wall Street sold the risk around the globe, and AIG insured that risk. You can follow the greed from stop to stop, and also find that it was completely foreseeable, i.e., JP Morgan and Goldman Sachs limited their exposure well before it got bad.

If I pay too much for a stock and it crashes, who offers to re-value the stock so I don't lose my investment? Free market rules, until I get hurt? Then socialism is OK?