John McCain unveiled his economic "rescue" for homeowners at the debate last night.
The plan is on his website today so I thought we should discuss it.
http://www.johnmccain.com/...
Here is the text from his website, some questions I have will follow:
Homeownership Resurgence Plan
John McCain will direct his Treasury Secretary to implement an American Homeownership Resurgence Plan (McCain Resurgence Plan) to keep families in their homes, avoid foreclosures, save failing neighborhoods, stabilize the housing market and attack the roots of our financial crisis. America’s families are bearing a heavy burden from falling housing prices, mortgage delinquencies, foreclosures, and a weak economy. It is important that those families who have worked hard enough to finance homeownership not have that dream crushed under the weight of the wrong mortgage. The existing debts are too large compared to the value of housing. For those that cannot make payments, mortgages must be re-structured to put losses on the books and put homeowners in manageable mortgages. Lenders in these cases must recognize the loss that they’ve already suffered.
The McCain Resurgence Plan would purchase mortgages directly from homeowners and mortgage servicers, and replace them with manageable, fixed-rate mortgages that will keep families in their homes. By purchasing the existing, failing mortgages the McCain resurgence plan will eliminate uncertainty over defaults, support the value of mortgage-backed derivatives and alleviate risks that are freezing financial markets.
The McCain resurgence plan would be available to mortgage holders that:
Live in the home (primary residence only)
Can prove their creditworthiness at the time of the original loan (no falsifications and provided a down payment).
The new mortgage would be an FHA-guaranteed fixed-rate mortgage at terms manageable for the homeowner. The direct cost of this plan would be roughly $300 billion because the purchase of mortgages would relieve homeowners of "negative equity" in some homes. Funds provided by Congress in recent financial market stabilization bill can be used for this purpose; indeed by stabilizing mortgages it will likely be possible to avoid some purposes previously assumed needed in that bill.
The plan could be implemented quickly as a result of the authorities provided in the stabilization bill, the recent housing bill, and the U.S. government's conservatorship of Fannie Mae and Freddie Mac. It may be necessary for Congress to raise the overall borrowing limit.
My initial thoughts:
- Someone has to prove that they were credit worthy before receiveing the original loan. What FICO score are we going to use for that?
- Someone has to have made a Downpayment on the house.
Those two elements are interesting because it would seem to eliminate most everyone who is experiencing trouble, at least according to what we've been told-- the trouble is sub-prime mortgages and zero down payment loans.
That said it appears that someone who is credit worthy and made a downpayment but just wants to lower their payment can take advantage of the program and stick the tax payers with their negative equity. Helping those who dont need help.
Last point: We own fannie and freddie now. We already have the mortgages, and renegotiating them has long been the plan- because its cheaper than forclosure. Most people dont try to limit that aide to people with high FICO's and Downpayments invested.
IMO the plan is just hot air, a Flailmary to make it look like he has some plan.
I might add that its possible that renegotiating mortgages might actually bring down house values. If my neighbor negotiates a low value, my value is going down too.