McCain campaign outlines mortgage-rescue plan

Carolyn Said, SF Chronicle Staff Writer
Thursday, October 9, 2008

Sen. John McCain's plan to help people avoid foreclosure drew praise from liberals for tackling the problem's source, while conservatives called it a government subsidy of irresponsible lenders and borrowers.

During Tuesday's presidential debate, McCain, the Republican nominee, said he would order the Treasury secretary "to immediately buy up the bad home loan mortgages in America and renegotiate (them) at the new value of those homes, at the diminished value of those homes."

Douglas Holtz-Eakin, McCain's senior domestic policy adviser, said on Wednesday that McCain's plan calls for the government to pay full face value for troubled mortgages on properties that are now worth less than the loans. That's a big distinction from a congressional plan that took effect on Oct. 1 and requires lenders to take a significant loss, reducing the loan values to 90 percent of the homes' current appraised values. Another key difference: Congress' plan requires homeowners who receive a refinanced loan to share any future appreciation in home value with the government; McCain's plan does not.

Holtz-Eakin said that under McCain's plan, homeowners would get new fixed-rate mortgages based on the homes' current value with an interest rate of about 5 percent, a percentage point less than the average current rate. The government would pay the difference between the original mortgage amount and what the homes are now worth.
Avoiding foreclosure

Holtz-Eakin said the goal is to directly help struggling homeowners avoid foreclosures and their damaging effects on neighborhoods, as well as to stabilize the values of homes and mortgage-backed securities....

The McCain campaign said the plan's $300 billion cost would come out of existing appropriations - the $700 bailout bill and the $300 billion Congress allocated this summer for a plan called Help for Homeowners, to be run by the Federal Housing Administration.

"Is it expensive?" McCain said during the debate. "Yes. But we all know, my friends, until we stabilize home values in America, we're never going to start turning around and creating jobs and fixing our economy, and we've got to give some trust and confidence back to America."...

McCain's plan

-- The government would purchase mortgages at their full face value.

-- Borrowers would refinance mortgages with fixed-rate loans for the homes' current market value at interest rates about 5 percent.

-- Eligible borrowers must live in the home, have made a down payment and not have falsified information to get the original loan.

-- $300 billion cost would come from the $700 billion bailout plan and the $300 billion Help for Homeowners FHA refinance program.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/10/09/BU9B13DNI7.DTL