ALL THREE presidential candidates weighed in on the housing crisis this week; much has been made of the contrast between Republican John McCain's laissez-faire approach and the Democrats' calls for government action. We were struck by what they agreed on. Democratic Sens. Hillary Rodham Clinton and Barack Obama blamed lenders for foisting unpayable subprime loans on consumers, then packaging them as securities for uncomprehending investors. Mr. McCain's tone was less accusatory, but his substance was the same. In opposing a bailout for "those who act irresponsibly," Mr McCain was not saying anything that Ms. Clinton and Mr. Obama would not; his call for limiting relief to homeowners -- as opposed to speculators -- is already incorporated in Democratic legislation backed by Ms. Clinton and Mr. Obama. In one form or another, all three candidates favor government-facilitated loan modifications for subprime borrowers -- as does the Bush administration.
The biggest disagreement is that, unlike the two Democratic candidates, Mr. McCain refused to endorse proposals by Rep. Barney Frank (D-Mass.) and Sen. Christopher J. Dodd (D-Conn.) for government-backed refinancing of troubled loans. Its sponsors say their approach would not insulate lenders or borrowers from all financial loss but would halt the foreclosure crisis through one comprehensive, taxpayer-funded intervention. But the Democratic plan is still a partial bailout, with all the "moral hazard" that implies, and its cost could balloon if housing prices keep sinking. Mr. McCain noted that some subprime borrowers bought homes they couldn't afford in hopes of making a killing, while the vast majority of America's 80 million homeowners are keeping up their payments. This glossed over evidence that many borrowers, especially members of minorities, were steered into unnecessary subprime loans by profit-hungry lenders. But it was also a useful reminder that individual accountability has to be part of any solution.
For now, the best approach remains loan modification, aided by government but worked out between borrowers and lenders. One useful idea, already proposed in Congress and backed by Ms. Clinton on Tuesday, would be legislation clarifying that holders of mortgage-backed securities cannot sue lenders for participating in government-supported workouts. Ms. Clinton's own signature proposal -- a 90-day moratorium on foreclosures, coupled with a five-year freeze on the introductory rates for subprime adjustable-rate mortgages -- shows how hard it is to come up with policies that are both original and effective. The 90-day moratorium is a longer version of a 30-day moratorium offered by the Bush administration. Her rate-freeze plan has been criticized (by Mr. Obama) for threatening to "drive rates through the roof for those trying to buy or refinance." Mr. Obama would be right if Ms. Clinton intended a mandatory freeze, but her fine print explains that she intends a voluntary plan, worked out with the mortgage industry. And that amounts to a broader version of what the Bush administration is already doing.
Perhaps the time has come for the government to speed loan modifications through financial incentives for loan servicers, as investment banker Steven Rattner proposed in The Post yesterday. It's an interesting idea, even it wasn't in any of the candidates' speeches this week.
Other editorials in the Ideas Primary series can be found here.