Be warned, this is a bit long but it is specific.
In covering the failing banking industry and the mortgage mess, the media has been throwing around words like disaster, crisis, and dire like peanut vendors at a baseball game. Their irresponsible use of these words has prompted many questions about what McCain and Obama would do as President to correct what is happening on Wall Street and Main Street. Here are the plans of both candidates. The information on Barack Obama’s plan is taken directly from his “Blueprint For Change” while information on John McCain’s plan is taken from the expanded issues section of his website.
To provide relief for millions of people affected by the mortgage mess and the Wall Street debacle, Sen Obama has proposed a 10% universal mortgage credit that will provide $500 to about $10 million homeowners. The credit will help those making under $50,000 who do not itemize their taxes.
Additionally, Sen Obama will create a new HOME (Homeowner Obligation Made Explicit) score that will allow borrowers to measure their available mortgage options and will help them understand the full cost of the mortgage they enter into with a lender. This provision would seem to help new borrowers more than those already in a mortgage. It also keeps the borrower as the primary decision maker and leaves the burden of responsibility firmly with the borrower, which is where irt needs to be. However, there is nothing to stop the banking and investment industries from manipulating this score just as they manipulated numbers to get people into the sub prime mortgages in the last few years.
Finally Senator Obama has proposed, in his “Blueprint for Change”, a government fund to help “innocent” homeowners. While “innocent” is not defined by Obama I imagine that it means those homeowners who took out a bigger mortgage than they could afford on an adjustable rate loan. This fund would be paid for by the money received from increased penalties on lenders who have acted irresponsibly (those lenders currently going under?) or those convicted of fraud. While this sounds good because it targets the corporate greed Sen Obama and his colleagues hate, the fund is based on passage of what Sen Obama calls “his record” on this issue, the Stop Fraud Act.
The Stop Fraud Act is a bill sponsored by Obama and Dick Durbin that defines mortgage fraud, increases funding for law enforcement (?), and enacts new penalties for those found guilty of fraud. It also requires the industry to report suspicios activity, it does not say to who. The bill has been introduced to committee and referred to another committee, it has not been passed by the Congress, nor is it close to a general debate on the floor. By the way it was introduced in 2007 so I do have to ask where was his leadership on this issue? http://www.govtrack.us/congress/bill.xpd?bill=s110-1222
Now onto Senator McCain.
Senator McCain has proposed a “Home Plan”, unfortunately HOME does not stand for anything cute like in Obama’s plan. Under this plan, Sen McCain would offer borrowers the chance to trade an existing mortgage that they can not pay for a mortgage that is more manageable under a fixed rate and reflects the market value of the home at the time. Of course there are restrictions but they favor those being hurt by their current situation. Those restrictions are as follows:
- an eligible sub prime loan after 2005
- prove your credit worthiness at the time of the original loan ( something you have to prove any way if you get a mortgage the right way)
- are delinquent on payments or facing a reset or show that you can not meet your current obligations and
- can meet the terms of a new fixed rate, 30 year, FHA backed loan
Under McCain’s plan there is no H.O.M.E. score or federal fund that has to be passed first. The plan has elements of a bill introduced by two Democrats (there is that record of bi-partisanship again), Barney Frank and Chris Dodd. The plan does require banks to forgive part of the loan principle and write a new loan for borrowers but the other option for the bank would be foreclosure, an option that would probably cost them more.
Borrowers under McCain’s plan also can apply by picking up a form at the post office or printing a form from the internet (is that a use of technology by McCain?). From there once the request is sent in, the loan request is approved by the FHA based on qualifications and then sent to the bank where the homeowner has their existing loan who retires and rewrites the loan to loan backed by the FHA.
Of course Sen McCain’s plan also addresses the speculators and financial market practitioners who handed out the sub prime loans in the first place. If a bailout is needed, Sen McCain believes that it should come at a cost to the financial industry, not taxpayers. A bailout would happen only to prevent failure and in return that institution would face greater transparency and accountability. This is the case with AIG, an institution that, if it failed and did not receive a partial bailout, would affect people around the globe. Perhaps the 9/11 commission Sen McCain has proposed recently would provide the transparency necessary to determine why the current situation happened and how it can be prevented in the future.
There are the two plans in detail. Of course I’m partial but as I see it, Sen Obama’s plan relies heavily on government and passage of bills and recommendations in Congress that have already taken over a year to go to committee. Unlike Sen Obama’s plan, Sen McCain’s plan could be instituted fairly easily and does not rely on new penalties that have not been discussed in committee yet. In addition penalties already exist under current banking laws (http://blownmortgage.com/2008/02/03/barack-obamas-mortgage-reform-policy/ for some insight) for lenders who engage in deceptive practices.
Sen Obama specifically points out that 10 million homeowners will benefit under his tax credit initiative. That is a far cry from the 200-400 million people Sen McCain is proposing to help immediately. Make your own choice on this issue but these are the facts and plans as stated by each candidate on their official websites. Hopefully, I will also be highlighting other issues in the future.