WASHINGTON — Presidential hopeful John McCain made his first personal foray Tuesday into the debate over how to stem fallout from the housing crisis, but did little to clear up uncertainty about what remedies he would support if he wins in November.
The Arizona senator and presumptive GOP nominee laid out a series of principles he would back, including lender accountability for faulty loans and more disclosure in mortgage applications. He also opposed lowering down-payment requirements for government-backed mortgages and called for national summits on both mortgage lending and mark-to-market accounting.
But Sen. McCain, whose silence to date on the turmoil has contrasted with the many consumer protections proposed by his Democratic counterparts, continued to stay clear of specific proposals, while trying to show he understood the magnitude of the problem.
“What started as a problem in subprime loans has now convulsed the entire financial system,” he said at a roundtable for Hispanic small businesses in Southern California. “I will consider any and all proposals based on their cost and benefits. In this crisis, as in all I may face in the future, I will not allow dogma to override common sense.”
The lawmaker ruled out, however, any kind of bail out that would reward the banking system. “Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy,” he said.
Observers said Sen. McCain had to walk a tightrope between expressing concern about the challenging environment — contrasting himself with President Bush’s more optimistic view of the economy — and avoiding support for tighter regulation that would alienate conservative voters.
The speech “sets him apart from the rest of the Republicans and the White House,” said Alenka Grealish, the manager of the banking group at Marsh & McLennan Cos.’ Celent LLC.
“He encapsulated the issues at hand very well. But it’s a big leap from, ‘I acknowledge that these are dire times,’ to ‘What are you going to do about it?’ That gets into worlds that are separate speeches in and of themselves, and politically they’re lighting rods.”
Others agreed that Sen. McCain’s general resistance to expansive government intervention is cementing itself in his banking policy.
“It’s a more complex answer than I would expect from the Bush administration. … The idea that he brought up mark-to-market accounting — to me, that shows a high level of sophistication on the issue,” said Brian Gardner, an analyst with KBW Inc.’s Keefe, Bruyette & Woods Inc.
But Mr. Gardner added that the speech still represented a free-market response.
“This is John McCain running as he has portrayed himself over the years, which is as a small-government conservative,” he said.
Up to this point, Sen. McCain has been largely silent on the subprime mortgage crisis and other credit issues as Sens. Barack Obama and Hillary Clinton — still fighting for the Democratic nomination — have spoken often on the struggles facing borrowers, and unveiled a host of proposals to ease foreclosures.
While he stayed away from such programs, Sen. McCain did not let lenders or the engineers of structured-asset securities off easily, saying that “both accountability and transparency” were “lacking” in the crisis.
“Lenders who initiate loans should be held accountable for the quality and performance of those loans and strict standards should be required in the lending process,” he said. “We must have greater transparency in the lending process so that every borrower knows exactly what he is agreeing to and where every lender is required to meet the highest standards of ethical behavior.”
He also called for “adequate capital to serve as a buffer against losses,” and said increased capital should be spurred by “removing regulatory, accounting and tax impediments to raising capital.”
As several large institutions have had to write down the value of their troubled mortgage assets, Sen. McCain called on U.S. accounting leaders to hold a meeting to discuss the status of mark-to-market accounting in the industry.
“We are witnessing an unprecedented situation as banks and investors try to determine the appropriate value of the assets they are holding and there is widespread concern that this approach is exacerbating the credit crunch,” he said.
He also called for a meeting of lenders, who “should pledge to do everything possible to keep families in their homes and businesses growing.” The candidate recalled steps taken by General Motors Corp. after the Sept. 11 attacks to provide zero-percent financing to help the economy. “We need a similar response by the mortgage lenders,” he said.
Still, the speech warned of the risks of going too far in providing repairs. Sen. McCain opposed a measure to reduce down-payment requirements for mortgages insured by the Federal Housing Administration. Pending FHA reform legislation supported by the Bush administration would lower the requirement, but Sen. McCain said such a move would further hurt borrowers’ ability to earn equity in their homes.
“So many homeowners have found themselves owing more than their home is worth, because many never had much equity in the house to begin with,” he said.
His speech came a day after Sen. Clinton spoke about the need for more government intervention to save the housing market, including backing congressional Democrats’ call to use the FHA to cover forgiven debt in negative-equity scenarios.
Asked about the Democratic plan, Douglas Holtz-Eakin, a senior policy adviser to Sen. McCain, said on a conference call Tuesday that the Republican is not “in favor of an RTC-like vehicle that would wholesale purchase loans,” referring to the Resolution Trust Corp.
“Sen. Clinton seemed to hint at that with a broad FHA authority to buy any loan that’s underwater without asking the question: ‘Why?’ he said.
"That’s a mistake.”
