What's in the McCain mortgage plan?
By Holden Lewis • Bankrate.com

Can't pay your mortgage? John McCain says he wants the government to buy your home loan and replace it with a mortgage you can afford, with a lower interest rate and maybe even a lower loan balance.

McCain, the Republican presidential candidate, floated the proposal in Tuesday night's debate in Nashville. As president, McCain said, "I would order the secretary of the Treasury to immediately buy up the bad home loan mortgages in America and renegotiate at the new value of those homes -- at the diminished value of those homes -- and let people be able to make those payments and stay in their homes."

On Wednesday morning, the McCain campaign provided more details of the "Homeownership Resurgence Plan." Then a crucial detail was changed Wednesday night.

Keys to McCain's proposal

• The government would buy the loans from the investors who own them. • Borrowers would get Federal Housing Administration-insured, fixed-rate mortgages. • The new loans would be for amounts equal to or less than the values of homes to, in the McCain campaign's words, "relieve homeowners of 'negative equity." This would require debt forgiveness for borrowers who owe more than their houses are worth. • The program would be for primary residences and for homeowners who made down payments and who didn't lie on their original loan applications.

The cost: roughly $300 billion, according to Doug Holtz-Eakin, McCain's economic adviser.

Among the controversial aspects of the plan is the role of taxpayers. Holtz-Eakin's description of the proposal differed in an important detail from the initial outline that was published Wednesday morning on the McCain campaign's Web site. At first, the Web site said lenders, in cases of debt forgiveness, "must recognize the loss that they've already suffered."

But in a telephone conference call Wednesday, Holtz-Eakin said taxpayers would be on the hook: "... (T)he taxpayers' contribution would be, in some cases, the difference between the values of those two loans, something which would be the necessity for taxpayer contribution." Then the Web site was changed to delete the wording about lenders being required to take the losses.

In summary, the McCain campaign initially said the government would buy distressed mortgages at a discount and make investors lose money. Later, the campaign amended the proposal and said the government would pay full price for distressed loans. Under that scenario, investors would not lose money on the bad loans that they had bought and taxpayers would suffer the loss.