Obama blasts McCain proposal; White House unsure

Barack Obama's campaign said the housing proposal Republican rival John McCain floated during Tuesday night's debate is "more costly and out-of-touch than we ever imagined."

McCain's plan would direct the Treasury Department to buy mortgages directly from homeowners to be restructured and paid back at a reduced amount with a fixed rate. It would cost as much as $300 billion, according to McCain's campaign. The campaign said the plan could be paid for by recently passed financial rescue efforts, but Congress might have to raise the overall borrowing limit.

{mosads}The Bush administration reacted cautiously to McCain's proposal, suggesting that some programs already exist to do what the Arizona senator wants accomplished.

Treasury Secretary Henry Paulson told reporters Wednesday afternoon that he needs to study McCain’s proposal and stressed his department already plans steps to reduce the number of foreclosures.

“Let me say that what we have right now, with the new authorities — and we not only have the authorities, but the plan to buy not only mortgage-backed securities, but whole loans from financial institutions.”

Paulson also said that the Emergency Economic Stabilization Act (EESA)  passed by Congress would give Treasury leverage to alter the terms of mortgages facing foreclosure.

“And as I have emphasized to Congress, and as we’re directed to by the legislation, the EESA legislation, to the extent we are owners of securities, we will have more leverage as we work to make efforts to keep homeowners in their homes.”

Paulson did not say how many billions of dollars worth of distressed home loans Treasury might purchase.

“Generally, we're going to be working to unclog the system, going to be buying mortgage and mortgage-related assets, and we're going to be working to avoid foreclosures,” said Paulson.

White House press secretary Dana Perino said Wednesday that she had yet to see an analysis of McCain's proposal, but there are existing programs that work to the same end.

Perino pointed to the HOPE NOW program, FHASecure and $4 million in community development block grants that were opposed by the White House but nonetheless included in this summer's housing plan after being pushed by the Congressional Black Caucus.

"We've helped 2 million homeowners so far," Perino said. "There's also a provision in a bill that passed in August that would allow, I think it was $4 billion of community development block grant funds, to do what I believe Sen. McCain was talking about for his new plan.  But I don't have enough analysis in order to tell you about how it fits into this particular plan."

Perino added that "there's a range of tools that have been given to the Treasury secretary that now they're trying to work on implementing those rules.  And it's just going to take them about a week or two to finish that out."

The Obama campaign's immediate reaction after Tuesday night’s debate was to argue that McCain's plan, referred to by the McCain campaign as the Homeownership Resurgence Plan or the McCain Resurgence Plan, was a proposal that would give Treasury authority it already has as a result of last week's financial rescue plan and this summer's bailout of mortgage giants Fannie Mae and Freddie Mac.

{mospagebreak}"Last night, in his latest attempt to get it right, he threw out a proposal that appeared to give the Treasury authority it already has to restructure troubled mortgages," Jason Furman, Obama's economic policy director, said Wednesday.  "But now that he’s finally released the details of his plan, it turns out it’s even more costly and out-of-touch than we ever imagined. John McCain wants 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. The biggest beneficiaries of this plan will be the same financial institutions that got us into this mess, some of whom even committed fraud."

Furman said that McCain's  "plan to overpay for bad mortgages by handing taxpayer dollars over to big financial institutions is erratic policy-making at its worst, and it’s not the change we need to strengthen our economy, create new jobs, and keep Americans in their homes."

The McCain campaign said in an explanation of the plan that it would be available to mortgage holders who live in the home as a primary residence only and who can "prove their creditworthiness at the time of the original loan (no falsifications and provided a down payment)."

"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 campaign said. "The existing debts are too large compared to the value of housing. For those that cannot make payments, mortgages must be restructured 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."

McCain senior policy adviser Douglas Holtz-Eakin said on a conference call with reporters Wednesday morning that the plan would "provide direct help to struggling homeowners, making sure they can stay in their homes with a manageable mortgage, avoid foreclosures and the damaging impact that has on neighborhoods and property values in that area."

"It would also, in the process of refinancing, help them with their financial situation and, as a result, give some stability to the household spending in the overall economy," Holtz-Eakin said.