McCain’s Bailout: Déjà Vu All Over Again?

In a heated debate Tuesday, Senator John McCain repeatedly touted his plan to bail out the ailing housing industry. “As President of the United States, I would order the secretary of the Treasury to immediately buy up the bad home loan mortgages in America and renegotiate at the new value of those homes, at the diminished value of those homes,” he said. McCain’s proposed plan, dubbed the “Homeownership Resurgence Plan” by his campaign, consists of the government renegotiating $300 billion in bad mortgages so  borrowers can afford to stay in their homes. “We’ve got to give some trust and confidence back to America,” McCain said Tuesday. “I know how to do that, my friends, and it’s my proposal. It’s not Senator Obama’s proposal. It’s not President Bush’s proposal.” Critics argue, however, that the plan is strikingly reminiscent of Treasury Department secretary Henry Paulson’s bailout plan, which was passed by the Senate and signed into law Friday. Specifically, the plan echoes Section 110 of the law. “After McCain suspended his campaign two weeks ago and rushed back to Washington to knock some heads together to get a rescue plan approved, he sheepishly admitted that he hadn’t actually read the three-page Paulson plan all the way through,” noted MarketWatch’s Washington bureau chief, Rex Nuttig. “And even though he voted for it, it sounds like he still hasn’t read it.” Section 110 of the Emergency Economic Stabilization Act of 2008, titled “Assistance to Homeowners,” requires the Federal Housing Finance Agency, the FDIC and the Federal Reserve to “work with servicers to encourage loan modifications” in an effort to “minimize foreclosures.” Read the Act section-by-section>> Although McCain essentially reiterated language in the current rescue legislation, his plan addresses specific actions by the government, rather than the more general “encouragement” included in the act. “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,” McCain’s plan reads, according to his campaign Web site. “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.” McCain’s plan to buy mortgages from servicers might leave securitized note holders in a lurch. Purchasing individual loans out of a securitized pool may not turn out to be as easy as buying whole loans or mortgages directly from the borrower. Time may be the only true test of the effectiveness of McCain’s plan. Editor’s note: To contact the reporter on this story, email [email protected].