Thursday, April 10, 2008

re McCain and Housing   [David Freddoso]

So McCain wants to "combine the power of government and the private sector to find immediate solutions for deserving American homeowners." It sounds more like he's using your money to bail out over-leveraged McMansioners in California, Florida and Nevada, and guaranteeing bad loans for the banks that made them. His plan is not as bad as the Democrats' plan, but that isn't saying much.

Homeowners would end up with a 30-year mortgage and an equity stake in their home. The new lender would receive a federal guarantee of the mortgage. And the taxpayer gets a benefit if the sale value ever recovers.

Mind you, the banks stand to lose money if people default. They already have an incentive to help out homeowners with marginal finances through short-sales or restructuring. But now the government will make the banks' job easier by guaranteeing the bad loans they made in boom-times. If the mortgage-holders default, the taxpayer is on the hook. And if they don't default, then (at least as I read the above) the government somehow starts owning part of their home or receiving part of their payment. In the best case, Uncle Sam will go into the business of realty and/or usury.

McCain says that his plan would be limited to primary residences and to those who apply for the program. This is only to say that it is a bad idea with a more limited scope and fewer perverse incentives than the Democrats' plan, which could actually encourage homeowners to default.

The solution to the mortgage "crisis" is to let the banks lose money and let homeowners who took bad risks become renters with deservedly bad credit ratings. They had their chance, didn't they? If we want to "bail them out," simply forgive them the taxes owe on the difference between their loan and foreclosure sale price. Then we'll finally find a bottom, and worthy borrowers and longtime renters with good credit will have a shot at owning a home for a reasonable price.

Sadly, all three presidential candidates agree that it is legitimate to privatize profits and socialize losses. It reminds me of Rick Santelli's recent remark on CNBC — we might as well add a hammer and sickle to our flag.

04/10 11:30 AMShare