October 10, 2008

Senator John McCain finally acknowledged during the second presidential debate that some American home owners might just be victims of something more than “biting off more than they could chew” in a home mortgage. Take the example of a typical Florida family and their quest for the American dream.

Nancy and Billy bought a new home in Central Florida two years ago for $349,000, paying $35,000 down (their life savings) and financing the balance with an adjustable rate mortgage. Today, the home appraises for a mere $229,000—a 30 percent market drop in two years. These Florida homeowners are upside down and there is no relief sight—sadly, they are typical. Now, Nancy has been laid off from her job and this couple is trying (unsuccessfully) to make ends meet. Like many of their neighbors they have quit paying their mortgage, have been served with foreclosure papers and are preparing to walk away from their home. The rows of “for sale” signs are sad evidence that there are no prospective buyers on the horizon, and even if there were, how does one sell a home in this situation?

On this count, the Democrats seem to “get it”—supporting legislation that would allow Nancy and Billy to seek relief from a bankruptcy judge to “cram down” the mortgage debt to the true value of the property and modify the payment schedule accordingly. In the Democratic scenario Nancy and Billy obtain relief from bankruptcy court reducing the debt on their home to $229,000 and resetting their amortization schedule to reasonable market interest for 30 years fixed rate. Democrats say this will stem the tide of foreclosures and keep Americans in their homes. “Cram down” is a ham-handed remedy that some have labeled “socialist.” But at least it’s a solution.

The concept that the Republicans are against mortgage restructuring for the “little guy” verges on the “let them eat cake” mentality. That Senator McCain has finally seen the tragedy in this scenario in announcing the use of the bailout dollars to adjust the principal balances of such mortgages is hopefully an idea that is better late than never.

And, the same Republicans who voted for the largest raid on the U.S. Treasury in history do not now have the credibility to object to McCain’s idea as a big government solution that will punish banks and lead to higher home loan interest rates and tighter lending guidelines—we’re way beyond principle at this point. Republicans should go public in support of McCain in pledging to hold their noses in doing something for the people who will be paying for the bailout—Nancy and Billy.

As President Bush said in his statement on the economy, “America’s economy is facing unprecedented challenges, and we are responding with unprecedented action.” McCain is right to start showing some unprecedented compassion for homeowners on Main Street before it’s too late.

McCain’s bold move may be too little too late—but it’s better late than never. Nancy and Billy will be watching.

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Johnnie Byrd is a lawyer and host of “Johnnie Byrd’s Weekend” heard on WGUL-AM 860 in Tampa Bay, Florida. Contact Johnnie at johnnie.byrd@hotmail.com.