McCain's new housing policy, introduced last night during the debate, is now called the "American Homeownership Resurgence Plan" -- apparently McCain wants everything to be a surge. But in this case, contra Dana, it's actually good policy. (Here's what I had to say last night).
I just got off a conference call with Doug Holtz-Eakin, McCain's economic policy flack, who explained the policy in some more detail. It's nothing new, as Dana notes, and it has been promoted by Obama, the Clintons and many others on the left. In fact, almost all the authority to do what McCain is proposing is already in legislation passed by Congress: The rescue bill passed Friday and this summer's housing bill. Dana is right that the provisions in the bills are too weak (I'll go into why in a moment) but McCain's proposal seems to be targeted at strengthening them. She notes, correctly, that the bankruptcy negotiation provision was left out of the bill, but progressive economists I've spoken to point out that running the needed refinancings through the bankruptcy courts would be much slower and target many fewer homeowners, since foreclosure often doesn't mean bankruptcy.
What exists now? Two programs: The Dodd-Frank Housing Bill gave authority (and $300 billion) to the Federal Housing Administration to renegotiate mortgages in the "HOPE for Homeowners Program." However, the key is that the program relies on the voluntary participation of mortgage lenders, one of the reasons that progressives originally criticized the bill. Holtz-Eakin says today that the McCain program would be coercive: It would step in over the head of the lenders to refinance the loan whether or not they like it. The second program is contained in Sections 109 and 110 of last week's economic rescue package [PDF], and it encourages the Secretary to refinance any mortgages bought directly or any that underlie toxic assets he may buy with his $700 billion in order to keep homeowners in their homes. The mechanisms for doing this are the HOPE for Homeowners program and, well, whatever the Secretary wants to do.
So again, the authority is there. The question is whether or not the Treasury will actually use it -- one economist I spoke with recently described the economic rescue bill as a menu of options, and the task of progressive policymakers is encouraging the Secretary to choose the best ones. If McCain's plan is, as Holtz-Eakin says, a plan to ensure that the Secretary and the FHA act over the objections of current mortgage holders to refinance sub-prime and predatory loans into stable 30-year mortgages, it's a great one. It will also cost around $3 trillion, as Hillary Clinton notes in this op-ed Dana flagged, and we only have $1 trillion allocated (although it could be leveraged higher with the help of Fannie Mae and Freddie Mac).
Let me be clear what it means, as well: It means John McCain is going to find people who defaulted on loans they couldn't afford and make sure they get to keep their homes. It's a progressive policy that will help the economy in a variety of ways -- shore up investment assets derived from real estate, keep personal finances out of arrears, lower mortgage interest rates and help stabilize housing prices. But it certainly isn't the policy of someone advocating a spending freeze or laissez-faire economics.
--Tim Fernholz
