McCain outlines plan for economy
Presumptive Republican nominee for president would allow some troubled homeowners to get more affordable loans.
NEW YORK (CNNMoney.com) -- Sen. John McCain, offering his most detailed ideas to date on the economic downturn, advocated Thursday that the government should play a bigger role in easing the mortgage crisis.
The presumptive Republican presidential nominee addressed small business owners in Brooklyn, N.Y., and touched on jobs, gas prices and the need to make loans more affordable for homeowners.
McCain introduced what he is calling his "HOME Plan," which blends elements of government-backed mortgage rescue proposals by the Bush administration, the Office of Thrift Supervision, House Financial Services Chairman Barney Frank, D-Mass., and Senate Banking Chairman Christopher Dodd, D-Conn. (Here's a look at each of those proposals.)
Until now, McCain has not pushed for more government intervention, saying he wanted lenders to do for borrowers what they are asking the government to do for them - offer help.
But on Thursday, McCain portrayed his plan as one that uses government support to help worthy borrowers who are struggling and not bail out lenders and borrowers who got "caught up in the speculative frenzy" and who should not be spared "the consequences of their own bad judgment."
"It offers every deserving American family or homeowner the opportunity to trade a burdensome mortgage for a manageable loan that reflects the market value of their home," McCain said. "People decide if they need help, they apply for assistance and, if approved, the government under my HOME Program supports them in getting a new mortgage that they can afford."
To qualify for McCain's HOME Plan, a borrower's home would have to be a primary residence. In addition, the government would verify that the owner told the truth about his financial situation when he applied for the original mortgage and was able to make a down payment when getting his original loan, according to a campaign adviser.
Lenders would voluntarily write down the loans based on the home's current market value and give the borrower at least a 10% equity stake. If the borrower later sells the home at a price higher than the refinanced loan, the lender and the federal government each would receive a portion of the sales price. They would be entitled to as much as one third of the loan's reduction in principal.
So under McCain's plan, if a borrower owes $150,000 on a home worth only $100,000, the lender would have to reduce the loan to $90,000. The $60,000 difference in principal would be split three ways: The lender and federal government would get as much as $20,000 each, depending on how much the home sells for when the borrower moves, and the owner would get the rest.
The new mortgage would be a 30-year fixed rate loan, and the government would back 80% of the new loan.
McCain said he opposes funds to purchase homes in foreclosure and tax breaks for homebuilders - both features of a Senate proposal passed Thursday.
McCain also called for the creation of a Department of Justice task force to investigate mortgage crimes involving lending and securitizing home loans.
"If there were individuals or firms that defrauded innocent homeowners or forged loan application documents, then the punishments of the market are not enough, and they must answer for their conduct in a court of law," he said.
Obama and Clinton take different approach
Both of McCain's Democratic rivals - Barack Obama and Hillary Clinton - came out in support of the Frank-Dodd mortgage proposals two weeks ago. Those plans would allow troubled borrowers who owe more on their homes than they're worth to refinance to a loan insured by the Federal Housing Administration (FHA) - provided the lender agrees to write the mortgage principal down to between 85% and 90% of the home's appraised value.
The Democratic plans differ from McCain's in a few ways. McCain's plan has more stringent requirements for borrowers and would insure the lender got some equity if the price of the home has appreciated when it's sold.
McCain aides estimated his plan could help between 200,000 and 400,000 borrowers. Frank has said his plan could help 1.5 million. The White House has projected that its plan - less far-reaching than Frank's - could help 100,000 in 2008.
Before Thursday, Obama and Clinton had been characterizing McCain's more general statements about housing as a "do-nothing" approach, a characterization Obama was sticking to in his own speech on Thursday.
"I'm glad he's finally decided to offer a plan," Obama said at a campaign stop in Gary, Ind. "Better late than never. But ... Senator McCain's solution to the housing crisis seems a lot like the George Bush solution of sitting by and hoping it passes ... . "
Obama's Democratic rival also criticized McCain.
"So now he's changed positions and is finally responding to a housing crisis that has been going on for months, but unfortunately his actions are only half-measures," Clinton said in a statement.
Clinton distinguishes herself from both rivals as an advocate for the federal government to provide $30 billion to finance an Emergency Housing Fund to help local governments purchase and resell or rent foreclosed, vacant properties. She also has called for a 90-day moratorium on foreclosures to allow borrowers time to work out modifications
Obama, like McCain, weighs in on combating mortgage fraud, but Obama wants to establish a $10 billion foreclosure prevention fund to help victims of mortgage fraud sell their homes or modify their loans so they can avoid foreclosure and bankruptcy.
Focus on jobs, gas prices
In his Brooklyn speech, McCain also proposed a revamp of unemployment benefits. Rather than have a fixed amount of time during which workers can collect unemployment benefits - currently up to 26 weeks - McCain recommended that the taxes workers pay into the unemployment insurance system be set aside in their own account "a buffer ... against lost earnings."
To help keep the price of gas down, he pledged to stop adding to the country's Strategic Petroleum Reserve - which the Bush administration has been adding to in order to prevent a disruption in the oil supply. By suspending the stockpiling of oil, McCain believes it would lessen worldwide demand for oil and push down the price.
- The Associated Press contributed to this report 
