Defending J-Mac’s Socialism (350 billion dollar mortgage buyout)

October 8, 2008

Last night, I was in a blogger chat with other folks and when I heard that J-Mac proposed 350 billion in additional funds for a bailout, I,  like many of our brethern lost my head and called him a socialist.  Anyway, as Hannity says, “let not your heart be troubled”:

Marc Ambinder in the Atlantic notes how the 300 billion or so is already incorporated into the bill that was passed last week. J-Mac is not asking for additional funds:

On a conference call with reporters, McCain policy chief Douglas Holtz-Eakin spelled out how McCain would pay for his plan for the government to buy troubled mortgages and replace when with more favorable fixed-rate mortgages at minimal direct cost to the homeowners. The government could use some of the $700 billion authorized for the bailout and tap other accounts, although the campaign estimates that, owing to negative equity — the government can’t magically turn bad mortgages into good ones without taking a hit — would be $300 billion.  The McCain team hopes that by buying mortgages directly, the government wouldn’t have to buy as many distressed assets from big banks, thus reducing the net cost. McCain claims this idea as his own, although the bailout/rescue bill already gives the government the authority to deal directly with homeowners, and Obama has suggested that the government do the same — although McCain’s certainly being more aggressive here.

Second, let’s look at the Hope for Homegrowers plan in crap sandwich 2.0:

HOPE for Homeowners (H4H) is a program designed to assist borrowers at risk of default or foreclosure in refinancing to an affordable 30-year fixed rate FHA loan. The program is effective October 1, 2008 and will conclude on September 30, 2011. …

The loan amount may not exceed a nationwide maximum of $550,440.

The new mortgage will be no more than 90% of the new appraised value including any financed UFMIP with the lender essentially writing down the current mortgage to that amount.

Upfront MIP is 3% and the monthly MIP is 1.5%

The holders of existing mortgage liens must waive all prepayment penalties and late payment fees.

The existing first mortgage must accept the proceeds of the H4H loan as full settlement of all outstanding indebtedness.

Existing subordinate lenders must release their outstanding mortgage liens.

So, the mechanism for what John McCain said last night exists. It is still wrong that we are buying out bad mortgages, but at least he isn’t adding to it


  1. No one was ever confused to believe these were additional funds, except you I guess. That’s a nice attempt at a red herring though.

    The issue at hand is not the mechanics of the funding but the mechanics of the plan.

    I’m surprised that you would support a plan that creates a government run mortgage company to purchase massively overpriced inflated mortgages from the same lenders who created this mess and sell them back to the home owner at an immediate and unrecoverable loss–as opposed to McCain’s more rational original proposal to force lenders to write down the loans.

    But I probably shouldn’t be. I guess this new McCain plan is the only way to ensure that the stupid lending corporations that issued those subprime loans to stupid people they knew couldn’t afford them, go away unscathed.

    Keating would be proud.

    This plan is indefensible and you know it.

  2. Jefe:

    (1) Actually giving the whole $700 Billion to the lenders would let them get off unscathed. Under the McCain plan the banks would sell the loans to the government at a discounted price. the banks would have to still write off the loss.

    (2) We were not defending the plan but stating that it is the lesser of two evils.

    (3) The Keating talking point is so last week.

    (4) I worked for a bank in NV 4 years ago. My job was to make sure we were in compliance with the CRA and other minority lending laws. We were forced, sometimes, to either turn good loans away because we had not written enough loans to minorities nor the lower class, or write more subprimes so we could keep the conventional loans. The lenders are not the only people to blame in this situation, the government first forced said subprimes under the treat of lawsuits and fines, and then allowed for a free for all without any regulation.

  3. Who wrote the rules?
    Those writing the rules are the ones to blame.

    – Jimmy Carter’s Community Reinvestment Act

    – Clinton’s successful attempt to make it easier to enforce minority lending practices via the Act (gotta love those ACORN folks protesting in bank lobbies and intimidating bank officers),

    – the good Dems in the House & Senate making sure Fannie Mae was in the loop and would be the only thing they did NOT want to regulate(Barney Frank was SO deep in in some Fannie Mae fanny – sorry, I couldn’t help myself).

    Blame the lenders all you want, they also played by the rules. Those writing the rules are the one’s to blame; and, since Obama likes working from the ground up, why not look at the ground on this one, the incipiency of the problem was rules that created an overinflated contingency of borrowers who couldn’t afford what they were borrowing.

  4. Reagan21:

    1. False. But I can understand your wishful thinking: http://www.businessweek.com/bwdaily/dnflash/content/oct2008/db2008108_106465.htm

    “Given the way the sentence was phrased, it wasn’t immediately clear what McCain meant—or what the financial implications of his idea might be. Was he saying the government should buy up every bad mortgage at its original value and then refinance the homeowner into a lower-priced, affordable mortgage? That would stick the government with the difference between the original loan values and current, much lower values. Or did McCain mean that the Treasury should negotiate first with the lenders or investors holding the mortgages to reduce the values of the original mortgages to realistic current values before buying them out and refinancing the loans? In that case, banks and investors currently holding the loans (or the mortgage-backed securities they’ve been packaged into) would have to agree to take that immediate loss in hopes of avoiding the greater loss that could come from foreclosure.

    In a conference call Wednesday morning with reporters and in a follow-up call, McCain’s top economic adviser, Douglas Holtz-Eakin, made clear that the Arizona Senator is proposing the first option. Under his plan, the government would buy the mortgages from banks and investors at the original value of the loan, no matter how overinflated that now appears to be. “We’re [proposing] buying back the original mortgage at the original value and then giving [the homeowner] the new mortgages” at current values and more affordable interest rates, Holtz-Eakin told BusinessWeek. “Obviously the taxpayer is on the hook for the difference.”

    2. Forcing the taxpayer to take the immediate and substantial loss rather than the banks and lenders in the lesser of these two evils?

    3. My bad.

    4. Interesting. 4 years ago you say. This point brings into focus “ratpacklaw’s” argument.

    I find it obnoxious that you want to exclusively blame Democrats for this mess. I think that is pretty desperate and remarkably unaware.

    Why do you make no mention of Bushs policies to arbitrarily increase minority home ownership by augmenting Freddie and Fannie? Yes these are the same policies that led to your banking experience 4 years ago.


    Why do you make no mention of the Bush, McCain, Graham policies of unrestrained deregulation? I believe this is these are the same regulations that kept the Carter and Clinton plans solvent. The same lack of regulation that reagan21 mentions.

    Do I think the Carter and Clinton plans were go policy? No. Are they partly to blame? Yes.

    I try to be self aware Democrat. I’m more concerned with good policy than partisan points.

    Speaking of self aware Republicans. I’ve always admired George Will and David Brooks for upholding this characteristic.

    Will on McCain: http://www.washingtonpost.com/wp-dyn/content/article/2008/09/22/AR2008092202583.html
    Will on Palin: http://www.washingtonpost.com/wp-dyn/content/article/2008/09/02/AR2008090202441.html
    Brooks on Obama & Palin: http://www.huffingtonpost.com/2008/10/08/david-brooks-sarah-palin_n_133001.html

    You guys don’t really like the McCain/Palin ticket, do you? This would not have been your first choice. In fact, I will bet you hated McCain during the primaries, the same way you hated him over the last 12 years.

    Welcome to my life when my party nominated John Kerry, or defended the indefensible acts of Bill Clinton. The only difference is that I didn’t start a blog and feign deep love for politicians I knew were bad for the country and crappy leaders.

  5. Also, if you are looking for Bush policy specifics taht led to your banking experience in NV, see here: http://www.policyalmanac.org/social_welfare/archive/wh_minority_housing.shtml

    -Substantially increasing, by at least $440 billion, the financial commitment made by the government-sponsored enterprises involved in the secondary mortgage market specifically targeted toward the minority market.

    -Raising $750 million in below-market-rate investments by 2007, which will work in collaboration with local homeownership initiatives and be targeted to heavily minority program areas;
    Pursuing strategic partnerships in 20 top housing markets between homebuilders, lenders, local officials, and community leaders to develop approaches that address the local challenges to building homes for minority families living in urban centers;

    -Aggressively developing new mortgage products so that conventional market alternatives are available to combat the predatory loan products that are disproportionately targeted to minorities;

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