Mortgage rescue: Where McCain and Obama stand |
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McCain compared his proposal to the federal government's Home Owners Loan Corp., which was founded in summer 1933, at the dawn of Franklin Roosevelt's administration. In those days, most mortgages were interest-only balloon loans that came due after three to five years. Borrowers expected to refinance their loans before they expired. Similarly, during the housing boom at the beginning of this century, most subprime and Alt-A borrowers expected to refinance before their loans became unaffordable.
In both eras, borrowers and lenders were caught by surprise when home values plummeted, and in both eras, homeowners were unable to refinance out of trouble.
Congress addressed the problem in 1933 by forming the HOLC. According to the book, "History and Policies of the Home Owners' Loan Corporation," by Lowell C. Harriss, the federal government eventually bought one-fifth of the nation's mortgages. About half of the HOLC's borrowers ended up in foreclosure. Still, the program is considered a success. The HOLC came to an end in 1951, at a slight profit to the government.
Obama says he favors a structure like the new Hope for Homeowners program, in which lenders take the loss. Hope for Homeowners is for delinquent borrowers who owe more than their houses are worth. Under the program, these homeowners get government-insured loans for 90 percent of the home's diminished value. The original lender loses the difference between the amount of the original loan and the amount of the new loan. The program is optional, and presumably lenders will reject deals in which foreclosure would be less of a money-loser.
Other areas of disagreement
McCain and Obama have some differences on housing-related taxes.
Obama wants to reduce income taxes on homeowners who have mortgages but don't qualify for itemized deductions. The universal mortgage credit would be a 10 percent credit, up to $800, on mortgage interest for filers who don't itemize deductions.
The candidates have slightly different approaches to taxes on capital gains from home sales. Right now, if you sell your primary residence, you can make a profit of up to $250,000 if you're single, or up to $500,000 if married, and not owe capital gains taxes. A capital gain of more than that triggers capital gains taxes in some cases.
If the residence has been owned long enough, the capital gains tax on a house can be zero percent for lower-income taxpayers, or 15 percent for higher-income taxpayers. McCain wouldn't change that. Obama would keep the capital gains tax rate at zero percent for low-income families and raise it to 20 percent for those with incomes over $250,000. Some filers in the middle might still pay 15 percent.
A scurrilous e-mail has been circulating for months that purports to illustrate Obama's tax plan. It even fooled a finance professor who was contacted for this article. Among other things, the e-mail says Obama plans to levy a capital gains tax on all home sales, and a tax on all homes over 2,400 square feet. The e-mail is not true.
Fundraising
When it comes to contributions from housing- and mortgage-related corporations, the two candidates are fairly even. According to the Center for Responsive Politics, McCain has raised $4.6 million from the construction industry and $25 million from the finance, insurance and real estate industries.
Obama has raised $3.3 million from the construction industry and $27.4 million from the finance, insurance and real estate industries.
The most infamous executive behind the mortgage meltdown, former Countrywide CEO Angelo Mozilo, contributed to two presidential contenders: Democrat Bill Richardson and Republican Rudolph Giuliani. He gave to neither McCain nor Obama.
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