John McCain, real-estate magnate
Had I been in Tom Brokaw's spot for Tuesday night's debate (see my colleague Mike McGough's post on Brokaw's eccentric moderating style), I hope I would have found a way to let John McCain elaborate on his breathtaking proposal to have the feds buy up troubled mortgages. I say "breathtaking" because it's a very big idea that seemed to come out of nowhere. It's also political dynamite, and it's not clear to me who might be hurt by the explosion.
A more emotional candidate than Obama, McCain has done a better job recognizing and reflecting the grass-roots anger generated by the $700 billion rescue plan for the financial industry. By proposing to spend about $300 billion of that to buy defaulting borrowers' mortgages, McCain is essentially saying, "Let's devote part of the bailout to average Americans, not greedy Wall Street fat cats." But the concept of direct aid to homeowners poses a moral hazard, too. And judging from the comments on my colleague Peter Viles' L.A. Land blog, the prospect of helping reckless borrowers goes over just about as well with the grass roots as helping reckless lenders. Every working- and middle-class homeowner with a mortgage in good standing knows how much they have to sacrifice to stay current on their payments. They remember how long they squirreled away money for a downpayment, and they may still drive by the homes they wanted to buy but couldn't afford. They know how much they could lose if they're forced to sell while the market's tanking. To these people, giving the least responsible borrowers free equity and forgiving thousands of dollars in interest and/or debt is absolutely galling.
Depending on the details (few of which were available today), McCain's approach could reward lenders and investors even more than borrowers. If the government bought distressed mortgages at face value, it would essentially relieve lenders and investors of their responsiblity for making or buying loans that were too risky. Taxpayers would be left to cover any and all losses from defaults and short sales. Taxpayers would also have to cover the difference in value between the loans the government buys and the more affordable, fixed-rate mortgages it issues to keep borrowers in their homes.
Nevertheless, the idea of direct buyouts is worth exploring because it attacks the financial industry's problems at their core -- defaulting mortgages -- instead of one or two levels removed. To make sure lenders absorb some of the cost of their mistakes, the government could buy mortgages at a discount to reflect the properties' reduced value. And to limit the benefit to borrowers, the feds could demand all or part of any gain in the house's value when it's sold. Alternatively, it might limit the buyouts to grossly overbuilt neighborhoods, then level the houses, as Wall Street Journal columnist Holman W. Jenkins Jr. has advocated.
It's also worth remembering that a hard-to-estimate but non-trivial portion of the borrowers in default were misled or defrauded by mortgage brokers or lenders -- witness the recently settled lawsuit against Countrywide Financial. Granted, there are plenty of not-so-innocent victims who would certainly benefit from McCain's plan, along with lenders and investors. And homeowners and renters who wouldn't qualify for aid because they didn't get in over their heads would justifiably resent that. I have two things to say to that group: Suckers! Er, I mean, thanks for being so responsible. And let's face it: the credit crunch that's grown out of the subprime fiasco is damaging the economy for everyone. If a rescue plan helps some reckless or clueless risk-takers en route to averting a financial catastrophe, I'm willing to pay that price. The question is how best to pull off that rescue, not whether to do it.
The second debate and the usual deaf-ear to the illegal immigration invasion of our nation. Obama and McCain not a word. In fact not much of anything.
Just bickering! The economy is in serious trouble and places like California are supporting illegal alien families with massive welfare payments. $ billions of dollars that could be spent on the legal population, infrastructure, health care is supporting illegal pariah employer hires.
Even our own government is violating it's own laws, by funding 'Sanctuary cities'. MILLIONS have stolen into our country and we reward them with taxpayer money. STOP IT! Or they will never stop coming..
The pestilence will not stop growing till we rigidly enforce immigration laws. the middle class already overburdened with war appropriation funds, is still forced to pay for the education, free health-care and Federal, state welfare handouts for illegal criminals.
Be observant and watch for VOTER FRAUD, as illegal aliens will commit perjury in November
SIGN UP FOR THE SAVE ACT(H.R.4088) enforcement 'ONLY' law at www.numbersusa.com.
SIGN JUDICIAL WATCH, A LEGAL ORGANIZATIONS PETITION, TO RESCIND ALL 'SANCTUARY CITIES & STATES. www.sanctuarybusters.org/?source.
www.numbersusa.com to Petition the SAVE ACT. For immigration facts not propaganda or lies,
PASS THIS ON COPY, PASTE & DISTRIBUTE FREELY
Posted by: Carracticus | October 08, 2008 at 06:17 PM
I waited to buy a home until I could afford one, but I am SO lucky I did so in 2000, when a modest home was still affordable. I expect to be paying off my mortgage (plus the home equity loan I took to repair my foundation and electrical system), for the rest of my life. I can't afford to make any of the cosmetic repairs I'd like to make, so my house is pretty funky-looking. But, tho' I am TOTALLY NOT a McCain supporter (I'm for Obama), I'm absolutely NOT galled by Senator McCain's proposal.
Why would I begrudge having the hard-working young couple down the street from me, who bought at the peak of the real-estate boom, get the help they may need to keep their home???? Do I want to see a "For Sale" sign in their front yard? No way! I'd be thrilled to see our government help them out, rather than pouring money into fat-cat contractors like Halliburton, Cargill, and Bechtel.
If we're the hardest working, most productive people in the world (as McCain claims we are), why shouldn't we be able to keep our homes? If we can't afford the mortgage payments, it is simply because all that productivity -- OUR productivity -- has been benefitting someone other than ourselves (Cargill? Halliburton? Bechtel? AIG?)? .
For the government to help other working people, who are like me but who may not have been as lucky as I am, takes NOTHING away from me.
Why encourage such petty mean-spirited little resentments? That does NOTHING to build the kind of caring, mutually supportive, healthy communities we desperately need!
Posted by: Dormilona | October 08, 2008 at 06:26 PM
I am so angry that they are talking about changing the mortgage terms for all the delinquent borrowers. My rate is high but I pay every month and am working to refinance on my own. If these people had bought within their means they would not need a government bailout. I understand that many of these people say they were lied to but in my experience the loan documents are pretty clear as to whether a rate is fixed or floating. And you cannot buy a home counting on pay increases. Whatever happened to starter homes? I watch the home buying shows on TV and everyone wants so much house these days. They make their own beds and should not be bailed out.
Posted by: Anne | October 09, 2008 at 06:24 AM
I'm tired of politicians buying votes. Like Schwartzenegger, buying the recall of Gray Davis by reducing the vehicle tax. Now he admits he didn't know what he was talking about.
I lived in Southern California for thirty years, and never could afford to own a home, though I have a professional degree and had a great job in my field. I was too responsible to take a loan I couldn't pay.
Isn't it unfair enough that the economy, including my retirement account, is tanking because of the abuses in the housing market? Must I now be taxed to pay for other people's houses when I couldn't have one of my own?
Posted by: Anne W. | October 09, 2008 at 07:21 AM
Well, looks like that first bailout, the one that was supposed to calm markets, didn't work and put everyone on the hook for $700 large. Now McCain wants to reward people who carelessly got in over their heads. Essentially he is proposing an amnesty, as is his wont.
Instead, give the money to prospective home buyers with good credit and, say, enough savings to put 10% down on a house. The government could match their contribution to the down payment. That would stimulate demand for housing and reward the folks that waited and saved. These folks would also have an incentive to drive hard bargains, establishing an almost real market price for housing rather than marking to some number pulled from the air. For those who didn't wait, who over extended themselves, some sort of assistance could be given to help them move back to renter status.
I admit I could potentially benefit from my plan, put then again, I am 99% certain that land barons like Mr. and Mrs. Pelosi are benefitting from these bailouts.
Posted by: AngloMan | October 09, 2008 at 07:55 AM
As a real estate broker of 25 years, I would say that McCain's proposal is the first rational idea I have heard during this mess. The precedents for this type of plan already exist within FNMA, FHLMC, and FHA and VA. All have done similar negotiation of mortgages in past financial crises.
Posted by: carbonates | October 09, 2008 at 08:03 AM
Is it fair to assume that Cindy and John McCain would want their houses (7) re-appraised under his new proposal and accept the new values??? After all properties values are really going down??? Oh, wait a minute, maybe he can modify their pre-nup and ask Cindy for a bail-out, should their properties decrease idrastically in value???Even Cindy did not trust John McCain when she married him, why should we?????
Oh, oh, where am I going to get the money to pay off my mortgage??? I'll ask the McCains because they also buy on credit and use lay-aways and get pay day loans when fuel and groceries are taking so much of our income.
Posted by: diamonds61 | October 09, 2008 at 09:29 AM
The second debate was a rehash of the first debate, but, more boring. My understanding however, is that the 300 billionis in addition.
Posted by: Ryan in Atlanta | October 09, 2008 at 11:00 AM
Hey, Ryan -- whether the $300 billion is in addition to the $700 billion or contained within that amount depends on the details of the proposal. McCain's folks suggest that the money, as well as the authority, for this initiative would come out of the sum already authorized by Congress.
Posted by: Jon Healey | October 09, 2008 at 01:45 PM