McCain Proposes A Progressive Housing Policy, But Still Wants To Reward Bankers Who Made Bad Loans
McCain Proposes A Progressive Housing Policy, But Still Wants To Reward Bankers Who Made Bad Loans
During the presidential debate last night, Sen. John McCain (R-AZ) announced that, if elected President, he “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,” in order to enable troubled homeowners to stay in their homes:
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.
McCain’s plan – the American Homeownership Resurgence Plan – is a good step because he recognizes what he failed to understand before: the mortgage crisis is at the root of the current financial trouble. As the Associated Press noted today, McCain’s plan is akin to one proposed by the Center for American Progress (CAP), which has “been pushing a similar idea for some time.”
In December, 2007, CAP’s Andrew Jakabovics proposed a plan modeled on FDR’s New Deal-era Home Owners Loan Corporation. Under the CAP proposal, the government “would issue new, fixed-rate mortgages to those borrowers ‘underwater’ and facing default or foreclosure,” while buying “the old adjustable-rate mortgages from lenders and investors” at current value.
McCain should be applauded for embracing the progressive goal of helping homeowners with decent credit, who are nevertheless burdened with bad mortgages. However, he wants to buy the mortgages at full face value, which means he “wants to give $100 billion of taxpayers’ money to America’s worst-behaving mortgage financiers.”
Here’s how McCain’s proposal works:
- If a homeowner bought a house for $300,000 – and the value then fell to $200,000 – McCain would have the government purchase the mortgage for $300,000, instead of forcing lenders to accept the loss and renegotiate the loan.
- The only way in which the government then makes a profit is if the house’s value rises above its original market value of $300,000, which is possible, but unlikely.
As Matthew Yglesias wrote, “instead of having the lenders take a haircut in order to avoid mass foreclosures, McCain wants the taxpayers to bare all the costs of doing so.”
Brad DeLong noted that McCain plans to “give a present of $100 billion to the bankers who made the loans,” and “acquire and regularize the mortgages of only two-thirds as many homeowners as could have been accomplished if the $300 billion were invested wisely.”
McCain’s idea to buy and restructure mortgages is a good one, but he can accomplish it without overpaying and rewarding bankers who made bad loans.
Cross-posted at The Wonk Room.
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Where will the money come from, if not Joe Q. Public?
October 8th, 2008 at 5:28 pmI applaud McCain for at least recognizing that something needs to be done — even though I’m sure this latest proposal came from his handlers, not him.
There appears to be plenty of blame to go around here — banks and mortgage companies made risky loans (often suckering people into borrowing more than they could afford to), and borrowers went for bigger mortgages than they could handle without knowing all the risks (or perhaps not caring).
It’s only fair then that each party be required to take some of the hit. Including the lenders.
And then we need some safeguards put into the system to prevent this kind of disaster from happening again. People should be able to understand mortgages when they enter that world — and not get all their education on the subject from the party that’s trying to lend them money. Banks should assume the risk when they make risky loans. And bankruptcy courts should be allowed to restructure mortgage debt just as they restructure other debt in bankruptcy cases.
These ideas aren’t mine. They’re on Obama’s website:
http://www.barackobama.com/issues/economy/#home-ownership
And they’re simple common sense. I would imagine Obama isn’t the only one who has come up with them.
October 8th, 2008 at 5:29 pmMcCain: “Roll out the milking machine, I hope to get control of the cash cow (i.e., the middle class taxpayers).”
October 8th, 2008 at 5:40 pmYah, it’s a great plan, but he’d put the foxes in charge of negotiating with the chickens, always has, always will.
October 8th, 2008 at 5:51 pmI won’t be so fast to give credit because this is an attempt to save face by plucking specifics from Obama’s plan. First, it was “Change”, which never had a chance of taking off after Obama clarified the meaning of change between the two camps.
McCain could be trying to get at those easily impressionable independents in trying to equalize himself with Obama to sway their thinking. “There’s not much difference between the two, so I’ll vote for the white guy and keep tradition alive.”
Won’t work, but that’s what McCain’s handlers are telling him.
October 8th, 2008 at 5:51 pmI think the point is getting that additional $100 bil to the banks. Just saying.
October 8th, 2008 at 5:51 pmThis is the ultimate expression of moral hazard. The companies with the expertise and responsibility to their depositors and shareholders will receive full reimbursement. Just think what they have learned:
1. Outrageous CEO and senior executive compensation will not be stopped no matter how it creates extremely short term thinking and a divergence of executive interests versus those of long term investors.
2. Insane bonus schemes are perfectly fine. The more money the merrier no matter how this may increase risk taking on the part of executives.
3. Shareholders need not worry about supervising their investments. If the market truly goes under and their shares are becoming worthless, the government will step in and rescue them. Indeed, paying full purchase price of the failed mortgages actually values the reckless mortgage decisions above those of prudent investors by making them fully insured.
4. If you are average Joe, it is time to grab a crow bar or other weapons and start a holy uprising. It is the only way that you will ever see justice.
October 8th, 2008 at 5:58 pmWow, I’m suddenly a McCain supporter.
I’ll quit paying my mortgage this month, so I can qualify for this nifty-sounding program, after the election.
October 8th, 2008 at 6:00 pmEconomist, Noriel Roubini, who predicted this crisis in 2004, has dire words today — he thinks this is a recession that will last into 2010.
October 8th, 2008 at 6:07 pmThe following conservatives are up in arms about McCain’s “populism run amok”: Michelle Malkin, Linda Chavez, Mark Steyn, Amanda Carpenter, Stephen Spuiell, Jonathan Garthwaite, and Brian Sullivan.
Since they and their Free Market boosterism are in part responsible for the current mess, they really have no cause for upset.
They don’t yet realize how marginalized they are about to become, the poor babies.
October 8th, 2008 at 6:08 pmFirst of all, Paulson already has the flexibility to do this in the bill that passed. Within the $700B. This is additional money. Couple of things: where is McCain going to find this money? And how does he directly order the Sec. of the Treas. to spend money that has not been approved and appropriated by Congress?
October 8th, 2008 at 6:08 pmOh, even better good news for the crooks of industry.
WASHINGTON (AP) — The Federal Reserve has agreed to provide the insurance giant, the American International Group, with a loan of up to $37.8 billion, on top of one made to the troubled company last month.
http://www.nytimes.com/2008/10/09/business/economy/09insure.html?hp
October 8th, 2008 at 6:13 pmMcCain is stupid. The new bailout bill that was passed states that the feds can renegotiate homes at their new value. He obviously hasn’t done his research.
October 8th, 2008 at 7:15 pmThis plan of McLame’s is nothing new. A very similar proposal has been floated by Chris Dodd and Barney Frank. McLame’s backing of this plan which is simply as stated in the article a reworking of new deal policies is a desperate ploy on his part to curry favor with homeowners. It goes counter to all he stands for and I’m sure would never be put on the table if he and Gramm get elected.
October 8th, 2008 at 7:58 pm.
That’s like saying, “I’ll make robing a bank more difficult but if you can rob a bank, keep the money. You deserve it for your hard work.”
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October 9th, 2008 at 12:31 am