The significance of McCain’s mortgage plan

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John McCain’s announcement during the debate Tuesday night that he wants the government to spend $300 billion buying up mortgages and rewriting the terms was something of a landmark in the national discussion over what to do about our financial mess.

Yeah, it was a half-baked proposal that made no acknowledgement of the fact that Barney Frank and Chris Dodd have already gotten a similar if far-less-bold and far less expensive plan enacted into law (without much help from either McCain or Obama, who missed both the April 10 the July 26 Senate votes on the bill). As the LA Times reports:

According to the outline of McCain’s newest proposal, the federal government would pay borrowers and lenders in full, regardless of how wise or fair the original transaction was. Lenders would be able to remove the bad mortgages from their balance sheets, and borrowers would be able to refinance into government-guaranteed loans. Mortgage holders would have to prove they lived in the home and had good credit at the time of the original loan. …

By contrast, the housing bill passed by Congress over the summer, and which went into effect Oct. 1, required lenders to take a loss by writing down the principal on troubled mortgages to 85% of the house’s current value. Borrowers with adequate incomes and credit records would then qualify for refinanced mortgages from new lenders.

Government funds were used only to help finance mortgage insurance for the new loans; cost estimate for taxpayers was roughly $20 billion.

But I’ll be generous and take McCain’s debate gambit as a sign that there’s now clear bipartisan agreement that bigger, bolder actions still need to be taken to right the country’s financial ship. Which isn’t enough in itself to solve our problems, but strikes me as better than the absence of such an agreement.

Update: The text of the (still half-baked) plan is here.