Obama or McCain: Who Would Help Homeowners?
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There's no doubt about it: The next U.S. President, be he Sen. Barack Obama (D-Ill.) or Sen. John McCain (R-Arizona.), will have an extraordinary opportunity to affect the financial well-being of the nation's 70 million homeowners. But which candidate offers the best mix of policies, programs and perks for people who own or want to buy a home?
To help you answer that question for yourself, here's a look at the candidates' housing proposals, as outlined on their websites:
Resurgence' plan would buy up mortgages
The latest proposal is McCain's American Homeownership Resurgence Plan, in which the federal government would buy homeowners' mortgages and refinance them with manageable 30-year, fixed-rate loans. McCain senior policy adviser Doug Holtz-Eakin says the candidate's plan would provide direct help to struggling homeowners and mitigate the damaging effects of foreclosures on local communities.
The catch is that taxpayers, many of whom are homeowners as well, would be on the hook for the lenders' losses on the refinanced mortgages.
The authority for this approach likely already exists in the Emergency Economic Stabilization Act of 2008. Both Obama and McCain voted for that package, which is best known for its centerpiece, U.S. Treasury Secretary Henry Paulson's $700 billion bank bailout scheme.
The Center for Responsible Lending, a nonprofit research organization, says this approach will do little to aid individual homeowners because their mortgages have been split into pieces, packaged into securities and sold to multiple investors. As a result of that piecemeal securitization and other constraints, the government may be no more able to modify individual loans than lenders have been.
Earlier, McCain proposed a refinancing plan for deserving homeowners who:
● lived in their home, ● could prove their creditworthiness at the time they obtained their original loan, ● were delinquent, in arrears on payments, facing a reset or otherwise able to demonstrate they couldn't continue to make their mortgage payments, and ● could meet the terms of a new 30-year, fixed-rate mortgage insured by the Federal Housing
Administration (FHA) and based on the home's current value. The homeowner would be required to share any gain on a future of sale of the home with the lender and the government. Applications would be available online and at U.S. post offices. It's not clear whether these guidelines also would apply to McCain's latest proposal.
If so, the creditworthiness requirement could be a challenge for homeowners since they may not have kept the documents they submitted when they applied for their loan and their current credit may be impaired if they've fallen behind on their payments, according to Bruce Hahn, president of the American Homeowners Foundation, a nonprofit educational organization in Arlington, Va.
This proposal is now "redundant in many respects," Hahn notes, since it's similar to existing programs.
McCain's campaign estimates that 200,000 to 400,000 homeowners could meet the requirements for refinancing. That's only a fraction of the millions who are at risk of foreclosure, but "any help is appreciated," Hahn adds.
Homeownership tied to Wall Street
McCain's website also states his views that no taxpayer money should be used to bail out speculators or financial companies that didn't perform due diligence in assessing credit risks; that any assistance for borrowers should be focused on homeowners; that government assistance to banks should be based on preventing systemic risk; and that any policy of financial assistance should be accompanied by reforms that promote greater transparency and accountability. Homeowners may well agree with those ideals, Hahn observes, but such ideals aren't always practical.
Unfortunately, the fate of homeowners is also tied in many respects to the fate of the financial community, he says. We can only go so far in punishing irresponsible financial services firms and executives before running into the risk of undermining the viability of the entire financial system.
Mortgage deduction might help housing markets
Obama's housing plan calls for:
● a federal definition of mortgage fraud and new criminal penalties for mortgage professionals found guilty of fraud ● increased funding for federal and state mortgage fraud-related law enforcement ● a requirement that mortgage industry insiders report suspicious activity to the government ● a 10 percent universal mortgage credit for homeowners who don't itemize their tax deductions ● a Homeowner Obligation Made Explicit (HOME) score for home mortgages that would allow borrowers to easily compare various mortgage products and understand the full cost of the loan ● authority for bankruptcy court judges to modify the terms of principal-residence mortgages
The last three items may be of the most interest to current homeowners.
The tax credit would benefit homeowners who have a mortgage but whose total itemized deductions don't exceed the standard deduction. It would put more money in the pockets of some homeowners who don't have many tax breaks, but their gain would come at a cost to the U.S. Treasury.
The mortgage tax credit also could be helpful to the housing markets because it would make homes a bit more affordable for low-income buyers and have enough of a positive influence to help stop the decline in home values, but without being so stimulative as to raise home prices, Hahn suggests.
The HOME score could be beneficial if it made mortgages more easily understandable for people who need such information reduced to the simplest possible terms, Hahn says. But he warns that information can be over-simplified to the point that it's not as meaningful as it should be.
Bankruptcy court-ordered loan modifications would help some 600,000 homeowners who otherwise would lose their homes to foreclosure, according to the Center for Responsible Lending, which points out that a mortgage on a primary residence [is] the only debt that bankruptcy courts are not permitted to modify in Chapter 13 payment plans.
That would have a clear benefit for homeowners at no cost to taxpayers.