Countdown to the Vote: Housing

The vast extent of the housing meltdown, which has seen some home values drop by double-digit percentages and foreclosure filings occur at a record pace, seemed to catch both John McCain (R., Ariz.) and Barack Obama (D., Ill.) off guard.

In fact, the economists and housing analysts we spoke with believe that both candidates' housing policies are far from adequate and lack many crucial details. The biggest concern: When the new president takes office, decisions regarding the housing market and helping distressed homeowners will need to happen fast and — by all appearances — neither McCain nor Obama is prepared to do that yet, says Peter Tatian, a senior research associate at the Urban Institute, a nonprofit, nonpartisan public policy research organization in Washington, D.C.

After all, foreclosure filings are up 71% from the third quarter in 2007, according to RealtyTrac.com, an online marketplace for foreclosure properties. And one in every 475 U.S. housing units received a foreclosure filing in September 2008.

In theory, the bailout package was supposed to be the first step toward fixing the mess, by getting banks to lend again and by keeping the housing market from freezing up entirely. However, Tatian believes the next president will need to provide even more options that enable struggling homeowners to keep their homes and establish protections against the mistakes that got us into this ugly situation in the first place. "They need comprehensive plans to deal with a wide range of complex housing issues," he says.

To get a sense of what each candidate proposes as a fix to the housing mess, we outline their policies and what our experts think of them:

John McCain

During the second presidential debate, which took place in Nashville, Tenn., on Oct. 7, McCain announced a huge addition to his "HOME plan." He declared that as president he'll have the government buy up bad home mortgages at their original market value and renegotiate them based on their current market value. The risk here, however, is that most of the financial burden will be paid for by taxpayers, says Dean Baker, co-director at the nonpartisan Center for Economic and Policy Research in Washington, D.C. "If they open up the door to everyone, [the government] will probably have $3 to $4 trillion in bad loans," he says. (The McCain camp says it will cost $300 billion.)

To be eligible for help under McCain's HOME plan, applicants must have taken out a subprime mortgage after 2005 and still live in the home as their primary residence. They also need to prove that they were creditworthy at the time they took out the loan and must currently be either delinquent on payments, facing a mortgage rate reset or otherwise unable to meet their mortgage payments. But perhaps the biggest hurdle applicants will face is that they'll need to meet the terms of a new, 30-year fixed-rate mortgage on their home as well.

The biggest difference between the HOME Plan and the Hope for Homeowners Act of 2008 , which was passed as part of a larger housing legislation in July and went into effect Oct. 1, is that, under the Hope for Homeowners Act it's up to lenders to decide whether they will take a loss by refinancing a troubled mortgage, says Sharon Price, director of policy at the National Housing Conference, a Washington, D.C.-based nonpartisan nonprofit that advocates affordable housing.

McCain's camp projects that, should the HOME plan be put in place, it could keep 200,000 to 400,000 families from losing their homes. As of the end of September, just over 906,000 properties were in default or scheduled for a public foreclosure action, according to RealtyTrac.com.

Barack Obama

In his housing proposal, Obama makes a big push for stricter regulation of the mortgage-lending industry by creating new criminal penalties for lenders and brokers who are found guilty of fraud. Those new regulations, however, says Baker, will only help future homeowners and only the most extreme offenders will actually be found guilty.

Obama says he also wants to empower bankruptcy court judges to modify mortgage payment terms so struggling homeowners can stay in their homes. This reform, says Baker, could help 200,000 to 300,000 homeowners hold onto their homes. But it's also a controversial plan, says Price. It could incite a large number of people to file for bankruptcy if it's seen as an option to modify payments and hold onto a home they would otherwise lose, she says.

In October, the Department of Treasury established the Troubled Assets Relief Program (TARP), which among other things, allows companies to sell bad assets (including mortgages) to the government. In return, those businesses lose certain tax benefits and in some cases must limit executive pay. Obama says he wants financial institutions that participate in TARP to put a 90-day freeze on foreclosures in order to give the government enough time to work out a deal for truggling homeowners to keep their homes. Not all homeowners will be able to participate though, and some companies may be discouraged from participating because of the program's many restrictions, says Tatian.

Obama also plans to offer a 10% universal mortgage credit to homeowners who don't itemize tax relief. According to the Obama campaign, the credit will provide an average of $500 to 10 million homeowners, the majority of whom earn less than $50,000 per year. "That will be of little help to most homeowners," says Bernard Wasow, a senior fellow at the Century Foundation, a New York-based liberal think tank.

Overall, Obama's plan to rebuild the housing market may be more extensive than McCain's proposals, but his plan consists primarily of future protections for homeowners and does little to help those currently struggling to keep their homes, says National Housing Conference's Price.