McCain's housing plan... URGH!

At the debate on Tuesday, October 7th, John McCain put forth a plan where he said: "I would order the Secretary of the Treasury to immediately buy up the bad home loan mortgages in America and renegotiate at the... diminished value of those homes and let people be able to make those payments and stay in their homes."



He even stressed the point that this was not Obama's plan, not President Bush's plan, this was HIS plan.



And what a terrible plan it is.



Why?



Because it bails out people who made bad investments and they receive a get out of jail free card. The lenders who let these unqualified people buy homes and gave them mortgages they couldn't afford without any documentation that they could pay for them would be again bailed out by the government. At full price!



And you and I get to pay for it.



Here's how it would work.



So someone had to keep up with the Jones's and buy a huge house that cost more than they could afford with a standard fixed-rate 30 year mortgage. The lender convinced them that with a sub-prime loan, they could afford the house. For the first X number of years (usually 5 or 7) the buyer would pay a much lower monthly mortgage than they would with a standard fix rate loan. When the introductory period ended, they knew that their monthly payment would increase significantly. I mean, VERY significantly. Maybe three times what they were currently paying. But the lenders would say, that's OK, then you could refinance into a fixed-rate 30 year mortgage.



Well, what happened is people started coming to the end of their introductory periods, their mortgages increased, and people couldn't afford it so they defaulted on their loans. People who wanted to refinance couldn't because their house values dropped, credit froze up, and their houses were worth less now than what they paid for them. Plus they weren't qualified for a loan to begin with so now they couldn't get them. People are stuck with mortgages they cannot afford and never should have gotten in the first place.



For the lenders, they're in trouble because they lent the money to buy the houses and now they are not getting repaid. They're evicting people and they're stuck with the houses which are worth less than what was paid for them. They can't get rid of them and don't have the money coming back to them that they put out for the houses originally.



For the borrowers, they agreed to terms on their mortgage that the knew they couldn't afford, on houses they couldn't afford, assuming they'd be able to refinance in many cases. They tried to cheat and pay a lower monthly payment at first for a few years. They lived it up at a falsely lowered mortgage rate and lived the high life. Now it's time to pay up for that privilege and they can't afford it so they're defaulting on their loans, hurting the whole housing market, and either being evicted or abandoning their homes altogether. Or struggling to make payments.



So what's the point of all of this?



Well, John McCain wants to help them out. How? By making the people who do the right thing, buy homes that they can afford, and make their mortgage payments on time pay to bail all these other people out.



Here's what McCain wants to do.



He wants to buy up the houses that people are struggling with at the cost the owners paid for them and then allow them to refinance them at their current value. So if someone agreed to buy a house for $500,000, they are going to get a discount on the house. If the house is now worth $400,000, these delinquent owners will get to refinance at that amount. So for agreeing to a bad mortgage, missing their payments, and basically screwing up, they get $100,000 knocked off their mortgage. And guess who gets to pay that $100,000? You and me. The taxpayers.



Basically, under McCain's plan, the government will buy these houses for more than they are worth and then sell them back to the owners at a loss with a great new interest rate, probably better than what the normal home buyer got when they bought their home. That's a loss that will never be recouped.



This is different than the bailout plan that was just passed last week. In the bailout plan, the government would be buying up bad mortgages at what they are worth now and then eventually selling them at a profit. But in this McCain plan, all of these people and lenders, these people who screwed up and put our economy in the position that it is currently in, are going to have all their problems solved for them, get out without any penalty, while others pay for it. The people who screwed up get rewarded while the people who played the game the right was get nothing. Or worse, we get more debt.



Is anyone else as ticked off about this as I am? I pay my mortgage every month. I didn't try to cheat the system when I bought my home. I don't want to have to pay someone else's mortgage without some kind of incentive to me. This isn't right. It's a terrible plan for those of us who did the right thing!



I'm not the only one who thinks so.



Here's an article from the Washington Post that says this is a bad idea: http://www.washingtonpost.com/wp-dyn/content/article/2008/10/08/AR2008100803532.html?nav=hcmodule



Here's one from CNN that also says it's a bad idea: http://money.cnn.com/2008/10/08/news/economy/mccainhouse_easton.fortune/index.htm?postversion=2008100813



Look, I'm not in favor of throwing out all of these people into the street. Something needs to be done but this plan is not it. It's a BAD idea. It puts the government in a further financial hole, increasing the national debt, it rewards the people's bad behavior, and it hurts everyone else who didn't get one of these sub-prime loans and make their payments on time.



I hope you read this and agree with me. Just remember this on Election Day.