10.16.2008

Crossing Party Lines

I make no bones about my political affiliations, but let me toss the skeptics a bone here:

1. I thought McCain was right that, to solve the underlying economic problem we are having, we need to stabilize home-ownership. I even thought he had a good idea when proposing that the government take direct steps to buy mortgages - at least in a vacuum.

The current bailout plan allows the goverment to buy both mortgage backed securities (the CDOs, RMBS, and CMBS that caused this mess) as well as to force lenders to write down mortgages (i.e. take a "haircut"). What the bailout did not do was set up a mechanism for the government to go from the first step to the second - i.e., to buy MBS, unpackage them to get at the underlying mortgages, and then have lenders write those down.

McCain's idea could have gone there. Instead, in the 2 weeks since the second debate, the plan turned out to be a $300B plan to replace Fannie and Freddie with a new federal home-loan lender. I liked the original sentiment, more than I like this, but this is not a terrible idea. (Note, many have argued that the idea was actually part of Hillary's campaign first.)

2. Sticking with our two themes: crossing over and Hillary - I didn't like Obama's recent statement on the campaign trail that he would call for a three-month moratorium on home foreclosures. This was a bad idea when Hillary and McCain were for it last year, and it is a bad idea now. At best, it is a stopgap. At worst, it artificially delays a lot of foreclosures that will happen anyway regardless of the bailout.

If Obama wants a moratorium, lets use the scalpel he talks about. Identify those properties that will clearly be foreclosed on (i.e. those having lost 30% or where the reset payment is well beyond the person's ability to pay) and let those continue, holding the rest at bay. Something like that.

4 comments:

bachrach44 said...

Here's a better idea - let the banks continue to foreclose on the people who made stupid financial decisions and hope that the people learn their lesson. Let the banks continue to lose money in this endeavor hoping that they will learn from their mistakes as well. Lastly, let's make an economic system that rewards common sense and savings, not debt.

Anonymous said...

I'd say the first step is to forge an economic system that disfavors debt. Shame-free debt has been a problem for far too long now.

M.

elanit said...

Actually, the idea wasn't exactly Hillary's first, but a bit closer to home. And, McCain leaves out that Hillary had endorsed a plan that would have the gov't buy out the mortgages at their CURRENT value, not the original value, which would just cost the taxpayers money instead of the banks. If the mortgages are bought out at their current value, the banks lose and the taxpayers eventually gain, because the government would renegotiate the terms of the loan with ~6-7% fixed 30 year interest rate.

xerpentine said...

I also heard McCain say that he'd dedicate $300B to buying mortgages. Thing is, I can't find that on his campaign website. here is what there is (and it sounds closer to what I described):

"John McCain has proposed a new "HOME Plan" to provide robust, timely and targeted help to those hurt by the housing crisis. Under his HOME Plan, every deserving American family or homeowner will be afforded the opportunity to trade a burdensome mortgage for a manageable loan that reflects their home's market value.

Eligibility: Holders of a sub-prime mortgage taken after 2005 who live in their home (primary residence only); can prove creditworthiness at the time of the original loan; are either delinquent, in arrears on payments, facing a reset or otherwise demonstrate that they will be unable to continue to meet their mortgage obligations; and can meet the terms of a new 30 year fixed-rate mortgage on the existing home.



John McCain's HOME Plan Will Keep 200,000 To 400,000 Families From Losing Their Homes. "But at the same time, McCain is calling for aggressive federal action to help keep 200,000 to 400,000 families from losing their homes. That plan has many of the elements of a proposal by Rep. Barney Frank, D-Mass., and Sen. Chris Dodd, D-Conn., requiring participating lenders to forgive part of the loan principal and then write a new loan that would be backed by the federal government through the Federal Housing Administration." (Tom Raum, "Everyone's Invited: McCain Economic Plan Draws From Both Parties," Tucson Citizen, 4/17/08)



How It Works: Individuals pick up a form at any Post Office or download the form over the Internet and apply for a HOME loan. The FHA HOME Office certifies that the individual is qualified, and contacts the individual's mortgage servicer. The mortgage servicer writes down and retires the existing loan, which is replaced by an FHA guaranteed HOME loan from a lender. "

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