John McCain used last night's debate to tout a new "Homeownership Resurgence Plan", which would empower the US treasury department to buy up troubled mortgages outright and replace them with fixed-rate loans guaranteed by the Federal Housing Administration (FHA). The Republican candidate claimed total responsibility for the idea, telling the nation that his plan was "not Senator Obama's proposal, it's not President Bush's proposal".
Of course, as the Obama camp and Dow Jones MarketWatch promptly pointed out this morning, that mortgage-purchasing authority is already included in the $700bn financial rescue plan that both Obama and McCain supported.
McCain also might have looked at his past position on relieving homeowners of "negative equity" -- he would have noticed that his economic adviser, Douglas Holtz-Eakin, dismissed the idea in March (just after the implosion of Bear Stearns).
Here's Holtz-Eakin, when asked during a press conference about government purchasing of home loans:
Senator Clinton seemed to hint at that with a broad FHA authority to buy any loan that's underwater without asking the question why, and that's a mistake. ... And in providing any assistance, it should be the case that everyone has some skin in the game, so the household ends up with some equity interests so they don't walk away, you can't just guarantee a loan with zero equity, and you want to make sure that all parties are making some sacrifice in order to merit the receipt of taxpayer dollars.
Holtz-Eakin did outline one principle that has remained constant: under McCain's plan, no homeowner who took out a no-money-down mortgage should get aid. This might be a problem, however, given that the FHA is already insuring large amounts of no-money-down mortgages right now. More than 66,000 of the mortgages backed by the government in the first half of this year, or 36.7%, were "seller-funded" (as opposed to funded by the home buyer), according to Forbes.
