McCain’s Mortgage Giveaway
Incredibly, Republican presidential nominee Sen. John McCain changed his surprise mortgage plan this week to make it even easier on lenders, Politico
Jul 31, 2020137.6K Shares2.4M Views
Incredibly, Republican presidential nominee Sen. John McCain changedhis surprise mortgage plan this week to make it even easier on lenders, Politico noted.
After introducing the idea in Tuesday’s debate, a summaryof the proposal on McCain’s Website noted that lenders taking part must recognize the losses they’ve already suffered – which led people to believe lenders would be taking a haircut on the loans in return for $300 billion in government money to rewrite them.
Not so.
The MCain folks removed that line, Politico said, and made it clearthat lenders will be asked nothing in return for getting taxpayer money to refinance troubled loans.
McCain is selling his plan as a bold and fresh move: The government buys bad mortgages and renegotiates them on lower terms, so people can stay in their houses. But the reviews from economists haven’t been good. The plan, they say, lets the same lenders that made risky loans that helped lead to this crisis totally off the hook. There’s no moral hazard here. Lenders don’t share in the pain.
From Brad DeLong:
“„The McCain plan is:
- Take $300 billion.
- Pay double current market value to banks that have troubled mortgages on their books, thus:
“„There’s a big difference here: Democrats want to prevent depression and support the financial markets by investing taxpayer money in banks with troubled assets. Republicans want to give taxpayers money away to the shareholders and managers of banks with troubled assets.
As the details of the plan are sinking in, it’s becoming clear that McCain has essentially torpedoed the programthe government is now trying to roll out — the one included in the mortgage rescue bill passed this summer, in which the Federal Housing Admin. guarantees mortgages that lenders refinance after taking a loss on the loans.
The program is voluntary. Imagine you’re a lender. You could swallow a 10 or 15 percent loss on your loan and take part in the FHA program, or you could look at McCain’s plan and ask yourself: Why should I? Why not wait to see McCain wins, and then not take any loss? Under his plan, the loss just shifts to the taxpayers.
So just as the program is being put into place this month, and just in the crucial period as the FHA is trying to get it going, the McCain idea comes along.
Sure, the FHA plan wasn’t going to be able to help millions of homeowners — 400,000 or so was the estimate — but it was better than nothing. And it it made clear that since we’re all to blame in this mess, everybody pays. Lenders take a loss. Homeowners have to return any profits from the future sale of their homes to the government.
As Housing Wire reportstoday, the government is trying to expand the program as best it can to include more homeowners. Now it has yet another obstacle to overcome — the notion for lenders that there might be something better down the pike.
McCain wanted to distinguish himself with this plan. But if he really wanted to be a maverick, he could have chosen another route besides sinking a modest rescue effort already in place — that’s just an insult.
McCain could have done what he talks about so much in his campaign: Stand up to special interests. He could have come to Washington when he suspended his campaign during the bailout negotiations, and he could have faced down the lending industry and said: Enough.
The government now owns or controls $5 trillionworth of mortgages, but it can’t renegotiate many of them because they are sliced and diced into pieces and sold around the globe, and servicers say they can’t force all those investors to agree to modificiations.
Too bad, McCain could have said. He could have taken the radical step of telling servicers they had to modify the loans — after taking a loss on them.
Imagine the tumult that would have followed. The lending industry would be screaming foul. Conservatives would be appalled. McCain would have to rally lawmakers to get on board, and probably, he couldn’t.
But the idea would be put on the table — and a way of breaking a huge logjam that has prevented loan modifications from happening would be in play, thanks to McCain’s leadership. Maybe lawmakers and policymakers would have followed his lead, and thought of ways to encourage lenders to participate, with either sanctions or incentives. He would have done something to help, and, as the crisis worsened, more people might have gotten on board.
On Thursday, as my son’s preschool class walked down the street to the fire station for a field trip, the substitute teacher strolling behind me was talking about the mortgage crisis. Her sister’s loan was underwater and she couldn’t sell her house. The government passed a rescue plan this summer, she said, but did you know that it’s going to take a really long time to rewrite any mortgages?
Well, yes it will. Because it’s increasingly clear to all of us that there’s not a fast or simple way out of this. There’s no magic bullet from the government. There’s no rescue plan that will make a difference right away.
There’s just a lot of pain ahead, and no easy way out. And don’t let McCain, or any other politician, tell you anything different.
Rhyley Carney
Reviewer
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