Well here’s the scoop on John McCain’s Big Mortgage Nationalization Project.

AMERICAN HOMEOWNERSHIP RESURGENCE PLAN

John McCain will direct his Treasury Secretary to implement an American Homeownership Resurgence Plan (McCain Resurgence Plan) to keep families in their homes, avoid foreclosures, save failing neighborhoods, stabilize the housing market and attack the roots of our financial crisis. America’s families are bearing a heavy burden from falling housing prices, mortgage delinquencies, foreclosures, and a weak economy. It is important that those families who have worked hard enough to finance homeownership not have that dream crushed under the weight of the wrong mortgage. The existing debts are too large compared to the value of housing. For those that cannot make payments, mortgages must be re-structured to put losses on the books and put homeowners in manageable mortgages. Lenders in these cases must recognize the loss that they’ve already suffered.

And what about the non-homeowners who have worked hard and decided, responsibly, not to live under the Damocles’ Sword of an Adjustable Rate Mortgage knowing that, at some point, that rate was going to adjust upward and put them in serious trouble?

Screw us, apparently.

Here’s the thing, though. The value of housing fluctuates with the demand for housing. The government is hideously bad in picking the value of anything. Don’t believe me?

The government has been helping to set the value of health care through Medicare for decades. How’s that been working out?

The McCain Resurgence Plan would purchase mortgages directly from homeowners and mortgage servicers, and replace them with manageable, fixed-rate mortgages that will keep families in their homes. By purchasing the existing, failing mortgages the McCain resurgence plan will eliminate uncertainty over defaults, support the value of mortgage-backed derivatives and alleviate risks that are freezing financial markets.

The McCain resurgence plan would be available to mortgage holders that:

• Live in the home (primary residence only)
• Can prove their creditworthiness at the time of the original loan (no falsifications and provided a down payment).

A question or two, Senator, if I may? If these homeowners are already having problems making their house payments now, how, exactly, are they going to come up with a down payment? If they can come up with a few thousand dollars, then obviously they’ve been holding it back and not using it to pay their mortgage either because they’re running a game on their mortgage property or they’re holding that money back for a catastrophic emergency. If they can’t come up with the cash, then they can’t be part of the program.

So who is this program supposed to help?

But, let’s assume that Joe Homeowner is on the ragged edge because of his house payment but he has a small nest egg of a few thousand dollars in reserve in case things go really bad. Your program will lower his mortgage but force him to give up his reserve savings in exchange. Essentially, you’ll be forcing him to live paycheck to paycheck until he can build that reserve back up, which won’t happen quickly.

The new mortgage would be an FHA-guaranteed fixed-rate mortgage at terms manageable for the homeowner. The direct cost of this plan would be roughly $300 billion because the purchase of mortgages would relieve homeowners of “negative equity” in some homes. Funds provided by Congress in recent financial market stabilization bill can be used for this purpose; indeed by stabilizing mortgages it will likely be possible to avoid some purposes previously assumed needed in that bill.

Oh, that’s nice. These mortgages won’t be based on the real value of the house but on whatever is “manageable” for the homeowner.

A clever person might jump in to this program, pony up the cash, then quit his job and arrange for a really low payment over a loner number of years, because that’s what’s “manageable” for him. What’s to prevent someone from gaming the system that way?

And let me also toss out there that if someone bought a home for the traditional purpose of living in it instead of the fairly new purpose of using it as an investment, the value of the house is material only for the purposes of property taxes. If I owned a home, it would not matter to me right now if it were worth 50 grand less than when I bought it because I’d have no intention on selling it anytime soon. It’d help me a lot more if the value dropped even more because I’d pay less property tax on it, though.

The plan could be implemented quickly as a result of the authorities provided in the stabilization bill, the recent housing bill, and the U.S. government’s conservatorship of Fannie Mae and Freddie Mac. It may be necessary for Congress to raise the overall borrowing limit.

Did I just hear John McCain tell me how government control makes him nervous? Little did I know that he only gets nervous unless its his administration taking more control.

Sounds like another left-wing power grab to me. I already see one of those candidates in office. And if I have to resign myself to having a borderline socialist in the White House, I’ll go ahead and take the authentic one instead of the poser. At least that way I’ll see the socialism coming straight at me instead of having it blindside me in the middle of the most boring debate in the history of the planet.

UPDATE: One of my commentors says that I misread part of the plan, which is entirely possible. The Diarist notes that the plan says the mortgage holder had to meet the down=-payment requirement at the time of the original loan, which does make my “paycheck to paycheck” point moot if that’s the way it shakes out.

But that brings up other questions. Why is a down-payment so darned important to make a mortgage “worthy”? A shady loan is a shady loan, no matter if you put up earnest money or not. The vast majority of the mortgages in real trouble aren’t the ones where someone ponied up ten grand but the ones where the homeowners had to squeak through on water bills and food stamp receipts as specified by such sterling risk assessment groups as Fannie Mae and Freddie Mac. Those are the folks who are going to be in worlds of trouble if they lose the homes they were gulled into buying in the first place. Who, then, is this program supposed to be helping?