Matthew Yglesias » McCain’s Non-New New Rescue Plan

Oct 7th, 2008 at 10:53 pm

McCain’s Non-New New Rescue Plan

I heard a certain amount of talk on the CNN post-game commentary to the effect that McCain had some kind of new plan to buy home mortgage debt and help restructure loans. This isn’t a new plan at all, it’s a description of provisions in last week’s rescue package.

UPDATE: To clarify, the emergency package grants the Treasury Department the authority to do more-or-less what McCain proposed, something progressive legislators pushed to include in the package. People didn’t discuss it much because the general understanding is that Secretary Paulson doesn’t favor taking those steps.

Comments
29

29 Responses to “McCain’s Non-New New Rescue Plan”

br Says:
October 7th, 2008 at 10:59 pm
Um, I think McCain was claiming he would actually buy the individual mortgages rather than the mortgage based securities.
Jayhawk Max Says:
October 7th, 2008 at 11:04 pm
If only John McCain were currently in a position to propose such legislation.
John Says:
October 7th, 2008 at 11:12 pm
The Emergency Economic Stabilization Act does give the Treasury Secretary authority to buy individual mortgages. Check out the definition of “troubled asset” in the Act.
gordon gekko Says:
October 7th, 2008 at 11:16 pm
I have never heard McCain proposing to help homeowners directly. And given that CNN and Fox think it’s new I suppose most Americans do too. Anyways what really matters is McCain leads on this issue. If he comes across as a maverick in support of this policy that every democrat loves but doesn’t have the guts to support he could gain a lot of votes.
I am assuming there is a reason Obama hasn’t already taken a progressive stance on the bailout. Perhaps because economists like Krugman think it makes no economic sense. But if McCain moves the debate over this issue to the center-left I doubt Obama would be able to take the rightward position.
As Einstein said insanity is doing the same thing again and expecting different result.I guess this proves once and for all McCain is not insane.
max Says:
October 7th, 2008 at 11:18 pm
They can buy individual mortgages, but there has so far been no hint that they intend to do so, since the bailout bill was focused on buying the mortgage-backed securities instead.

There’s still no new plan involved tho, this sucker has been floated so many times I’ve lost count.

max
['So much for the free market, eh?']
Bran DJ Says:
October 7th, 2008 at 11:21 pm
Yeah, let’s see if McCain actually writes some legislation that helps DO THIS. He may have to suspend his campaign again to get back to Washington. I’m not holding my breath.
roublen Says:
October 7th, 2008 at 11:25 pm
yeah, it sounded important to me, something that could get McCain votes, maybe something that deserves to get McCain votes. Obama had some great answers on health care and reversing the policies of the past 8 years, but McCain’s proposal to buy up mortgages and renegotiate them seemed like a big deal to me.
mpowell Says:
October 7th, 2008 at 11:30 pm
Obama has a pretty easy response here. In the next debate he just says, “we just passed a bill to do just what McCain describes. Of course, Hank Paulson, George Bush’s treasury secretary doesn’t plan on taking advantage of that option in the plan. When I’m president, our treasury secretary will make that a priority.”
kth Says:
October 7th, 2008 at 11:33 pm
A candidate can only have one message at a time, especially a candidate as maladroit as McCain. So we can either talk about his (not really his, but whatevs) plan to bailout mortgage holders, or we can talk about Wright and Ayers. And if the conversation moves on to kitchen table issues, it’s hard to see how McCain pivots back to Obama’s acquaintances in a way that isn’t even more contrived and labored.
DickM Says:
October 8th, 2008 at 12:52 am
Maybe I’m wrong, but I thought the homeowner protections in the bailout/rescue only related to mortgages bought up by the government with the $700 billion fund — not a generalized home-owner assistance program like the one Roosevelt created in the New Deal.

If McCain was advocating such a step, and it sounded to me like he was, then that’s a big new idea — and one worthy of serious discussion and debate. (And, I might add, the first creative, against-the-grain, mavericky proposal he’s made in a good long time.)

Seems to me that this idea has merit on three levels: (1) it might put a floor on the slide in housing prices; (2) it would be a big step toward justice for the millions who were hoodwinked (or lied to)into buying loans they couldn’t afford with exploding interest rates and other predatory terms; and (3) maybe, just maybe, it would succeed where the bailout/rescue fund hasn’t to build confidence and free up the credit markets.

And if it is a good idea, it puts Obama in a dilemma: back McCain (and maybe let him back into the race); or squelch an important initiative to help the folks he says he’s for.

You’re a lot smarter on this stuff than I am, Matt, any insights?
Simpson Says:
October 8th, 2008 at 1:08 am
Paulson can do this already but he does not want to because it is in fact quite complicated to do.

Those mortgages are all pooled and sold to special purpose vehicles residing in the Caymans or BVI.

It will be very difficult to unwind the securitisations and you would probably need all or at least 66 2/3% of the bondholders to agree to do so.

As Treasury will be just one bondholder among many, assuming that they actually do buy the mortgage-backed securities in the first place, they will have no ability to force all other bondholders to agree.

It will be quite complicated, expensive and time-consuming even to figure out who the other bondholder are let alone convincing them to consent to part with some of the SIV’s assets.
David B. Says:
October 8th, 2008 at 8:26 am
Didn’t McCain say in the first debate that we couldn’t do this?
Jeffrey Davis Says:
October 8th, 2008 at 8:53 am
Didn’t McCain say in the first debate that we couldn’t do this?

See Jon Stewart’s Daily Show piece which compares McCain on the issue to Gollum. “We hates the bill. We loves the bill.”

Captures the scary side of McCain pretty well.
low-tech cyclist Says:
October 8th, 2008 at 9:53 am
Buying distressed mortgages at face value would rescue homeowners, but it would be incredibly expensive, and it would be an even bigger bailout of the banks than what we’re doing now, since it would be the equivalent of buying up, at face value, the toxic securities based on those mortgages.

How about if the Federal government decided to use its eminent-domain powers to buy up the mortgages at fair market value? Could it do that? Because then it would be free to restructure the mortgages without taking a ridiculous financial hit.
WA Realtor Says:
October 8th, 2008 at 4:28 pm
McCain’s Idea to buy up bad mortgages and renegotiate with home owners is already in place.
The Obama campaign knows of this and I am stunned that they let McCain get away with it at the debate.

FHA released a program designed to 1) help keep struggling homeowners in their home or 2) allow them to sell the home without making it a short sale. It’s called “Hope for Homeowners” (H4H), and here’s how it works:

Homeowner is in trouble with their home loan because they are upside down on their home value. This means that they cannot refinance or sell. Until now, people in this situation were forced to either suck up the payment, short-sell or let the bank foreclose. OUCH!!! H4H approves a loan at 90% of the home’s value (including all fees) and requires that the lender absolutely forgive any remainder of the balance. The customer will have access to normal interest rates (not increased rates for the program), and they have to qualify under normal FHA guidelines, just like it is a normal FHA loan. Here is an example:

Mr Smith bought his home for $500,000 in 3/06, and he put $35,000 down, and 2.5 years later, he now owes $450,000 on it. It is now only worth $400,000. H4H will give Mr Smith a loan at 90% of its CURRENT VALUE, which equals a $360,000 loan. Now that Mr Smith’s loan is so much smaller, he can afford the payments and/or sell the home. This allows the customer to avoid foreclosure and short sale through the sale of the property. There are more details for this program, but this is the nutshell.

Here is the caveat: This means that Mr Smith’s current loan servicer (or servicers if there are two or more mortgages on the property) would have to forgive $90,000 in order for Mr Smith to qualify for this program. No, the servicer is not required to participate, and every servicer is going to look at every situation differently. Some servicers will be fully participating, some will not. The program is too new , JUST ROLLED OUT 10/5/08….to know who is doing what at the moment.

What is missing is an incentive to current loan servicing companies to participate (maybe we will see that with the bailout. I do not think that we should bailout a company unwilling to participate in H4H) and getting this knowledge out to homeowners.

The issue here is….did John McCain know of this program and was trying to jump start his campaign by using the public’s lack of knowledge or did he NOT know of it….demonstrating once again being out of touch on issues.?
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Matt Yglesias

McCain’s Non-New New Rescue Plan

29 Responses to “McCain’s Non-New New Rescue Plan”

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