Long History for Proposal by McCain on Mortgages

http://www.nytimes.com/2008/10/08/us/politics/08mortgage.html

October 8, 2008
Long History for Proposal by McCain on Mortgages
By JACKIE CALMES

WASHINGTON — Scrambling to repair his image on economic issues, Senator John McCain proposed during Tuesday night’s debate a $300 billion plan authorizing the treasury secretary to buy the mortgages of homeowners in financial trouble and replace them with more affordable loans.

The campaign of Senator Barack Obama quickly countered by saying that the financial rescue plan that President Bush signed into law last week already gave the treasury secretary such power. And, his advisers noted, Mr. Obama recommended such a step in a news conference nearly two weeks ago.

The Obama camp is correct that the new $700 billion bailout of the financial system gives the Treasury the authority to buy troubled mortgages. But the law leaves unclear how the authority is to be used, according to a person who was privy to the recent legislative negotiations between the White House and Congress and who is not affiliated with either campaign.

The mortgage renewal idea actually originated with Senator Hillary Rodham Clinton, said Charlie Black, a senior adviser to Mr. McCain. And Mrs. Clinton, who proposed the idea in a recent newspaper column, borrowed it from a Depression-era New Deal agency, the Home Owner’s Loan Corporation.

As Mr. McCain’s campaign described his program, it would be available to mortgagors for whom the property is their primary residence, who can prove they were creditworthy when the original loan was made and who made a down payment. “Lenders in these cases must recognize the loss that they’ve already suffered,” a McCain campaign summary said.

Under the plan, it added, the Treasury would buy unaffordable mortgages directly from mortgage servicers and, in a reflection of the properties’ diminished values, renegotiate “manageable, fixed-rate mortgages that will keep families in their homes.” Mr. McCain proposes that the roughly $300 billion cost would be covered by the $700 billion bailout law.

That $700 billion total, however, was intended to give the Treasury the means to buy and hold troubled assets from financial institutions that might otherwise fail, so that those assets can be sold when markets recover and the assets regain value. But the McCain summary said that “by stabilizing mortgages, it will likely be possible to avoid some purposes previously assumed needed in that bill.”

Mr. McCain made his proposal near the start of Tuesday night’s debate, and after polls in recent days showed him falling behind Mr. Obama, partly on questions of which candidate would better deal with the economic crisis.

“Is it expensive?” he said of the proposal. “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.”

While the Obama campaign’s reaction indicated that the candidates were in agreement, the mortgage proposal raises a number of administrative questions, given the millions who might seek help. It also raises fairness issues, given the many homeowners who are scrimping in order to continue paying off mortgages based on former market values far higher than their properties’ current worth.