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McCain's plan for troubled home loans called impractical

COMBINED NEWS SERVICES

October 9, 2008

WASHINGTON - John McCain's proposal to have the federal government directly buy and refinance troubled home loans would cost about $300 billion, his campaign said yesterday, as the plan was criticized in light of the scale of the mortgage meltdown.

McCain floated the proposal to divert some of the $700-billion federal bailout to instead purchase home loans during Tuesday night's debate. Barack Obama's campaign said the proposal isn't new and that the financial rescue bill passed last week already permitted the U.S. Treasury to buy and restructure mortgages. Later his campaign said the plan would lose the government money by paying too much for bad loans.

Experts were unclear on how realistic the proposal is, given how much money already is committed by authorities under the federal rescue plan and the magnitude of the housing crisis.

McCain's advisers, meanwhile, held a conference call with reporters yesterday to explain the "Homeownership Resurgence Plan," saying it would help those in danger of foreclosure refinance into more affordable mortgages without requiring approval of the loan holder.

The plan would use some of the $300 billion in funding for the Federal Housing Administration to insure new fixed-rate loans to distressed homeowners, and part of the $700-billion financial bailout. It would also use the government's new authority over Fannie Mae and Freddie Mac, the nation's largest mortgage buyers, which were taken over by federal authorities.

"It could help literally millions of people. We don't have a precise estimate," McCain senior policy adviser Douglas Holtz-Eakin said. Both homeowners who are already delinquent on their mortgages and those who owe more than their homes are worth would be eligible for the refinancing, he said. "The homeowner would stay in their home. Their financial situation would be relieved."

While precise details of the plan were unclear, the few that emerged yesterday led some mortgage industry experts to criticize it as flawed.

The refinancing program may be more expensive than McCain is forecasting, said Susan Wachter, real estate professor at the University of Pennsylvania's Wharton School in Philadelphia and a Clinton administration housing official. "I would be coming up with larger numbers. ... It might add to delinquencies."

"You're going to need a lot more money," said analyst Paul Miller of Friedman, Billings, Ramsey Group Inc. "I don't know how this would work."

WHOSE PLAN IS IT?

"We should consider giving the government the authority to purchase mortgages directly instead of simply mortgage-backed securities," - Barack Obama, Sept. 23. On Sept. 29, Rep. Barney Frank said the government should start buying foreclosed mortgages directly if the Treasury Department's financial rescue doesn't work. Columbia's R. Glenn Hubbard and Chris Mayer suggested the same in an Oct. 2 opinion piece in The Wall Street Journal.

In March, Hillary Rodham Clinton said the U.S. government should be ready to buy troubled mortgages from investors and lenders.