Thursday, October 09, 2008

McCain’s Mortgage Plan

Last night, McCain dropped what I am sure he believed to be a bombshell of a policy to deal with the housing crisis in America. He said:
“…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.

As president of the United States, Alan, 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 was actually a bit shocked when I heard this, and I couldn’t believe it. Did McCain just say that we will collectively buy up bad mortgages, and was this on top of the Wall Street bailout? Conservative firebrand Michelle Malkin sure hates the idea. She writes:
“The McCain campaign immediately sent out this fact sheet on the proposal, which will cost at least $300 billion. The proposal involves directing the Treasury Secretary to “purchase mortgages directly from homeowners and mortgage servicers.”

He spent the entire debate assailing massive government spending — while his featured proposal of the night was to heap on more massive government spending to pursue home ownership/retention at all costs. If Obama had proposed this, the Right would be screaming bloody murder about this socialist grab to have the Treasury Department renegotiate individual home loans and become chief principal write-down agents for the nation.”
She is right on that point about Obama; if he would have offered this up as part of his economic plan, the Right would have been hitting him hard. However, there is already a plan to have banks renegotiate the price of their loans with homeowners. The plan says:
“A new federal loan workout program called Hope for Homeowners (HfH) begins this month, targeting those unable to pay their mortgages. It is for homeowners who bought their homes before 2008 and now have monthly payments exceeding 31% of their income.

Under the program, banks would in many cases write down mortgages to 90% of a home's current value. Such a provision would be important in California, where many recent home buyers have mortgages that now greatly exceed their property values.

The new 30-year fixed-rate loan would be insured by the Federal Housing Administration and could not exceed $550,440.”
More importantly, McCain’s plan isn’t money on top of the approved bailout, but money diverted from it. The SCSU Scholars explain:
“It would be a redirection of the money, not a new cost. That was certainly not clear last night (not that much of this plan really was before I sat and read the email that had the plan I'm quoting here.) The McCain resurgence plan would be available to mortgage holders that:

1. Live in the home (primary residence only).
2. Can prove their creditworthiness at the time of the original loan (no falsifications and provided a down payment).”
I don’t know if this is a good idea, but I do have a problem having tax dollars go to buying adjustable rate mortgages that people should have never bought to begin with. Crooked bankers and greedy CEOs have their share of blame in this mess, as does the federal government and elected officials, but the truth is this crisis exists because we have lived outside our means for the last 20 years in the United States. Being able to borrow huge amounts of money on the hope that we would one day be making exceptionally more money, or that our property would increase exponentially forever is what caused our current troubles.

My parents live in a modest community, and before the housing bubble popped, people were paying up to $400,000 for homes where the average household income is $35,000 a year. My father rightfully concluded that no one in his neighborhood could actually afford these mortgage payments, even if they had fixed rate mortgages, and even if their wages increased reasonably each year. For people to have taken loans on homes they couldn’t afford to begin with, and then expect to be able to pay that same mortgage as it increases each ensuing year, was a form of collective madness that we are now paying for in America. Bankers were getting rich off these loans (at least on paper), and we all wanted to believe we would buy a home and sell it within a few years after it had tripled in value. We as a country, from the working class to the ruling class, wanted to believe the lie, so none of the warnings over the last few years made an impact.

Having said that, Bob gives me the heads up to a Michael Walzer piece in Dissent, which I think accurately sums up why people were allowed to take loans that they shouldn’t have. He writes:
“The truth is that the invisible hand doesn’t always work, and so it requires some help from a visible hand—and that is the hand of the state. There is no other agency capable of protecting us from ruthless or reckless gain-seekers, for capitalist institutions too often reward both ruthlessness and recklessness. State regulation is, therefore, a necessary feature of—even if it is also a social-democratic addition to—the capitalist system. When regulation fails, we are all in trouble. Deregulation is the major cause of the current crisis.”


Anonymous said...

McShame’s mortgage plan is one inch from socialism. How the hell did this guy got on the Republican ticket?

Roland Dodds said...

Socialist is not a bad word in my opinion, and since the recent bailout of banks and financial institutions didn’t muster much of a fight from Republicans, you have a lot of apparent socialists in office.

Maybe this was the Trotskyite neocon plan all along!