Barack Obama: John McCain's mortgage bailout 'costly and out of touch'

On further review, the Barack Obama campaign has chosen to criticize John McCain's surprising call last night for a new homeowner bailout under which the federal government would buy $300 billion worth of underwater mortgages and issue cheaper, government-backed mortgages in their place.

The Obama campaign's initial response Tuesday was hardly critical: "Bill Burton, a spokesman for the Obama campaign, said the idea was not a new one and noted that the Illinois senator had raised it." Today, however, the Obama campaign went on the attack:

Now that he's finally released the details of his plan, it turns out it's even more costly and out-of-touch than we ever imagined," the Obama campaign said in a statement. John McCain wants the government to massively overpay for mortgages in a plan that would guarantee taxpayers lose money, and put them at risk of losing even more if home values don't recover. The biggest beneficiaries of this plan will be the same financial institutions that got us into this mess, some of whom even committed fraud.

If you want to read more about the McCain plan -- and the "many mysteries" it raises, read Mark Lacter's quick take at LA Biz Observed.

Back story: Here's the McCain campaign's description of the plan, which it calls The Homeownership Resurgence Plan. Highlights: To be eligible, borrowers would have to "prove their creditworthiness at the time of the original loan (no falsifications and provided a down payment)." The McCain campaign argues the recent bailout bill, plus the Fannie-Freddie takeover, plus last summer's housing bill give the government the authority to buy mortgages and replace them with cheaper, government-backed mortgages.

Keep reading below for a transcript of the portion of last night's debate in which McCain first floated the idea.

From the debate transcript posted at Top of the Ticket, here's the portion relating to McCain's new mortgage plan:

...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 value of those homes and let people be able to make those -- be able to make those payments and stay in their homes.

Is it expensive? Yes. But we all know, my friends, until we stabilize home values in America, we're never going to start turning around and creating jobs and fixing our economy. And we've got to give some trust and confidence back to America.

I know how to do that, my friends. And it's my proposal, it's not Sen. Obama's proposal, it's not President Bush's proposal. But I know how to get America working again, restore our economy and take care of working Americans. Thank you

Later, McCain added:

...we're going to have to go out into the housing market and we're going to have to buy up these bad loans and we're going to have to stabilize home values, and that way, Americans, like Alan, can realize the American dream and stay in their home.

Later still, McCain added:

I think if we act effectively, if we stabilize the housing market -- which I believe we can, if we go out and buy up these bad loans, so that people can have a new mortgage at the new value of their home -- I think if we get rid of the cronyism and special interest influence in Washington so we can act more effectively.

--Peter Viles

Your thoughts? Comments? E-mail story tips to Peter Viles

Photo Credit: EPA

Hat tip: Tex, via comments.

Comments

[anonymous]

Obama has my vote back.

[socalinvestor]

Both of these guys are obviously saying and doing whatever they can to get themselves in the White House. This latest policy position by Obama is certainly a political ploy after having sensed the initial reaction to it. However, at this point, I don't care. I'm relieved that someone is willing to draw the line whatever their motivation may be.

[Dave]

Hail Mary attempt by a desperate man.

What about me? I purchased my home in 1998. Can I get the $$ for free as well? Where's the cutoff if any? If McCain is proposing to give $$ away, why not give it to everyone?

Lastly as mentioned by Peter, wouldn't this just penalize the responsible people who held off their purchase during the bubble years and saved?

[Nialla]

Obamabot's just snippy because all of his ideas are older than McCain.

[Shripathi Kamath]

Why does McCain only want to bail out those homeowners who took these unwarranted risks of buying a house that they could not afford in the first place?

Why not extend the same benefit to others who were being responsible? I worked hard to get a house at a mortgage I could afford instead of recklessly buying a house I could not afford.

Why reward the ones who are a large part of the reason we are in this sub-prime mortgage mess, but punish the fiscally responsible ones like myself, by making my taxes pay for them?

What kind of conservatism is this when you are offering a free ride to the most wretched of irresponsible buyers, and punishing those who were actually fiscally responsible?

[jabberwolf]

Out of touch?

Then Obama must be "out of touch" as well.

HE VOTED FOR THE SAME DAM THING!
Only Obama did almost nothing to help it or hurt it's passing.

Obama seems to take credit for doing nothing, and assign blame when people actually do something and he still does nothing.

Obama is the most fake personality this nation has ever seen!

[Oregon4Obama]

He's betting solely on the housing market.....sounds like he still gets his advice from Rick Davis

[vote4thebest]

to spend $ to help homeowners instead of Wall street is out of touch? It is Obama who is out of touch since he is happier to sit on the sideline instead of come up with new ideas to help the country and the people. It is easier to criticize than to be a creative leader who would be willing to put out different ideas for consideration.

[John]

I don't think McCain's plan will work and it will only end up costing us much more in the end and I believe that the worst is yet to come with the market and it will continue to drop.(hopefully not!!) But for sure in any case or all in all cases I don't give a rats ass about Iraq, they need to start taking care of themselves and we should take the 10 billion a month and put it towards saving our own asses or assets and the rest of the worlds! Because basically the fact is were dragging the whole world down with us and not only are we looking bad because Hussain is still reeking havoc but were paying to protect a country that should be paying us for protection with a 79 billion reserve and loads of oil that we aren't getting for free.
Save the 10 billion a month and lives being wasted.

Obama has my vote for sure!

[Graniteman]

McCain has the right idea. Unless we stop falling house prices because of foreclosed properties, the financial crisis will continue and more banks will fail. It is astounding to hear Obama reject a relatively liberal proposal from McCain just because it came from Sen. McCain's mouth.

[Clugs]

You need to update your article, Obama just said he thought McCain's idea was a good one (after the details of the proposal came out)

[GDC]

Why do people think the government HAS TO do something for the crisis to end? The crisis will end much sooner and the economy will pick back up when all the excesses are washed out of the system. Prices will be normal. People that made gobs of money during the bubble will have to find real jobs and be paid what they are actually worth. No one will be fixated with real estate and life will go on.

As long as there is supply and demand in this country, things will be fine. This is just the price everyone has to pay (some much more than others) for all the mistakes of the past. Especially banks. Let them fail. Trust me, private money will come in and make loans to LEGITIMATE people and businesses. The current whiners are the ones who didn't have the assets and income and still got loans. Well, no more. That's a good thing.

NO BAILOUT. NO INTERVENTION. That goes for both Democrats and Republicans.

[MyLessThanPrimeBeef]

I think we are back to where we started - McCain is not really a conservative and Obama is not really a liberal.

This election is really about choosing between a Republicrat and a Democan.

And guess what? When you mix red and blue, you get purple - like something you get with a really bad bruise.

I think this country has been badly bruised by Obama and McCain when they voted for the bailout. After that, neither has the moral authority to criticize the other anymore.

[FLRepublican]

More money to buy up mortgages? The 700 billion just allocated and not yet spent were meant for exactly that. The Treasury Secretary has the power to help home owners refinance. We don't need another 300 billion on top!

The fundamental problem with declining home value is that people don't have the money to buy! You can't make the problem go away with cheaper credit. You gotta add jobs through investment.

[truthhurts]

folks, it is time we should improve the earning capabilities of individuals rather than trying to compensate by outright bailouts and tax credits, for past failures! However much you try to bribe the public back, if you don't make them productive, it will be a dead economy.

[George Novak]

What does common sense have to do with anything? Put a hockey mom and a worn-out Republican in the whitehouse so they can fly up to Alaska and keep an eye on Russia!

[Chris]

And I thought 40 acres and a mule was a great idea. Now, Uncle John plans to give me a new house.

[janie]

It would be nice for the media to do their own fact checking instead of relying on third- and fourth-hand accounts. Is it so hard to post a link to the actual plan that McCain has proposed?

[The End is Noir]

Shripathi Kamath,

McCain is no conservative. He's proven that time and again.

[Gawain]

Ironically, opponents of the bailout will note that this is the first attempt by ANYONE in DC to attack the roots of the problem. It may not be a perfect solution but its better than handing almost a trillion dollars to Paulson, who just happens to be one of the CEO's that got us into this mess. If you're gonna bailout anyone, make it the people who are losing their homes, not the CEO's that are begging for more billions while taking spa trips to Europe and handing themselves $50million bonuses.

Anybody who is attacking this plan needs to give us a better proposal, NOW. Put up or shut up.

[OhPleaseNo]

Hey Jabberwolf,

here here!

[Blueskies]

Speaking as a Los Angeles area resident, why would anyone want to stabilize housing prices too high? Right now Los Angeles real estate prices are back to 2003 levels but perhaps need to be back to 2000-01 prices to be affordable. McCain's plan would contain at least two social policy disasters. It would reward the morons who bought too high, either lied or were defrauded into loans they couldn't afford, and now can't make payments, while not rewarding those of us who've had the same mortgage for 10 years or more. Second, it would -- if successful -- stabilize LA prices well above an ordinary worker's affordability. (Of course, if it's unsuccessful it's another $300B down a rathole.) This is one of the dumbest ideas I've heard in a long time.

[John P]

With this proposal McCain has definitely lost my vote. He is officially proposing to reward speculators who made bad investments while punishing those who were prudent. There is only one law that should be passed regarding this crisis:

After three missed payments all banks should be required to immediately put the house in foreclosure and put it on the market for resale. If the house is unsold within three months it goes to absolute auction. This would eliminate the problem of dangerous squatters and rotting homes that are destroying neighborhoods. It would also quickly provide low cost housing to those that don't currently own. Right now a large number of Americans are paying over 50% of there income in housing related costs. This has caused people to become debt slaves and has removed the disposable income that has fueled our economy. By flooding the market with affordable housing we can truly raise home ownership rates without shackling buyers with the crushing debt that came with the boom.

McCain has proposed the opposite. He wishes to maintain the status quo by keeping current residents in their homes with mortgages they can just barely service while artificially propping up prices above levels first time homebuyers can actually afford.

[anon]

This dust up is one of the more bizarre episodes of the campaign. I truly don't understand what Obama's handlers hope to achieve by deriding FHA-sponsored re-fi and protecting under-water RE prices. I had to read the transcript a few times. McCain will never get away with obligating half the statutory TARP budget to loss mit. But Furman is an idiot.

McCain's proposal is the HOPE for Homeowners act. This provision is pretty much the only direct relief for mortgage holders, "taxpayers." He endorsed it back in MARCH when Dodd and Frank first put the measure together and ran hearings.
http://dodd.senate.gov/index.php?q=node/4372

Shelby finessed the language with Dodd, I guess to encourage ABA buy-in. No banks want to write down principal. Then is passed in H.R. 3221 last July.
http://dodd.senate.gov/index.php?q=node/4518

Then Dodd-Shelby stuck it to the Bailout Bill, first round H.R. 3997, second vote H.R. 1424. The language is Sec. 124 describing how Paulson is supposed to purchase "distressed" mortgages, if any. Ha.

He's still inventing credit facilities.

[Daisy]

Both of these guys are crazy! Obama is a liar and a hypocrite...he voted for the same thing (in line with Dodd, Frank, Pelosi, etc). And as for McCain, by constantly insulting conservative values, you're not a maverick...you're a jerk!

In my opinion, Pres. Bush, along with Pelosi, Dodd, Frank, Obama, McCain, etc....have changed America to something that even our enemies wouldn't have been able to do. The irony here is that McCain once fought communists.

(To all Americans and politicians: Let's start reading the Constitution again. Or is that obsolete now?)