Republican Presidential Candidate John McCain on the Housing Market and Foreclosure Crisis
The election process has always been less an expression of the democratic will of the people than a mass herding of uninformed voters tricked into choosing between two virtually identical candidates supported by the same large financial and corporate interests.
Especially now, though, with foreclosure rates rising and more fraud in the mortgage markets being uncovered by the day, solving the housing crisis has become a political tug of war for both of the major candidates, John McCain and Barack Obama.
Both candidates have outlined plans to help homeowners facing foreclosure, and while few voters typically read through even such sparsely informational sites as the candidates' own websites, it can be seen from a short analysis of the proposed policies if either nominee will be able to provide assistance to the markets.
The issues will be examined for each candidate, with the Republican nominee analyzed here.
Although the official site says McCain's "approach to helping sub-prime or other financially strapped mortgage borrowers is built on sound principles," what it means is that the focus is on contradictory principals:
But this immediately raises the question of moral risk: If you were going to speculate, why not go all the way and leverage as much as possible, so if you failed, the government would have to bail you out to prevent systemic risk? Small speculators will presumably be allowed to fail, but the big ones will have their larger moral hazards rewarded by tax or inflation money.
McCain also proposes a HOME Plan designed to keep 200,000 to 400,000 homeowners out of foreclosure, but this is a small drop in the bucket of several million expected foreclosures nationwide.
While such a plan may have an impact in certain local markets, with a general falling of home values across the country, saving an extra few hundred thousand families will do little to help the markets recover.
Eligibility for the HOME Plan is also strict and will preclude many borrowers from even qualifying for federal assistance:
Subprime borrowers began to default, home prices stagnated, and speculators have simply walked away from properties, leaving the houses to foreclosure and the communities to endure further drops in home values.
The foreclosure of these homes are entirely justified, but they will continue to contribute to a declining real estate market.
As well, McCain's plan's requirement for homeowners to prove creditworthiness at the time of the original loan may be quite difficult for subprime borrowers who took out stated income or no-doc loans and overstated the amount of money they made or the assets they owned.
These homeowners will almost certainly receive no assistance from the government, as even politicians will not want to take on the risk of mortgage customers who never qualified for a loan in the first place.
But with such a large percentage of home purchase and refinance loans over the past years being subprime, the fact that subprime borrowers will receive little help negates the goal of the HOME Plan.
Typically for political programs, at least one Orwellian Newspeak clause must be included, and McCain's policy does not disappoint.
It states, "Any policy of financial assistance should be accompanied by reforms that promote greater transparency and accountability to ensure we never face this problem again.
" Obviously, the several tens of thousands of pages of federal regulations already on the books will not be adequate to ensure corporate transparency, so thousands more pages will be added, increasing the costs to keep up with the new laws, increased costs which will be transferred to mortgage borrowers.
Homeowners who took out loans during the boom and bubble were given dozens of pages of disclosures relating to the terms of the loan they were applying for.
Shockingly few of these borrowers ever read or made sure to understand the documents in full, though, and even corporate lawyers have been unable to pierce the veil of the legalese and explain in ordinary language how the mortgages actually work.
More disclosures will just increase the likelihood that loan customers sign the stack of papers in front of them without reading as quickly as possible in order to get the loan they have been sold by the broker.
Again, as with the Democratic plan to solve the housing crisis, little is proposed to hold the Wall Street financial firms accountable, or even acknowledge their existence in the crash other than as victims of shady, lying borrowers.
But these investment firms provided the lines of credit to the largest lenders, which made subprime loans, which then sold the loans back to Wall Street, which securitized the loans, which then sold the toxic mortgage-backed securities to funds around the world, taking in fees at nearly every step of the process.
Of course, though, these are the firms whose failure would cause "systemic risk" to the financial system and which also donate heavily to the Republican and Democratic parties, and will be given generous bailouts by the federal government to ensure they do not fail.
Especially now, though, with foreclosure rates rising and more fraud in the mortgage markets being uncovered by the day, solving the housing crisis has become a political tug of war for both of the major candidates, John McCain and Barack Obama.
Both candidates have outlined plans to help homeowners facing foreclosure, and while few voters typically read through even such sparsely informational sites as the candidates' own websites, it can be seen from a short analysis of the proposed policies if either nominee will be able to provide assistance to the markets.
The issues will be examined for each candidate, with the Republican nominee analyzed here.
Although the official site says McCain's "approach to helping sub-prime or other financially strapped mortgage borrowers is built on sound principles," what it means is that the focus is on contradictory principals:
No taxpayer money should bail out real estate speculators or financial market participants who failed to perform due diligence in assessing credit risks.Thus, McCain would not bail out lenders, mortgage companies, or financial firms unless they had invested heavily in the subprime credit markets and their poor decisions would result in risk to the financial system overall.
Any assistance for borrowers should be focused solely on homeowners and any government assistance to the banking system should be based solely on preventing systemic risk.
But this immediately raises the question of moral risk: If you were going to speculate, why not go all the way and leverage as much as possible, so if you failed, the government would have to bail you out to prevent systemic risk? Small speculators will presumably be allowed to fail, but the big ones will have their larger moral hazards rewarded by tax or inflation money.
McCain also proposes a HOME Plan designed to keep 200,000 to 400,000 homeowners out of foreclosure, but this is a small drop in the bucket of several million expected foreclosures nationwide.
While such a plan may have an impact in certain local markets, with a general falling of home values across the country, saving an extra few hundred thousand families will do little to help the markets recover.
Eligibility for the HOME Plan is also strict and will preclude many borrowers from even qualifying for federal assistance:
Holders of a sub-prime mortgage taken after 2005 who live in their home (primary residence only); can prove creditworthiness at the time of the original loan; are either delinquent, in arrears on payments, facing a reset or otherwise demonstrate that they will be unable to continue to meet their mortgage obligations; and can meet the terms of a new 30 year fixed-rate mortgage on the existing home.While the owner-occupied requirement is obviously designed to avoid awarding speculators with financial assistance, the failure of speculators and investors is one of the driving forces of the housing crash.
Subprime borrowers began to default, home prices stagnated, and speculators have simply walked away from properties, leaving the houses to foreclosure and the communities to endure further drops in home values.
The foreclosure of these homes are entirely justified, but they will continue to contribute to a declining real estate market.
As well, McCain's plan's requirement for homeowners to prove creditworthiness at the time of the original loan may be quite difficult for subprime borrowers who took out stated income or no-doc loans and overstated the amount of money they made or the assets they owned.
These homeowners will almost certainly receive no assistance from the government, as even politicians will not want to take on the risk of mortgage customers who never qualified for a loan in the first place.
But with such a large percentage of home purchase and refinance loans over the past years being subprime, the fact that subprime borrowers will receive little help negates the goal of the HOME Plan.
Typically for political programs, at least one Orwellian Newspeak clause must be included, and McCain's policy does not disappoint.
It states, "Any policy of financial assistance should be accompanied by reforms that promote greater transparency and accountability to ensure we never face this problem again.
" Obviously, the several tens of thousands of pages of federal regulations already on the books will not be adequate to ensure corporate transparency, so thousands more pages will be added, increasing the costs to keep up with the new laws, increased costs which will be transferred to mortgage borrowers.
Homeowners who took out loans during the boom and bubble were given dozens of pages of disclosures relating to the terms of the loan they were applying for.
Shockingly few of these borrowers ever read or made sure to understand the documents in full, though, and even corporate lawyers have been unable to pierce the veil of the legalese and explain in ordinary language how the mortgages actually work.
More disclosures will just increase the likelihood that loan customers sign the stack of papers in front of them without reading as quickly as possible in order to get the loan they have been sold by the broker.
Again, as with the Democratic plan to solve the housing crisis, little is proposed to hold the Wall Street financial firms accountable, or even acknowledge their existence in the crash other than as victims of shady, lying borrowers.
But these investment firms provided the lines of credit to the largest lenders, which made subprime loans, which then sold the loans back to Wall Street, which securitized the loans, which then sold the toxic mortgage-backed securities to funds around the world, taking in fees at nearly every step of the process.
Of course, though, these are the firms whose failure would cause "systemic risk" to the financial system and which also donate heavily to the Republican and Democratic parties, and will be given generous bailouts by the federal government to ensure they do not fail.
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