"Homeownership Resurgence"

This is an interesting concept put forward by McCain last night. In short, it diverts some ($300bn) of the 'bailout' money just approved by Congress and makes it available for whole loan purchases. The loans to be purchased would be mortgages to homeowners at high risk of losing their homes. The government, as owner of the mortgages, would then renegotiate the loan so the mortgagor could retain ownership. First it should be said that this idea is not new. In some form, it was mentioned by Barney Frank, as well as a Columbia professor or two. Nonetheless, McCain is the first candidate to make it a part of potential policy for his administration.

I have a few questions about the mechanics of this program. Treasury is obviously set up to purchase loans. But who will negotiate with the borrowers? Who will set credit policy for the program? Who determines the appropriate recipients of this type of aid? And who will service the loans once they have been restructured? Does Treasury sell them back to the private sector once they have been restructured?

My guess is that ultimately, this proposed aid will take the form of a government-funded program administered by the banks currently servicing the mortgages in question. Otherwise Treasury - or whichever agency ends up with the mandate to administer this 'Resurgence" program - would have to undertake the massive effort of recreating the systems and staffing of a mortgage bank.