The Obama campaign pounced Thursday on Sen. John McCain’s proposal to wipe out $300 billion in negative equity and save homeowners from foreclosure by buying up mortgages directly from mortgage servicers.
Unlike the $300 billion "Hope for Homeowners" expansion of FHA loan guarantees that kicked off this month, the McCain Resurgence Plan wouldn’t require lenders to write down the principal of loans it refinanced.
McCain would shift the burden from lenders to taxpayers, guaranteeing a loss of taxpayer money," the Obama campaign said in a television ad attacking the plan. "Who wins? The same lenders that caused the crisis in the first place."
Some critics of the Hope for Homeowners plan have said that it will help only a fraction of the borrowers envisioned by Congress. Many lenders wont participate, critics say, because they won’t agree to write down loans to be refinanced.
McCain, R-Ariz., rolled out his proposal during Tuesday’s debate with Sen. Barack Obama, D-Ill. According to a summary of the plan posted on the McCain campaign’s Web site, it would wipe out homeowners’ negative equity by buying the mortgage on their principal residence and replacing it with an affordable FHA-guaranteed fixed-rate mortgage. Only borrowers who could prove they were creditworthy when they took out their original loan and provided a down payment would be eligible, the McCain campaign said. Anyone who falsified documents would be disqualified.
The program could be funded from the $700 billion debt authorization Congress approved to allow the Treasury Department to buy up toxic assets from banks, the McCain campaign said, and could be implemented quickly.
Other critics of the McCain plan said it might provide an incentive for some borrowers to default on their loans in order to unload their negative equity on the government.
Stan Humphries, vice president of data and analytics for Zillow.com, estimates that at the end of June, about 11.7 million single-family homes were "underwater," with negative equity totalling about $676 billion.
Writing on the company’s blog, Humphries said the McCain plan would benefit homeowners who bought in at the height of the real estate bubble most, and place the full burden of relief on taxpayers.
Under the Paulson plan, the government would buy and hold mortgage-backed securities and whole mortgages, and those assets would "likely regain their value over the long-term, thus ultimately providing some benefit to taxpayers," Humpries said.
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