About McCain's plan

I have this theory about his shotgun proposal from last night's debate to spend $300 billion on underwater mortgages. My theory is that he didn't really understand what he was saying. All morning long I've been struggling to figure out how McCain's rescue plan for indebted borrowers would differ from the rescue package that Congress just passed. I'm still struggling. Here's how NRO's Stephen Spruiell explains it:

Let's say you have a $200,000 adjustable-rate mortgage. Your home's value has declined, your interest rate has gone up and you can no longer afford to make the payments. Under current law, the government will guarantee your mortgage if your lender agrees to work out a deal with you. Under McCain's plan, the Treasury Secretary would buy your mortgage from whoever owns it and then deal with you directly. In many cases, the Treasury Department would already own your mortgage, because it is about to buy up $700 billion worth of mortgage-backed securities. But under McCain's plan, Treasury would also become your loan servicer. To say this would pose enormous logistical challenges would be an understatement.

Well, it just wouldn't happen. As Spruiell explains, Treasury would have to outsource those loan servicing duties - perhaps to the same companies that are now in charge of processing mortgage payments. And loan servicers often have their own financial agendas in determining which loans get modified and which don't. This is one of the many mysteries about the bailout legislation – and it appears to be well above McCain's skill set. As for the idea itself, the NYT's Jackie Calmes says it originated with Hillary, who got it from a Depression-era New Deal agency, the Home Owner’s Loan Corporation. Hat tip to Clusterstock.