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Paul Kiesel
Paul Kiesel
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McCain Mortgage Plan: The Wrong Approach

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John McCain announced, during the last Presidential Debate, that he has a plan to combat rising foreclosure rates and curb the amount of underwater mortgages throughout the country. McCain proposes that the government should buy $300 billion worth of "bad" mortgages and refinance them. McCain did not get into the specifics of his plan or even dare to disclose that his plan would transfer the financial burden and responsibility to taxpayers, thus, taking lenders off the hook.

Members from his own party and even his economic adviser, Douglas Holtz-Eakin, are either angered by McCain’s proposal or confused by its purpose (when there are several other better plans and strategies to combat the mortgage crisis). Holtz-Eakin conceded that the plan WOULD place a burden on taxpayers and, under the proposal, taxpayers would be responsible for the difference in value between the old and new mortgages. It is very likely that McCain’s plan would result in a loss of taxpayer money.

Another problem with the plan is that if 1 in 6 homeowners are considered to be in "underwater mortgages." Noting that over $5 trillion of mortgages are out in the market, that would result in about $678 billion worth of mortgages that could be considered "bad." McCain’s round and even number of $300 billion doesn’t even address half of the people he’s trying to help. It’s almost as if he arbitrarily came up with the number after hearing Senators Barack Obama’s and Joe Biden’s foreclosure relief plans and approach to helping troubled borrowers.

Even The National Review — a magazine that is considered to be highly influential amongst conservatives — railed against the plan as "creating a level of moral hazard that is unacceptable [. . .] a gift to lenders who abandoned any sense of prudence during the boom years." Ouch.

Granted, McCain’s plan could be enacted under the rules (Sec. 109 and 110) of the recently passed bailout plan, however, his plan departs from two major issues: 1. The bailout plan relies on the lenders and servicers taking a hit — as Holtz-Eakin proves while quoted on a conference call per the McCain Mortgage Plan, " This bypasses that step." 2. McCain, just six months ago, said he wouldn’t intervene to help borrowers or lenders, noting that he didn’t understand how "Only 55 million [homeowners] have a mortgage at all and 51 million are doing what is necessary [. . .] to make their payments on time. That leaves us with a puzzling situation: How could 4 million mortgages cause this much trouble for us all?" (New York Times, 3/25/08).

It sounds like McCain’s missing the days when Phil Gramm was his economic adviser, who took control of everything economics for John McCain, while trying to convince Americans, whom he coined as being a "nation of whiners," that the fundamentals of the economy are strong and that we’re just in a "mental recession." Phil Gramm rolled the dice with his choice of words and it cost him his job with the McCain campaign. The Arizona senator’s own role of the dice will likely come up snake eyes on this all too simplified and myopic mortgage plan.