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Ouch! McCain's Housing Solution Is a Gift from Taxpayers to Banks
When John McCain announced his "new" plan to address the financial crisis by having the government directly buy up troubled mortgages, our first response was "wait a minute...that's already in the bailout bill." And, in fact, the bill does give the Treasury the authority to buy up precisely this type of debt." The TARP authorizes the Secretary of Treasury through Section 3 (9b) to buy "any other financial instrument" that the Secretary of Treasury "determines promotes financial market stability," including "residential or commercial mortgages." The legislation also directs the Treasury to use its new authority to help keep struggling families in their homes. Indeed, word is that Treasury is already exploring how to implement such authority.
As outside economic advisors to the Obama-Biden campaign, we were also aware that his type of effort to restructure mortgages to help keep families in their homes had been something Senator Obama had been calling for since March. Thus our initial conclusion was that this proposal was a rather non-consequential ploy by McCain to provide cover for the fact that he has tended to be either late, on the wrong side, or frenetic and all over the map on policy responses to our current financial crisis.
But today we learned of a detail that makes his plan significantly different -- and much worse. The McCain plan uses taxpayer dollars to buy distressed mortgages at their full, face value from the banks and lending institutions that are currently stuck with them. Only then, after we the taxpayers have fully absorbed the cost to the lender of these troubled loans, does the homeowner get the benefit of the lower principal.
That's right folks...it's private profits and social losses. Instead of an effort to safeguard taxpayers as Senator Obama has called for and the Frank-Dodd bill goes to great lengths to do, this plan takes from taxpayers to provide unjustifiable subsidies to financial institutions - even those who engaged in deceptive or outright fraudulent practices to induce people into homes they could not afford.
What responsible plans like Dodd-Frank do, by contrast, is to include the following critical provisions: First, if lenders want into the plan, they have to agree to "take a haircut," i.e., write down the principal on the loan. This step spreads some of the economic pain around between the lender and the government (taxpayer), who in return for the write down, guarantee that the mortgage will be repaid. Second, Dodd-Frank requires that homeowners who benefit from a lower mortgage and more stable monthly payments share some of the upside benefit with taxpayers when the values of their homes recover. Together, these steps ensure mutual responsibility - that lenders, borrowers and the government each share in the process of stabilizing the housing market while protecting taxpayers to the maximum possible extent. Or then we can go with a "Resurgence Homeownership Plan" and just write checks to financial institutions and hope it trickles back to the rest of us.
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Foreclosures are not good for the banks. Abandoned houses deteriorate until by fire or neglect or by simply being torn down as community hazards they and all the value in them totally vanish. Banks understand this and write down the assets, eating their losses. If the government enters to negotiate a non performing loan, the house can be saved (a worthwhile thing of itself for the entire community) and more of our neighbors are rescued (at the best moment: Before it happens) from homelessness. This is an instance of how there are commercial values and human values and the government is responsible to balance them. Such are the issues that tear people apart because life is struggle, and we would all like a little help, even more than we "deserve."
Mccain...looser, liar, spineless wonder.. and now captain of the titanic.....
He has no real solutions for working people....just more of the same failed policies he supported.
The Obama Economic Solution
1) The US Treasury, buys a Preferred Equity interests in US Banks.
Thereby giving, the Banks, the needed capital to restart the US financial system. The US Taxpayers then has a vested interests in the Banks and a guaranteed share in future profits.
The Treasury would also have a seat on the board of all Banks, who receive these Taxpayer funds. This is the Taxpayer getting something for their money.
2) A freeze on all foreclosures Nation wide.
This freeze will be accompanied by a program, whereby Banks and all lenders, re-negotiate the balance and principle of the mortgage, with the homeowner, along Federally Mandated guide lines.
In order to be eligible for this program, all homeowners will be required to keep making mortgage payments, along Federally Mandated Guidelines, during this freeze and until the mortgage is renegotiated with the Mortgage holder.
This program will only apply to those mortgages for the Homeowner's Primary Residence.
The election is a contest against those who believe that the problem with this country is that too much wealth continues to be wrongly held in the hands of the middle class--rather than the wealthy who have a divine right to it.
We need to show them that in fact we were not born with saddles on our backs and they fitted out in boots and jackets to ride us.
Let's make it an electoral college sweep for Obama-Biden!
McCain wants to sell us A DEAL WE CAN REFUSE!!
MIDDLE CLASS! WORKING CLASS AMERICANS!!
time to WAKE UP and SAVE YOUR FUTURE, don't fall for more Republican corruption & failure.
Republican "values" of PROFITEERING, DEREGULATION, CORRUPTION are destroying America.
Republican policies are for ENRICHING THE FEW and ruining everyone else. No more give-aways to Republican CORPORATE WELFARE QUEENS.
Republicans: WE CAN'T AFFORD THEM.
VOTE Obama-Biden '08
The sole purpose of the Republican Party is to transfer taxpayer dollars from the overwhelming majority to a very tiny minority at the top.
They'd never get people to vote for that, so they create issues like, religion, abortion, racism, phony national security claims, etc.
McCain's plan is nothing new; just another way to do it.
Help me understand this, so the plain McCain plan only buys up the Interest? because the homeowner seems to still be left with principal, since you write "after we the taxpayers have fully absorbed the cost to the lender of these troubled loans, does the homeowner get the benefit of the lower principal." So the homeowner is still going to have a payment, it is now only going to be principal?
Also, who qualifies? and this sounds like another "Bailout" to the banks.
The problem is that McCain has not provided details to permit you and I to really understand it.
But , ook, there are only about three ways that someone can be in trouble on a home loan. First, "I committed to pay more than I can afford", second, "The house has fallen in value but I can still afford the payments, third, the lender lied to and/or otherwise deceived me into signing onto an ARM so that while I could affort the original payments, now the interest increase has kicked in and the present payments are way mor ethan I can affort because I was tricked."
#1-you made a mistake and taxpayers are not going to bail you out so you can own more house than you can afford at our expense.
#2-them's the breaks, at one time or another over the past 20 years most of us have been upside-down like that on our mortgage. Hold on, keep making payments, and the housing cycle wil turn up at some point.
#3-laws were broken and if a judge agrees we will authorize the judge to lower the interest rate to where it SHOULD have been if you had not been deceived. That puts the loss on the lender who deceived you and not on the taxpayers.
than they could afford
Reports this morning that 1 in 6 homes in America is worth less than the principal amount owed on a mortgage. Is McCain going to pay off the principal amounts of all those homes down to a level where the principal indebtedness is no more than present value. If so, this is going to cost a lot more than $300,000 billion. But more importantly--why would the taxpayers want to do that?
There was a Democratic proposal to include in the $700,000 billion 'rescue" package authorizing judges to reduce interest rates on ARM mortgages if there was fraud, misrepresentation, or other deceptive or unfair practices involved in the negotiation of the mortgage. That would have made some sense (more than buying down all of the upside-down mortgages in America) and it would have left the resulting loss with the lenders rather than on the backs of taxpayers. But Republicans would not accept that. Now McCain wants to drop $300,000 (or more) into the pockets of the lenders whose practices created the problem.
I am not curious enough about how this would be accomplished to accept a McCain presidency as the price of finding out.
I'll second your last sentence -- in spades!
Why not buy up GOOD equity in companies -- enough to get the wheels moving. Then, in equivalent measure, write down the value of troubled mortgages to a level the homeowners can tolerate, in this economy that the banks' foolishness has left us with.
Outcome: the companies are solvent, but have to pay for much of their own recovery, as is only just. Homeowners are also solvent, and their mortgages are stable and "collateralizable." The whole system is stabilized, and business gets about the business of making money.
And....
We the people are then holding onto good equity in the formerly-troubled corporations. Not a bad thing at all. They wanted us to buy the bait of a Wall Street retirement plan, and tried to sell it as an "ownership society," didn't they? Well this is a plan that would REALLY produce that ownership society.
I'm looking forward to my first US-Permanent Fund Dividend!
The problem with writing down the principal based on the current value of the home is that it will push down home values even further! It is in the interest of the bank to low ball the house value because a smaller loan is more likely to be repaid. The home owner also wants a low valuation from the bank to maximize their profit when home prices recover.
The problem with all this is that home owners who acted responsibly, by not borrowing more than they could afford and not withdrawing all the principal out of there homes in the form of home equity loans, end up subsidizing the irresponsible borrowers.
I prefer the idea of the banks converting adjustable rate mortgages into fixed (prime) rate mortgages with 30, 40 or 50 year terms at no cost to the homeowner. In exchange, the Government (taxpayers) would provide a guarantee to the bank for 20% of the loan. The old and new principal amount would remain the same, but the interest rate would drop considerably. Homeowners are likely to be able to repay the loan without default, but if they do default, the bank has the value of the home plus up to 20% from the Government to repay the loan.
The advantage is that the Government does not own the debt and is not put in the position of having to service mortgages. Taxpayers are only on the hook for 20% of any individual mortgage so our money goes further.
I warned you people about this little scam yesterday. You asleep at the switch or what? The moderators evidently didn't like my insight as they refused to allow the comment.
In any case just what did you expect from a Republican? Protect the big shots and screw the taxpayers along with those who acted responsibly and who are even today making good on their obligations. Of course we all know that Obama will simply make an"inspiring speech" and it will all go away. I don't give a dam who the next President is. That person will be crippled from the get go. So much for all those new social programs and what not. I've been asking for months where the MONEY was going to come from but all I hear is empty promises of "CHANGE. Things will change you can be sure but from where I sit it'll be long and bitterly painful to put it mildly.
BOZO"S IN-BOZO"S OUT.
You heard it here first.
Draft Perot/Ventura-08
what else would it be than a give away of taxpayers money to those who least deserve it, and will encourage additional financial malfeasence by Wall Street?
the republicans believe in rewarding the top 10% to the detriment of the rest of America.
trickle down economics -- when are American going to stand up and tell the republicans "we have gone aalong with your trickle down economics for over two decades and it has ruined our economy and crippled our government, enough is enough!"
America deserves better than to be "trickled on" -- the republicans philosophy of "trickle down economics" has left Americans feelin like they have been left in the down stream waters of a sewage treatment plant.
What has "trickled down" on Americans does not feel pleasant, it is not financially rewarding and reeks like crap.
Just thought I'd drop this in. Are you people aware of WHO caused the bankrupt Fannie and Freddie? IF you say it was the Republicans, YOU are so WRONG. Haven't you seen the videos showing that the Democrats kept saying that Fannie and Freddie were doing a great job under their CEO'S. Those people that were taking millions of dollars for their own benefit. Plus contributing to the democrats hundreds of thousands of dollars for this election. You cannot overspend without going broke. Sen. Dodd and Sen. Obama are the top two receipients from Fannie, in order to win this election. Is there anyone out there that would see to it that the media will tell this like it really is? The video is proof that the democrats refused to allow the regulations to be followed. WHY not they were making millions!
If anyone cares to actually check the RECORD you'll find that Smaggie is CORRECT. All you people who call Bill Clinton a hero would find out that he was light years ahead of Bush in selling out to corporate America . It's the record. The facts. Plain and straight so don't give me this crap about how the Democrats are going to be our "saviors." Tain't gonna happen.
Read it and weep.
Draft Perot/Vntura -08
Who was in control of the legislative branch for the last 6 years of Clinton's presidency and the first 6 of Bush's, when all the pieces that made our current mess possible fell into place? Oh, that's right, it was conservatives.
Read it and weep yourself.
The shared value appreciation loan penalizes home owners for the appreciation of home values whether through improvements on the property, prepayments or rising home values. This will actually drag down the true market values of the home and force the home buyer to stay in the residence for the entire length of the loan or suffer stiff penalties. Realtors love this because it keep unqualified buyers in the home market. The real test on the success of this program, or the current FHA HOPE for Homeowners, is NOT how many home buyers were were put in homes but what will be the impact on housing prices.
For "middle class" America, the house and 401(k)s are the only assets they hold for retirement. The 401(k)s have already been wiped out, do you really think people will charge into sared value appreciation loans? This actually gives an incentive to the homebuyer NOT to nvest in any real home improvements. Wow.
Both Obama and McCain voted for the bail out.
The only way that this is going to get fixed is by putting money, not credit, into the hands of the population. Court ordered renegotiation of loans, as in the bank of America/Country wide situation, forced interest rate reductions on credit cards, and about $50K cash for each taxpayer should do it. $2 trillion, which is about the banks will have received this year, is needed.
If you want to stop this madness, go here: http://ewebsmith.com/self/StandUp.html
The government is now giving away the treasury to banks in the hope that they will have more to lend the borrower. That is a great way to stimulate the economy as long as the banks make all of the potential borrowers eligible for a big fat loan. The only problem is that the banks will go bust again when most of the big fat loans are not repaid. But the problem will be solved when Uncle Sam comes to the rescue and bails out the banks for a second time. There must have been an economic genuis that devised this theory to keep us all happy. It is deserving of a Nobel Prize.
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