Wednesday, October 8, 2008

McCain's New Plan: Problems Again

So John McCain announced a new plan at the debate to buy individual mortgages from troubled homeowners and renegotiate those adjustable-rate mortgages (ARM) into fixed-rate mortgages. He claims this is different from the existing government bailout plan because it goes directly to the homeowner and makes their life easier.

That's all well and good, but if he wants to buy Joe Sixpack's ARM, he has to find out who owns it. The whole point of this mortgage crisis is that the banks no longer own the mortgages; they package up thousands of them and sell shares in the package. That's where you get the mortgage-backed securities. I bet my mortgage (30-year fixed) is in part of a security, but it would be in one of the good ones (full of fixed-rate mortgages owned by people with high credit). The bad ones are backed by ARMs owned by people with bad credit and too low an income to pay the mortgage.

So if McCain wants to fix these bad mortgages, he has to first buy them. To buy them, he has to buy the bad-mortgage backed securities. So McCain's new plan is basically the exact same thing Congress has already voted on, with the added idea that the government would renegotiate the mortgages once it bought them. That added idea is a good one, I'll give him that. But if this is his attempt to make it a race, then hello President Obama.
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