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Comparing PlansMcCain and Obama both support major legislation, currently working its way through Congress, that would let struggling homeowners refinance their mortgages into more affordable and traditional loans. Homeowners would get 30-year, fixed-rate mortgages backed by the government. To qualify for a loan, the applicant would need to be an owner-occupant who could pay a reasonable interest rate. The lender first would have to agree to lower the amount owed to 90 percent of the home's current value.
The candidates differ, so far, in whether homeowners should be allowed to keep their homes if they declare bankruptcy.
McCain: His top economic adviser says McCain has not taken a position yet on amending the bankruptcy laws to help homeowners.
Obama: His top economic adviser says the candidate would like to change the bankruptcy code to allow judges to order lenders to lower interest rates or modify loans for borrowers. On Tuesday, Obama proposed changing the bankruptcy laws to help military families and seniors keep their homes even if they face financial trouble.
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Illinois Sen. Barack Obama speaks about home foreclosures at the College of Southern Nevada on May 27, 2008. Nevada's home foreclosure rate in April was almost four times the national rate.
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Arizona Sen. John McCain speaks during the 2008 National Small Business Summit on June 10, 2008 in Washington D.C.
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McCain: He is advised by a team of business people and academics. Its members include: Douglas Holtz-Eakin, an unpaid adviser and the former head of the Congressional Budget Office; Carly Fiorina, the former CEO of Hewlett-Packard Co.; Phil Gramm, a former Texas senator and economics professor at Texas A&M University; and Meg Whitman, the campaign finance co-chair and former CEO of eBay.
Obama: He consults with chief economic adviser Austan Goolsbee, a University of Chicago economist, and economic policy director Jason Furman, who worked for Democratic Sen. John Kerry of Massachusetts on his 2004 presidential bid. Furman is on leave from The Brookings Institution, a think tank in Washington, D.C.
The foreclosure crisis creates a pickle for the presidential candidates, in part because there are some homeowners who deserve help and others who, arguably, do not.
There are working-class families who have been in their homes for 10 years, who got lied to and cheated by crooked mortgage brokers. But there are also speculators, or people with very low incomes, who bought $500,000 homes; no one wants to bail them out. Roughly 1.5 million people are expected to lose their homes due to foreclosure this year.
Although John McCain and Barack Obama originally disagreed on how to handle this crisis, now they both publicly say that homeowners need relief. They support major legislation, being considered by Congress, that would help homeowners.
An Evolving Stance
McCain first waded into the foreclosure issue in March, when he spoke to a small business group. "Lenders ended up violating the basic, fundamental rule of banking: Don't lend people money that can't pay it back. Some Americans bought homes that they couldn't afford," the Arizona Republican said. "I have always been committed to the principle that it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers."
McCain's speech was an easy target for Democrats, who roundly criticized his remarks as out of touch with the struggles of everyday people.
His Democratic rival, Obama, said McCain's views amounted to "little more than watching this crisis happen."
Two days later, Obama gave a speech in which he characterized McCain's campaign as a run for President George W. Bush's third term. "It won't help families who are suffering, and it won't help lift our economy out of recession," the Illinois senator said about McCain's candidacy.
McCain's camp fired back that Democrats were mischaracterizing his remarks and playing politics. But soon, McCain changed his stance on the housing mess.
This shift came after Obama endorsed a housing assistance package from two Democrats: Rep. Barney Frank of Massachusetts and Sen. Chris Dodd of Connecticut.
Support New Legislation
The idea behind the package is to let struggling homeowners refinance their mortgages into more affordable and traditional loans. They would get 30-year, fixed-rate mortgages backed by the government. To qualify, the borrower would need to be an owner-occupant who could pay a reasonable interest rate. The lender first would have to agree to lower the amount owed to 90 percent of the home's current value.
Obama has said that the Dodd-Frank package is not a bailout for lenders or investors who "gambled recklessly."
The homeowners "will take their losses. It's not a windfall for borrowers. They will have to share any capital gain," Obama said of the legislation. "Instead, it offers a responsible and fair way to help bring an end to the foreclosure crisis."
At the time Obama gave this speech, McCain had not endorsed the legislation. Soon after, McCain also came on board to back it –- although he says he would prefer some changes.
McCain then gave a speech on the economy in which he sounded more sympathetic to homeowners facing foreclosure. "To help our workers and the economy, we must also act in the here and now, and we must start," he said. We must start with the subprime mortgage crisis, with the hundreds of thousands of citizens who played by the rules but who now fear losing their houses."
Comparing the Candidates on Foreclosure
The two candidates seem to be coming closer together on the issue. Economist Mark Zandi, a McCain adviser, says that the "headline here is that they're more similar than not."
Obama economic adviser Austin Goolsby bristles at that idea. Goolsby says Obama has pledged to go further to intervene in the housing crisis. For one thing, Obama has backed a proposal to change the bankruptcy code, which would enable judges to order lenders to lower interest rates or modify loans for borrowers in some cases.
"It's time to amend our bankruptcy laws so families aren't forced to stick to the terms of a loan that was predatory or unfair," he says.
McCain has not taken a position on that proposal. McCain economic adviser Douglas Holtz-Eakin says that's because the candidate has some concerns about possible unintended consequences and he just does not think the proposal can make it through Congress.
"It might sound good," Hotlz-Eakin says. "It might be nice to talk about it, but it won't actually happen."
McCain says he is open to any and all ideas. "I will not play election-year politics with the housing crisis," he has said. "I will evaluate everything in terms of whether it will be helpful or harmful to deal with the crisis we face now."
Still, some economists say it has taken a long time for the government to pass any legislation that would help homeowners on a large scale. Some think the wave of foreclosures is cresting this year, and by the time the next president takes office, it may be too little and too late to help hundreds of thousands of people who might otherwise have been able to stay in their homes.