McCain pushes mortgage bailout plan

By William Douglas, Margaret Talev and Kevin G. Hall - McClatchy Newspapers

BETHLEHEM, Pa. — Seeking to regain ground he's lost in the polls during the economic crisis, Republican John McCain returned to the campaign trail Wednesday trumpeting a mortgage bailout plan he unveiled in Tuesday night's presidential debate.

"We must go to the heart of the problem, and right now that problem is the housing crisis," McCain told a rally in a packed basketball arena at Lehigh University. "The dream of owning a home should not be crushed under the weight of a bad mortgage. The moment requires that the government act — and as president I intend to act quickly, and decisively."

McCain called for the federal government to become directly involved in the housing crisis by using the $700 billion bailout package recently passed by Congress and $300 billion from a new Federal Housing Administration fund that lawmakers approved in July. He would direct the Treasury secretary to use those funds to buy troubled mortgage loans to help families stave off foreclosure.

Under the plan, homeowners would be allowed to stay in their houses and get more affordable government-backed mortgages.

Obama's campaign characterized McCain's plan Wednesday as "bad policy at its worst," sticking to its recent tactic of trying to paint McCain as erratic and dangerous.

"John McCain wants the government to massively overpay for mortgages in a plan that would guarantee taxpayers lose money, and put them at risk of losing even more if home values don't recover," Jason Furman, Obama's economic policy director, wrote in an e-mail to reporters.

Many economists object that McCain's plan has no requirement that banks must take a loss during the refinancing of distressed mortgages. A plan passed earlier by Congress would allow these mortgages to be reworked and put into a government-backed mortgage only if the bank agrees to reduce the present-day value of the home. In many parts of the country, home values are well below the value of the existing mortgage.

Alan Blinder, a former vice chairman of the Federal Reserve, said taking in mortgages at face value "seems wildly generous to the banks."