Proposals From the Stump
Thursday, August 23, 2007
The race for president has a hot new issue: what to do about the economy's credit crunch. And the candidates, as usual, do not agree.
Former senator John Edwards (D-N.C.) wants to allow homeowners to shed "excessive mortgage debt in bankruptcy" and create a large Home Rescue Fund to help prevent foreclosures.
Sen. John McCain (R-Ariz.), on the other hand, is eager to avoid a broad and potentially expensive bailout and to target for assistance only the borrowers who have been taken advantage of by lenders.
In recent weeks, the markets for home mortgages and other types of debt have frozen, and millions of homeowners have begun to worry that they will not be able to make their monthly payments. Securities markets have swung wildly as a result, and financial regulators have scrambled to calm both homeowners and investors.
Sensing an opportunity to connect with voters on an issue important to their economic futures, presidential candidates have rushed out a variety of prescriptions for these woes, with Democrats proposing the most aggressive solutions.
Edwards and Sen. Barack Obama (D-Ill.) have called for the creation of a fund by the federal government to help homeowners refinance their mortgages to avoid foreclosure. Edwards has not said specifically where the money for the fund would come from. Obama spokesman Bill Burton said Obama thinks the fund should be "partially paid for by penalties on lenders who acted irresponsibly and committed fraud."
Edwards would also establish a Family and Savings Commission to help protect consumers and consolidate what he calls a "crazy quilt" of federal regulation.
Sen. Hillary Rodham Clinton (D-N.Y.) is more restrained in her reaction. She has recommended that borrowers get more "face-to-face financial counseling" about mortgage risks and that the government require more "truth in lending" such as "plain-talk, no-fine-print" disclosures to new homeowners. She, like other candidates, including Sen. Christopher J. Dodd (D-Conn.), would also make more low-cost Federal Housing Administration (FHA) loans available to home buyers.
Dodd has the most elaborate set of proposals and the largest opportunity to implement them. As chairman of the Senate Banking Committee, he runs the panel that oversees housing markets and home-buying rules. He made a splash this week by summoning the nation's top two financial regulators -- Ben S. Bernanke, chairman of the Federal Reserve, and Treasury Secretary Henry M. Paulson Jr. -- to brief him on the issue.
Dodd wants the FHA to provide more loan insurance to those who need it. He has also called for an end to penalties for early payment of subprime mortgages. And he, like other Democrats, would allow the mortgage finance giants Fannie Mae and Freddie Mac to buy more mortgages for their portfolios, which would inject much-needed liquidity into the moribund sector.
Republican presidential candidates have been less activist in their response to the credit tightness. Former Massachusetts governor Mitt Romney said through a spokesman that government should punish "bad actors," simplify the mortgage process so that people know the terms of their loans, and insure that regulators better monitor the mortgage-lending industry.
Former New York City mayor Rudolph W. Giuliani appears even less inclined to press for broad government intervention. He warned that Washington decision-makers tend to overreact and in that way do more harm than good. On CNBC, Giuliani said, "Let's get ourselves through this first, then take a look back and see what more could be required." He added: "I think at most more transparency, more information" should be added to the system.
McCain would like to see extra consumer education and would encourage regulators to use the many tools they have to protect homeowners and to steady the markets. But Douglas Holtz-Eakin, his policy adviser, said, "the senator does not support a broad bailout unless it can be conclusively seen to target the borrowers who were taken advantage of" by lenders.
Almost all the candidates from both parties agree that extra information for borrowers about their mortgages is a must. That way abrupt increases in adjustable-rate mortgage rates would not again shock them and the markets so violently, they say.
They also generally are pushing for more vigorous enforcement of anti-fraud statutes. Obama and Edwards are among those who would strengthen anti-predator lending laws.
Sen. Joseph R. Biden Jr. (D-Del.) said at a Democratic debate Sunday that more transparency is needed in the operation of hedge funds and private-equity firms, which are major Wall Street financiers. "They are the ones that are causing this to go under, and there's no transparency, no accountability," he said. Democratic candidates also are eager to focus any federal aid on homeowners and not on the lenders in trouble.
In addition, Democrats are using the market turmoil as a vehicle to attack President Bush and his party's laissez-faire tendencies. "The credit crisis is the Katrina of the financial markets," said New Mexico Gov. Bill Richardson. "The president has let these people regulate themselves, and as a result, the necessary checks and balances have been overlooked. This must change."