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

[Mucker]

I have a different idea. Reduce the appraised value of all real estate "assets" to 2000 levels with an appreciation factor tied to COLA rated by Libor or whatever index is appropriate through 2008. Do not modify any loan terms other than the value of the property. Some would of course have values crash per the current market and some would perhaps have a bounce given the correction which has been deep in some markets. But this would bring the value of homes in line with incomes. Liar loans and other fraud actions would still be faced with resetting loan rates. But those with down payments, good jobs, etc.. would be able to afford payments and those unable to buy at the current valuations would find many properties within reach. This should stimulate the economy, save the banks from foreclosure hell, and create an equitable bottom for real estate. Of course it cries out for return to the old ways, 10 - 20% down and qualifying incomes.

[Laker]

Both Obama and McCain Flip flop. However it is very sad that McCain now sounds more liberal than Obama...
The other sad part is that none of them even mentions that housing is now correcting to fundamentals. Not even one word about how housing is not affordable...
All they talk about is how to stabilize housing....how to keep the people in their homes....
Very disappointing....

McCain: "...and that way, Americans, like Alan, can realize the American dream and stay in their home...."

McCain, I thought the American Dream was to work hard, be efficient/ productive and enjoy to fruits of it by buying an affordable house, and still having some money left for food, gas, Health care, retirement, and education for the kids. You tell me, the dream is to overextend, lie about my income, buy an over inflated house, pay more than 50% of my income to it leaving nothing for retirement, and education, not able to afford it at some point and having the government reduce my loan to a level that i can afford...
So now at 2:00am Thursday, Is Obama for the plan or against it?

[saut]

McCain's plan sounds like a massive reward for irresponsible home-buyers and punishment for those of us (the majority of homeowners) who chose to live within our means and buy the home we could afford.

Why should I have to pay so someone else (who may have more income than I do) can stay in their mcmansion?

What about all the people who kept renting while they saved up for a house, and now would have to pay for the homes of the most greedy among us?

Increasing foreclosures certainly affect all of us, but rewarding those who chose to buy more house than they could afford is not the answer.

[SoCalJim]

The problem is, that any such efforts will artificially inflate housing prices relative to where the market says they should be. Thus, if people can't afford things now, they are obviously in financial trouble or not responsible. In both cases, reducing rates only prolongs the inevitlble problem of continued, and possibly more serious, finanical problems, resulting in the same or similar problems a few months or year later. Further, this makes it more difficult for 1st time buyers, who may very well enter the same trap, just propagating the current credit/mortgage problems.

I know humans are self destructive by nature, but stop the self prepetuating problems.... It is like you want to set up and watch your own train wreck. This is not rocket science people. Why is this so difficult for people to comprehend? Oh, I forgot, b/c stupid politicians will say anything to buy votes.... Ah - that's why. Both candidates are guilty of such pandering.

The support plan makes no sense, especially when median income may be 75k in an area with median prices of 750k. Makes absolutely no sense. Simple fact is that these people should not have bought in the first place.

A house is not a right (nor is health care). A house comes with many responsibilities, for starters, like paying your mortgage and property taxes(just like paying your rent). What happens when you don't pay your rent? You guessed it, you are evicted. I guess there are no rights there.... Alternative is to rent a less expensive place, just like stupid home "owners" who bit off more than they could chew should have bought a less expensive place or not bought at all. I feel absolutely no sympathy for such idiots.

The fact is, each of us makes our own choices, and creates our own problems. Deal with it. If you were dumb enough to get an arm or IO loan, then you are simply naive and irresponsible for putting yourself and your family in jeopardy.

America is becoming "stupider" by the day. It is simply unbelievable.

[Jenna]

If the government feels like it HAS to intervene, why not help people who want to buy houses now? Seriously, take the 300 billion McCain is itching to spend and dump it into helping new people get homes with the proper documentation. That way the people who couldn't afford to buy the house in the first place are kicked to where they belong -- a rental, and the housing market is helped because the banks can get some value for the homes they have on the books. Does this make too much sense?

[gtggtg]

This really isn't that hard. There are two basic ways the gov't can go: 1) Buy out bad mortgages at signed value, and then negotiate again with homeowners, set new rate, whatever--or force them into foreclosure, making the gov't the mean landlord. Note: *This is essentially another bank bailout, not mortgage relief.* 2) Use the gov't's stronger bargaining position to negotiate new rates, *then* buy the mortgages, so the banks take some the hit without forcing millions of folks into foreclosure.

*The McCain team just made it clear they want Option 1. That's the reason for the supposed 'shift' over 'details.'* It's one helluva "detail."

[Pasadena'ed]

saut said:
"Increasing foreclosures certainly affect all of us, but rewarding those who chose to buy more house than they could afford is not the answer."

We're not rewarding them, we're SAVING them. After all, like Sarah Palin said, these people are innocent "VICTIMS"!

Gosh darn, you predatory lenders! It's all your fault!

[JOan]

We all complain but what's the solution? If housing prices go back to 2000 levels that's great for those that are on the sidelines or aren't affected by the current retreat in prices but many people will walk away from their homes. It's not the right thing to do, I agree, but it's already happening. I have a vacant home four doors down and speaking with family members their very good neighborhoods (we're talking Thousand Oaks, West LA) are littered with abandoned properties.

I understand the anger and the frustration that all of these plans offer but surely a meltdown of our entire financial and housing sector is not good for anyone.

What's the solution?

[frank]

Home prices are artificially inflated, why are politicians trying to keep them artificially inflated?? I can't afford a house now with a good income, so the government should try to make a home less affordable to me and harder to buy a home by keeping prices high? How is this right? Let the prices settle to where they should be dictated by free market conditions.

[MyLessThanPrimeBeef]

Joan, it's human folly to think there is something we can do at this stage.

We hope it won't happen again, but then we are talking about humans and greed and lust and avarice and all that. So, it will happen again in another 100 years or so.

[Tex]

I'll start by stating my bias: I am an Obama supporter. Nevertheless, as a renter in LA, I have always been concerned and disappointed by his (and other Democrats') position on the housing issue. During the primary, I decided to vote for Obama because he was less radical than Clinton or Edwards, both of whom were calling for freezes on foreclosures & interest rates. I recall Obama saying he was against such measures because they would hurt future borrowers.

I've paid attention, and I think Obama has been fairly consistent on the housing issue. He believes something needs to be done to stabilize the market (when he says this he is thinking about swing states like Ohio, Michigan, Florida, Pennsylvania, Nevada, etc. -- he is not considering the needs of CA because we are voting for him anyway), and he does believe the government should refinance bad loans, but only after the banks take a "haircut" and sell the mortgage to the feds at a discount, and only for "innocent" homeowners (he has been saying this all along). Frankly I don't know what he means by innocent but I assume he is excluding liar loans, flippers, etc.

So it seems to me Obama has taken a rather middle-of-the-road position. I don't agree with it, but he seems to have given his position some thought and tried to find a balance between doing nothing & giving the farm away to the evildoers.

McCain, on the other hand, has been totally inconsistent. First, he correctly stated that many homeowners overpaid for their homes. I applauded him for it and even considered changing my vote. Then he backed down and now he's trying to morph into Clinton/Edwards on this issue! Clearly, this is nothing but pandering because he is losing in the polls.

Newt Gingrich recently wrote an editorial on how McCain could win: by coming out against the bailout and tapping into taxpayer disgust on this issue. McCain obviously missed the boat on that, and he's now trying to out-liberal Obama on the housing issue to peel off a few votes.

Frankly, I think it's ingenious for Obama to now call out the fact that McCain's plan amounts to a direct subsidy of tax dollars to Wall Street. Obama must have read Newt's editorial!

[Jessica]

Please, the only people McCain's guaranteed to bailout is his corporate criminal cronies.

John McCain is a facilitator of fraud against Americans. He cost the American tax payers billions of dollars with his deregulation polices and protection of corporate criminals. Please see for yourself.
http://www.keatingeconomics.com/

[sheila]

hey Peter, where is the story about Wachovia? even though it is basically bankrupt, and has canceled lending to over 1,000 colleges right as school is starting, they are suddenly giving an $8 MILLION loan to the National Republican Congressional Committee? you know, the committee that until recently was run by the embezzler who defrauded Wachovia on their 2006 loan app and submitted forged audits?

looks like the NRCC has done a little "deregulating" of it's own, has consequently suffered decades of financial mismanagement, and is a TERRIBLE CREDIT RISK, yet they still ended up with a great big loan right in the middle of a government bailout... now, this couldn't be related to the ENORMOUS CAMPAIGN CONTRIBUTIONS TO REPUBLICANS by Wachovia, flowing 2 to 1 towards your boys on the right? naww, whole thing is probably coincidental.

[Jason Alva]

Saving home foreclosures is not an answer because it's not the problem. There was a huge price bubble on housing, at the same time there were people get loans they could not afford. This is a re-valuation of the housing industry. Buying foreclosures will NOT make house prices go back up.

[Crash and Burn]

Everyone,

John McCain’s bailout plan is very different plan from the one already passed and from others proposed. This would be A DIRECT BAILOUT OF THE MORTGAGE FRAUDSTERS WHO CAUSED THE CRISIS IN THE FIRST PLACE. This is the GREAT SATAN of BAILOUTS that we all feared coming. This bailout buys the MORTGAGES at INFLATED BUBBLE PRICES from the MORTGAGES FRAUDSTERS and THEN renegotiates the loans for the homebuyers instead of making the mortgage company take a haircut before renegotiating the loan. This plan would be a blatant bailing out the mortgage companies that made all of these bad loans. Upon further review, Obama’s campaign did a “what the heck” as everything proposed before this date was buying up RENEGOTIATED mortgages where the Bank had to take a haircut to at least current prices, which while morally hazardous, could at least be viewed as a pragmatic way of easing the pain of the crisis (and voters). This is not the same plan as previously passed which was to buy at renegotiated prices.

Basically this plan gives homeowners who bought to high a chance to renegotiate their loans to Uncle Sam at current prices, and then calculate the difference from the current loan and the renegotiated loan and UNCLE SAM SENDS A CHECK TO THE MORTGAGE FRAUDSTERS for the FACE VALUE OF THE LOAN. That’s right, not the current value of the mortgage, BUT THE FACE BUBLE VALUE. MCCAIN HAS THE GOVERNMENT PAYING THE MORTGAGE COMPANIES FOR THE GHOST VALUE OF THE HOUSE. THAT’S FREE MONEY TO THE FRAUDSTERS. NO STRINGS ATTACHED. Obama’s campaign couldn’t believe McCain would propose such a RIDICULOUS PAYOFF to the mortgage fraudsters before the election. MCCAINS PLAN IS A BIG FAT BAILOUT of the mortgage companies themselves, but I think BAILOUT is too weak a word, its more A GIVEAWAY, A STEALING of tax dollars to the IDIOTS who started this whole thing in the beginning. This is the WORST OF THE WORST ideas floated, and finally for all of those complaining how McCain and Obama have not been taking a stand (they’re politicians, duh), you can now see the differences even after all of the caution (can’t wait to see how many “tax incentives” to big oil are thrown in the package as well as “stimulus” to give incentives to the oil companies to drill as well).

Now you can finally see that Obama, while acting like a politician that wants to get elected, actually represents his constituents, the middle class of America, and wants to be pragmatic about this crisis while McCain represents only the greedy idiots who got us into this mess in the first place. The fact that some stupid homebuyers would marginally benefit from McCain’s plan is just political gravy for McCain. The CHOICE IS NOW 100% CRYSTAL CLEAR and there is only ONE WAY to STOP this idiocy. WE MUST STOP THE BAILOUT OF THE MORTGAGE COMPANIES BY STOPPING MCCAIN.

[AspenFreePress]

The GOP which handed us a flawed Presidential election in 2000 when we couldn't count the votes in Florida, and non-existent WMB and mushroom clouds in Iraq, doesn't care about the world economy. The GOP just wants gasoline prices down to $2 per gallon at the pump by election day so they won't suffer a wipeout at the polls. I paid less than $3.50 for gasoline today and frankly it felt pretty good
Sterling Greenwood
Aspen Free Press

[John]

Jess – There was a movement several years ago (first in 2003) to do a regulation overhaul in the housing finance industry. During that time the “Bush administration recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago. “ That plan called for a new agency within the Treasury Dept. to assume supervision of Fannie Mae and Freddie Mac. But guess what, the Democrats stopped it.

Later in 2005 John McCain Co-sponsored a bill called the Housing Enterprise Regulatory Act of 2005. This bill would have regulated Fannie Mae and Freddie Mac, but once again it the Democrats blocked it.

While John McCain is about “de-regulation”, that does not mean he is for no regulation whatsoever.

Prices will continue to slide as a result of fewer buyers and an abundance of inventory. I think we will see a definite change in the housing industry from the “short term investment” to a more “long term investment.” – Remember the “New Economy” … Wall Street did that too.

[Jessica]

John: Thanks for your response. I did some research after reading your comment. Yes, John McCain did sign a letter saying he supported the Hagel bill after the bill was apparently dead. This is another example of John McCain playing both sides. A lobbying company called DCI was hired by Freddie Mac to stop Hagel's bill. John McCain hired DCI's executive, Doug Goodyear, to manage the GOP convention. McCain’s campaign manager, Rick Davis, or his lobbying firm has taken more than $2 million from Fannie Mae and Freddie Mac dating to 2000.

DURING THIS ELECTION: At the same time McCain was telling the public that wall street needed regulation, he secretly tried to push through more corporate tax breaks and deregulation.
PLEASE WATCH THIS KATIE COURIC NEWS CLIP!!!
http://www.youtube.com/watch?v=J0663DHLr58

We need a president with integrity. A president who is sponsored by the people, who is for the people. That is why I will vote for Barack Obama.