WASHINGTON — Sen. John McCain, R-Ariz., on Tuesday called for mortgage lenders to help struggling homeowners stay in their homes, but said government's role should be temporary and limited.
McCain, the presumptive Republican presidential nominee, also called for increased transparency and accountability in the mortgage industry, among both lenders and borrowers.
"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 said in a speech in Santa Ana, Calif. "Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy."
McCain said that the Federal Reserve's bailout of Bear Stearns met his criteria. But he offered no specific federal proposals to aid homeowners facing foreclosure. He promised to evaluate proposals "based on their costs and benefits," but he didn't address any of the solutions percolating on Capitol Hill.
McCain advisers told reporters that the candidate frowns on legislation being prepared by Democrats that would have the government provide up to $400 billion in guarantees for mortgages that lenders agree to modify. One proposal would have the government then auction off the mortgages to new investors.
In soft-pedaling direct federal assistance to homeowners, McCain drew a sharp contrast with both his Democratic rivals. Sen. Hillary Clinton, D-N.Y., on Monday proposed a $30 billion federal fund to help local communities aid pressed homeowners. Sen. Barack Obama, D-Ill., proposed a similar $10 billion fund. In that sense, McCain's speech was as much a statement of political principle as it was a substantive response to the housing crisis.
After the speech, McCain adviser Doug Holtz-Eakin rejected the type of foreclosure moratorium that Clinton has pushed, saying it doesn't "address why someone is in foreclosure."
"As harsh as it may sound, that may be an appropriate outcome in some cases," Holtz-Eakin said.
Not surprisingly, Democrats panned McCain's approach.
"He sounds remarkably like Herbert Hoover," Clinton told reporters in Greensburg, Pa. "I don't think that's good economic policy. The government has a number of tools at its disposal."
Obama spokesman Bill Burton characterized McCain's response to the crisis as "just sit back and watch it happen."
McCain did call for steps to ensure that future borrowers know exactly what they're getting into and to require borrowers to "provide a responsible down payment" when they buy. He said the down-payment requirement for Federal Housing Administration home loans should be increased. It's currently as low as 3 percent.
Noting that the crisis came about in part because "lenders ended up violating a basic rule of banking: Don't lend people money who can't pay it back," McCain suggested that those same lenders need to play a leading role in ending it.
He cited as an example General Motors, which offered zero percent financing after the Sept. 11 terrorist attacks to help the economy. McCain didn't suggest that lenders should suspend interest payments on mortgages, but said "we need a similar response by the mortgage lenders."
"They've been asking the government to help them out," McCain said. "I'm now calling on them to help their customers, and their nation, out."
Carly Fiorina, a McCain adviser, conceded that "there are clearly some mortgage lenders that are not in a position to do this" because many are in financial straits because of bad loans.
"It could be that this spawns a wave of consolidation in the mortgage lending industry that is appropriate," Fiorina said. "Consolidation is not a bad thing. It's a healthy market response."
(Kevin G. Hall and David Lightman contributed.)