Housing: Where the candidates Stand

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NEW YORK (CNNMoney.com) -- The housing crisis took center stage in the presidential race this week. For good reason: Recent data show that nearly a million American households are at risk of foreclosure, 71% more than a year ago. Nearly 6% of all borrowers are past due on their mortgages.

And the presidential candidates are trying hard to convince voters that they have the best plan for fixing the problems. How do their plans compare?

The biggest difference between Republican John McCain and his Democratic rivals Barack Obama and Hillary Clinton is over the government's role.

The Democratic candidates argue that if the Federal Reserve can back the purchase of Bear Stearns with $29 billion, then the federal government can also lend a hand to struggling homeowners.

But McCain contends that the Fed's intervention in the financial markets was designed to stabilize Wall Street - which in turn will help stabilize the mortgage market and therefore help borrowers.

"Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy," McCain said in a speech this week.

He called on lenders to do for borrowers what they are asking the government to do for them.

"They've been asking the government to help them out," McCain said. "I'm now calling upon them to help their customers, and their nation out. It's time to help American families."

Dems find some common ground

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While there are differences in the housing proposals of Obama and Clinton, they share certain similarities.

The two Democrats, who remain in a heated contest ahead of the Pennsylvania primary on April 22, both say they support congressional proposals that would provide incentives for government-approved lenders refinance troubled mortgages below a home's appraised value for homeowners who can't make their payments.

The Federal Housing Administration would insure loans that lenders have already written down to affordable levels for the borrower. That insurance would provide 100% protection to lenders if a loan goes south. The loans could be then sold into the secondary market. The idea is that investors would be more willing to buy them because their worth would be more easily ascertained since the loans would have been made affordable to the borrower.

The borrowers, in turn, will pay premiums to the FHA for the insurance and they would share at least a portion of any equity appreciation with the FHA when they eventually sell the home.

"[I]t offers a responsible and fair way to help bring an end to the foreclosure crisis. It asks both sides to sacrifice, while preventing a long-term collapse that could have enormous ramifications for the most responsible lenders and borrowers, as well as the American people as a whole," Obama said in a speech in New York on Thursday.

They call for government funding

Clinton and Obama have also both called for government money to provide housing aid.

Obama wants a $10 billion foreclosure prevention fund to help homeowners who are victims of mortgage fraud to help them sell their homes or modify their loans to help them avoid foreclosure and bankruptcy.

For her part, Clinton says the federal government should provide $30 billion to finance an Emergency Housing Fund to help local governments purchase and resell or rent foreclosed, vacant properties.

Unlike Obama, Clinton says lenders should implement a 90-day moratorium on foreclosures to allow borrowers time to work out modifications with loan servicers and freeze the interest rates on subprime adjustable rate mortgages for at least 5 years.

She has also said that if the FHA proposal to encourage lenders to modify mortgages doesn't alleviate pressure on the housing market, the government should be ready to do more.

"[G]iven the severity of today's housing crisis, simply facilitating this auction process might not be enough to get our economy moving again," Clinton said in a speech earlier this week.

Her recommendation: the FHA or an entity like it should be ready to buy, restructure and resell mortgages in which borrowers now owe more on their homes than they're worth.

Such a program could be self-financing in the long run if the government buys the loans from lenders at a steep discount, restructures them to affordable levels for the borrowers and sells them back into the secondary market at a higher price.

Overall, the differences in the Democratic candidates' approach are a matter of degree.

"Clinton's proposals are more populist and more aggressive - Obama's don't go as far and aren't as detailed," said Brian Gardner, a political analyst with Keefe, Bruyette and Woods.

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