HUD chief calls McCain’s mortgage plan a ‘grave concern’

In a town hall meeting in Seattle Monday evening, Department of Housing and Urban Development secretary Steve Preston said John McCain’s mortgage proposal is an issue of “grave concern.” McCain’s plan for the housing decline includes the government buying up troubled mortgages and paying the banks the difference between the principal balance and the home’s new lowered value as a result of the housing crash.

“I have a very grave concern about that,” Preston said, according to the Seattle Post-Intelligencer.

Preston said that the plan would put the onus on the taxpayers when it was the financial institutions that took the risk. Preston told the group that the housing crisis is the fault of predatory lenders, irresponsible buyers, and careless Wall Street investors.

Some consumer groups and Senate Democrats favor what are called “cram-downs,” where a judge has the power to reduce the loan value on the primary residence for homeowners filing for bankruptcy. Yet McCain isn’t talking about cram-downs with his buying up of failing mortgages; he’s talking about the taxpayers paying the banks for the full value of the loans, and Preston says such rules would hurt taxpayers, financial markets, and the nation’s court system.

Preston was confirmed as HUD secretary in July by unanimous vote, after serving for two years as administrator of the Small Business Association. He replaced Bush-appointee Alphonso Jackson who resigned amid controversy that included allegations of awarding questionable contracts.

Other critics of McCain’s housing plan agree with Preston’s assessment of McCain’s weak safety net. Instead of having the mortgage lenders– those responsible for creating the specious loans in the first place–renegotiate loan terms, McCain’s plan would have the government, or the taxpayers, buy up the troubled loans at face value and put more money directly into the pockets of those who caused the crisis. Brad DeLong, a blogger and professor of economics at the University of California, Berkeley, also shares Preston’s concern. He notes:

The McCain plan is:

• Take $300 billion.
• Pay double current market value to banks that have troubled mortgages on their books, thus:
  • Give a present of $100 billion to the bankers who made the loans.
  • Acquire and regularize the mortgages of only two-thirds as many homeowners as could have been accomplished if the $300 billion were invested wisely.

There’s a big difference here: Democrats want to prevent depression and support the financial markets by investing taxpayer money in banks with troubled assets. Republicans want to give taxpayers money away to the shareholders and managers of banks with troubled assets.

I would say that this is unbelievable, but I do believe it.