WASHINGTON — Changing a course he set two weeks ago, Sen. John McCain called for federal aid to distressed homeowners Thursday, saying, "There is nothing more important than keeping alive the American dream to own your own home."
The Republican presidential nominee-in-waiting introduced a plan that he said would offer "deserving" homeowners the opportunity to "trade a burdensome mortgage for a manageable loan that reflects the market value of their home."
Under McCain's plan, homeowners facing foreclosure could apply for federal assistance, and the government would help them get new, affordable loans. Homes would have to be owners' primary residences, and owners would have to prove that they could afford the new loans, which would be 30-year, fixed-rate mortgages.
The new lender would receive a federal guarantee of the new mortgage.
McCain's plan would cost $3 billion to $10 billion and help as many as 400,000 homeowners, his aides said.
The plan represents a change of heart for McCain. In a high-profile economic speech in late March, McCain said he saw little federal role for helping homeowners at risk of foreclosure. He said then it was chiefly up to mortgage lenders to help homeowners, "not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers."
He did say then that he'd consider some temporary federal assistance for homeowners, but he offered no specifics, nor did he address any of the ideas for help being considered by his congressional colleagues.
Last month's tough-love message was reinforced by McCain's chief economic adviser, Doug Holtz-Eakin, who told reporters that "as harsh as it may sound, (foreclosure) may be an appropriate outcome in some cases."
McCain's Democratic opponents pounced after that speech. Sen. Hillary Clinton, D-N.Y., compared him to Herbert Hoover.
Now, however, in offering federal guarantees for new mortgages and assistance to homeowners, McCain is essentially embracing what many Democrats on Capitol Hill have been demanding.
McCain's advisers described his plan as more focused on the homeowner than the Democratic plans, which they said focus too much on the lender. In fact, however, the legislation offered by the Democratic chairmen of the key Senate and House of Representatives committees requires that lenders agree to cut the loan principals owed by homeowners to 85 percent of their homes' current market value before they could qualify for federal loan guarantees.
In a break with the Bush administration, McCain's advisers acknowledged that his plan goes beyond the administration's Hope Now program. That plan is voluntary and encourages lenders to modify loans or freeze mortgage rates for two to five years. But these reworks often leave in place loan values that are greater than the current value of a home.
Andrew Jakabovics, a housing expert at the liberal Center for American Progress, called McCain's plan "a huge step from where he was two weeks ago," but he wondered about the specifics of McCain's plan, such as who'd be labeled "deserving."
"He's at least now in the same ballpark as everybody else in the conversation," Jakabovics said.
McCain also said that the Justice Department should investigate potential criminal activities, such as fraud, in the mortgage lending and securitization industry.
McCain also turned to fuel prices, saying, "We need to help everyone who relies on gas to commute or pick up the kids or get to doctors' appointments."
He called for a short-term halt to purchases of oil for the Strategic Petroleum Reserve, which he said would reduce demand and, presumably, prices. But Holtz-Eakin conceded that the amount of oil going into the reserve is "not substantial," noting that it was a short-term goal to help pave the way for a national energy policy that would wean the U.S. from its dependence on oil.
Oil expert Philip K. Verleger has argued that filling the reserve is one reason for today's high oil prices. Verleger argues that the reserve is being filled by light sweet crude oil, the kind that's in short supply and trading at soaring prices on the New York Mercantile Exchange.
A halt to filling the reserve, Verleger reasons, would make more light sweet crude available. The Colorado-based oil analyst estimates that 0.03 percent of the global supply of light sweet crude is being diverted into the reserve, raising the price of oil by about $10 a barrel.
Verleger advocates filling the reserve with heavier crude oil, which is harder to refine but sells for less on world markets.
THE CANDIDATES' HOUSING PLANS AT A GLANCE
Sen. John McCain — Help homeowners refinance at current market values with federal guarantees of new mortgages. Raise required down payment on FHA mortgages from its current 3 percent. Urge lenders to work with homeowners to work out distressed mortgages.
Sen. Hillary Clinton — Freeze foreclosures for 90 days. Freeze adjustable-rate mortgages at their lower rates for at least five years. Create a $30 billion fund to help communities assist homeowners. Supports a bill by Sen. Chris Dodd, D-Conn., and Rep. Barney Frank, D-Mass., that would help homeowners refinance and provide a federal guarantee to $300 billion in mortgages.
Sen. Barack Obama — Create a $10 billion fund to help communities assist homeowners. Supports the Dodd-Frank bill. Create a 10 percent universal mortgage tax credit.
(Kevin G. Hall contributed.)