experienced

The Debate: McCain's Insane Mortgage Proposal

There is a way to stabilize housing prices: The government should buy defaulted mortgages from lenders at 50% of face value. Then the government should turn around and offer a 30-year 6% mortgage to replace the defaulted mortgage, also at the 50% level. This would, in most cases, leave homeowners with enough equity and lower monthly payments (roughly half of what they were paying) to prevent foreclosure sales. In order to prevent speculation from an early sale of a house with the new mortgage, the government would receive 80% of the equity from any sale during the first year of the new mortgage, 60% during the second year, and so on down to 5 years, after which the homeowner could recover the full equity.

Unless this, or something similar is done quickly, there will simply be more foreclosures, a glut of unsold homes, and reverberations throughout the credit markets. Equally bad, the precipitous drop in housing prices will lead to lower property tax assessments, leading in turn to lower local property tax revenues. As far as I can tell, the McCain plan does not really get at these problems.