Most of Clinton's plan centers on subprime loans. A subprime loan is a home loan at a higher-than-normal interest rate to a borrower who is perceived to be a higher credit risk. It is typically issued to homeowners with poor credit, and sometimes to investors who are taking on higher-than-normal debt loads.
Clinton's plan has several elements: She wants lenders to freeze foreclosures for 90 days on owner-occupied homes purchased with subprime mortgages. She wants lenders to freeze interest rates on subprime loans for owner-occupied homes for five years, or until homeowners can refinance. She wants to create a $30-billion fund for states to deal with the effects of foreclosures, everything from helping individual homeowners pay their bills to making up lost property tax revenues for police and firefighters.
Clinton believes lenders should voluntarily embrace the freezes she suggests as a means of preventing widespread defaults. She would not impose the freezes through the force of law.
Got all that? It's a detailed policy, and she has criticized Obama for having a less substantive position. Obama does not advocate the freezes Clinton suggests, but offers a similar fund for states and reforms for the lending process designed to increase transparency for home buyers.
The problem Clinton is running into on the campaign trail is that she regularly shorthands her terminology, giving the impression that her plan is broader than it is. Instead of saying she wants to freeze interest rates for subprime loans on owner-occupied homes, she has said only that she wants to freeze interest rates. Anyone with an adjustable rate mortgage might think her plan applies to them, when it doesn't.
For example, at a debate on Jan. 31, 2008, in California, Clinton said:
"I think it's imperative that we approach this mortgage crisis with the seriousness that it is presenting. There are 95,000 homes in foreclosure in California right now. I want a moratorium on foreclosures for 90 days so we can try to work out keeping people in their homes instead of having them lose their homes, and I want to freeze interest rates for five years."
Well, lots of homeowners have adjustable rate mortgages, and not all of them are subprime borrowers. Nowhere did Clinton mention that the freezes only apply to owner-occupied homes bought with subprime loans.
That vagueness has prompted criticism. Two economists wrote in the New Republic recently that they weren't clear what Clinton was proposing, and that some of her language suggested an interest rate freeze for every adjustable rate mortgage in the country. Such a widespread change to the mortgage industry would be foolhardy, argued economists Richard Thaler and Susan Woodward.
"Promising the American people that you can fix things by just lowering their interest rates is dishonest, a fairy tale that won't come true," they wrote.
Economist Laura Tyson, who served as Bill Clinton's national economic adviser, responded in defense of Clinton's plan, reiterating its details and saying that Thaler and Woodward distorted Clinton's proposal to make points.
"Her recommendations deserve serious discussion, not unsubstantiated attacks by scholars who should read her words more carefully than they apparently have," Tyson said.
Thaler and Woodward wrote again, saying that Clinton was the one who needed to be more careful in her public remarks. They also said that Clinton has offered a frustrating lack of specifics on how she would implement a largely voluntary plan.
We agree with Thaler and Woodward that Clinton has omitted details of her plan, most notably at the California debate. Yes, it is easier to say "freeze interest rates" than "freeze interest rates in owner-occupied homes purchased with subprime mortgages." But that doesn't mean the short version is accurate. We find her overly broad synopsis of her plan to be Half True.