by Frank James (updated with McCain campaign response to the interpretation that their candidate was calling for zero-percent mortgage-interest rates.)
It seems a safe bet that Sen. John McCain isn’t getting his advice on how to resolve the mortgage crisis from the mortgage industry.
Today, in his speech in Orange County, Calif., the winner of the Republican primaries proposed that the mortgage industry help reboot the housing market by offering zero percent mortgages. That’s not a typo.
Here’s the relevant passage from his speech:
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We should also convene a meeting of the nation’s top mortgage lenders. Working together, they should pledge to provide maximum support and help to their cash-strapped, but credit worthy customers. They should pledge to do everything possible to keep families in their homes and businesses growing. Recall that immediately after September 11, 2001 General Motors stepped in to provide 0 percent financing as part of keeping the economy growing. We need a similar response by the mortgage lenders. They’ve been asking the government to help them out. I’m now calling upon them to help their customers, and their nation out. It’s time to help American families.
McCain might also want to propose that we repeal the phenomenon called inflation since that’s about as likely as mortgage bankers offering zero percent interest rates.
We assume he wasn’t talking about zero percent teaser rates because isn’t that partly how we got into this subprime mortgage and generalized credit-crunch crisis? Maybe McCain was influenced during his recent trip to the Middle East by Islamic banking which under Sharia law prohibits the charging of interest.
Anyway, the notion of a zero percent mortgage-interest rate is obviously an idea with great populist appeal to just everyone. That is, everyone except lenders and their investors.
(Update: Brian Rogers, a McCain campaign spokesman disputed any interpretation that McCain was asking the mortgage industry for zero percent interest rates.
Per Rogers:
Senator McCain was clearly using the example of GM after 9/11 as an illustration of an industry stepping forward. Industry should approach this issue with a sense of responsibility, and we all understand that often the best solutions don’t always come from government. So he’s calling on business to step up and display ingenuity as we move forward.
If he had been suggesting zero-percent mortgages don’t you think he’d just say that?
So even though it appeared to a reporter, who listened and read the speech that McCain was calling for just that, the senator’s campaign says that isn’t so.) That portion of McCain’s speech calling for lenders to give borrowers a break somewhat contradicted the tough love message contained in much of the rest of the speech.
There was this passage, for instance, where McCain said he didn’t want to reward those who took financial gambles and lost:
I have always been committed to the principle 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. Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy.
In our effort to help deserving homeowners, no assistance should be given to speculators. Any assistance for borrowers should be focused solely on homeowners, not people who bought houses for speculative purposes, to rent or as second homes. Any assistance must be temporary and must not reward people who were irresponsible at the expense of those who weren’t.
Upon hearing a reporter at her press conference today read her McCain’s bit about the government not bailing out big banks or small borrowers who acted irresponsibly, Sen. Hillary Clinton said. “It sounds remarkably like Herbert Hoover…”
Then there was this passage where McCain called for prospective homeowners to be required, once the current housing crisis passes, to make larger down payments.
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Policies should move toward ensuring that homeowners provide a responsible down payment of equity at the initial purchase of a home. I therefore oppose reducing the down payment requirement for FHA mortgages and believe that, as conditions allow, the down payment requirement should be raised. So many homeowners have found themselves owing more than their home is worth, because many never had much equity in the house to begin with.
In any event, it will be worth watching to see if McCain sticks with his zero interest idea or if it eventually goes down the memory hole, not to be heard from again.