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Name:
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GoneFishin
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Subject:
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McCains Mortgage Bailout
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Date:
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10/8/2008 9:04:03 PM
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He declared in Tuesday night's debate that he would order his Treasury secretary to buy up bad mortgages and let struggling homeowners refinance into more affordable loans -- a power the government already has under the new financial industry bailout law.
Under McCain's plan, the government would spend $300 billion to purchase distressed loans and provide new, fixed-rate mortgages. Douglas Holtz-Eakin, the Arizona senator's economic adviser, said the plan would help stabilize the plunging values of mortgage-backed securities that are at the heart of the crisis in the financial markets.
To do so, the government would pay the full face-value of the distressed mortgages, Holtz-Eakin said.
Under that scenario, the government could buy a $200,000 subprime mortgage on a home now worth just $100,000, give the homeowner a 30-year, $90,000 loan with a 5 percent interest rate, and essentially eat the $110,000 difference.
"It's the only way to do it in a timely fashion," Holtz-Eakin said.
Obama's campaign said right after the debate that he had made similar proposals to McCain's and there was nothing new in the Republican's remarks. But as McCain aides offered more details on Wednesday, the Obama camp changed its tune.
The plan would cause the government "to massively overpay for mortgages in a plan that would guarantee taxpayers lose money and put them at risk of losing even more if home values don't recover," said Obama economic adviser Jason Furman. "The biggest beneficiaries of this plan will be the same financial institutions that got us into this mess, some of whom even committed fraud."
Indeed, analysts on the right and left said the plan would let banks and investors who bet heavily on the risky mortgages walk away with a handsome payout courtesy of U.S. taxpayers.
"You run into the question of whether or not then you are bailing out bad lending decisions," said David C. John of the conservative Heritage Foundation.
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