Not Everyone Under Water is Drowning - Why John McCain's Erratic Homeowner Bailout is Unnecessary

McCain's debate performance was stylistically stronger than I anticipated, but it was more troubling than I ever dreamed. One of the things that scares people about McCain is his tendency toward erratic behavior (erraticism?). At the debate, during a time of international financial turmoil and domestic near-panic, McCain announced a crazed new plan to throw money at people who have demonstrated their lack of financial acumen - he wants to buy the mortgages of houses that are "under water". If you have a mortgage with a value higher than the market price of your home today, John McCain wants to buy your mortgage from your bank and give you a new one with a reduced value.

It's this sort of erratic over-reaction that concerns me about John McCain. That's not maverick, that's manic.

For those of us who view houses as homes, and not commodities, the relative value of our mortgage to our home's market price is not a burning issue. If you're not selling and you're not buying, it doesn't matter if you're underwater. If you're not in the market, the short-term market price isn't really all that big a deal.

I don't really know what the market value of my house is today. I don't have a precise number for how much we owe on it, either. Why should I care? The real number I focus on is how much I need to pay every month for my mortgage - and that does not fluctuate according to the market place. Even if I had an adjustable rate mortgage (which I don't, because I realized what the A in ARM stands for), I wouldn't be focused on the value of my house, I would be focused on the cost of my mortgage. If I have enough current income to service my mortgage, I don't need to focus on my long-term capital value.

Those of us who own one home, and live in that home, can swim underwater quite happily for a long time - at least until we need to sell. I don't need lifeguard John McCain to bail me out with your tax dollars.

For most of us, our home is our most significant capital investment. As with any capital investment, we hope it appreciates, but cyclical changes in value are only unrealized gains and losses, unless we choose to sell.

While there may be some economic rationality in walking away from a mortgage that is going toward the purchase of a home with a mortgage value greater than its market value, the truth of the matter is that most of us are not going to do that if we still have current income to service our mortgage. That's just not how real families work.

For real families, a house is not an investment to walk away from while you have enough income to pay the mortgage. Our children sleep in the bedrooms. We cook in the kitchens, and relax in the living rooms. The sense of "home" and stability is more important than what an appraiser says my building is worth. Even if it weren't, the hassle of moving and potential destruction of my credit rating would keep me from walking out.

But John McCain wants to use tax dollars to bail me out, even if I don't realize that my market value may be less than my mortgage value.

Like so many issues in America, this is a hidden class battle. John McCain owns multiple houses, so he doesn't share the same concept of "home" that the rest of us do. He has a portfolio of houses - somewhere between 8 and 13 diversified units that he holds largely as tax-favored investments. For him, it does not make even a tiny bit of sense to pay a million dollar note on a house that is worth $990,000. To him, that's the same as paying yesterday's value on a stock that has dropped one percent - it is an economical irrationality, and a crisis that must be solved with taxpayer money.

For most normal Americans, the housing crisis will not be a crisis unless we start losing our jobs. John McCain's proposal to inject massive amounts of tax dollars into the mortgage industry is not designed to save jobs - it's designed to save capital. Real estate does not employ people.

The average American family does not even have an accurate, up-to-date valuation of its home. The crisis does not exist in the possible gap between mortgage value and market value - the gap that John McCain wants to spend hundreds of billions of dollars to address. The crisis exists only in the possible gap between mortgage cost and current income. John McCain's plan ignores that gap.

That's the gap keeping America awake at night worrying, John McCain. "That one."