On The Issues: Obama and McCain on Housing

On The Issues: Obama and McCain on Housing

Last week, Federal Reserve Chairman Ben Bernanke uttered the words everyone else has been saying for months: “A recession is possible.” During his testimony before the Joint Economic Committee and the U.S. Senate Committee on Banking, Housing, and Urban Affairs, he cited problems with housing and mortgages as key factors in the economic slowdown. Bernanke urged Congress to pass measures to bolster the housing market and to help people avoid losing their homes.

Presidential hopeful Sen. Hillary Clinton has already made public her four-point plan for remedying the housing situation, including a $30 billion housing stimulus package that would supply money directly from Washington to cities and states around the U.S. State and local governments could in turn use funds for counseling and refinancing to help homeowners avoid foreclosure. Presidential hopefuls Sens. Barack Obama and John McCain have also released their own plans to put a floor under the plummeting housing market.

Obama’s plan has three main parts:

  1. Better regulation. He has called for the Federal Reserve to take charge, rather than have some regulators watch banks and other regulators eye investment banks. More disclosure from financial firms would be required, while a financial market oversight commission would be formed to identify problems before they become so severe they drag down the economy.
  2. Help for homeowners. Obama’s plan includes support for Sen. Christopher Dodd (D-Conn.) to create a program in which lenders buy or refinance existing mortgages. Those mortgages would be converted into 30-year, fixed-rate loans with a federal guarantee. The Illinois senator would also ask lenders to compose mortgages to reflect current housing values. In addition, he has supported a tax break for homeowners who don’t itemize deductions. (Currently, you have to itemize deductions on Schedule A of your tax return to get tax savings for paying mortgage interest.)
  3. Federal funds. Much like that of his Democratic rival, the third part of Obama’s plan calls for a $30 billion stimulus package. What differs is that of those funds, $10 billion would go into a “foreclosure prevention fund” which would apply to homeowners occupying a principal residence, not to investors or to owners of vacation homes. Another $10 billion would go to state and local governments to help forestall cuts in vital services. The rest of the money would be used for extending and expanding unemployment benefits.

McCain has said that it is “not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.” He has proposed limited, temporary measures to help housing. The McCain plan includes:

  1. Mortgage transparency. McCain would require mortgages to be written so they are more easily understood by borrowers. In return, borrowers would be penalized for submitting false information on loan applications.
  2. Lender accountability. Responsibility for the quality and performance of loans would be in the hands of lenders, and strict lending standards would be applied to the lending process.
  3. Down-payment realism. For loans to be insured by the Federal Housing Administration, larger down payments would be required.
  4. Stronger safety nets. In McCain’s