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While campaigning for reelection in 2004, President George W. Bush urged voters that America should become a society of homeowners in order to ensure a strong economy and stability in their individual lives. Four years later in the 2008 presidential election, the quest for extending this ownership society is not a platform of either Republican candidate Sen. John McCain or Democrat candidate Sen. Barack Obama.

There is good reason for that. Factors like dramatically low interest rates, predatory lending, falling home values, a weak economy and Wall Street's investment in subprime loans have all combined to create a current housing market in crisis. By the close of this year, approximately 1.5 million homeowners are expected to lose their homes to foreclosure in the United States.

The Solution?

In the face of this housing crisis, Congress voted by a wide margin to pass a $700 billion financial rescue bill on October 3, 2008. President Bush quickly signed the bill, providing the Treasury Department with $700 billion to use at its disposal to intervene in financial markets and relieve firms of distressed assets backed by home mortgages.

Both McCain and Obama voted in favor of the "bailout" package. And as Election Day draws near, both are touting their own plans to resolve the housing market crisis. The basis for both McCain's and Obama's rescue plans is the same -- to allow families to stay in their homes, avoid further foreclosures and stabilize the housing market -- yet there are differences in the details.

McCain's Plan

McCain's plan, entitled the McCain Resurgence Plan, would be available to mortgage holders who live in their home as a primary residence and can prove that they were creditworthy at the time they obtained their original loan. Under the plan, McCain seeks to:

• Assist struggling homeowners to ensure they can stay in their homes with a manageable mortgage, avoiding foreclosures and the impact this has on neighborhoods and area property values. This would also help homeowners with their personal financial situation, thus providing stability to household spending in the nation's economy.
• Provide lower interest rates to the mortgage market to stabilize housing values and take stress off the economy.
• Combine the $300 billion worth of refinance capacity at the Federal Housing Administration with the statutory capacity at Fannie Mac and Freddie Mac to purchase mortgages.
• Grant homeowners a new mortgage that is an FHA-guaranteed, fixed-rate mortgage at terms manageable for the homeowner.

Obama's Plan

Obama's plan centers around protecting homeownership while cracking down on mortgage fraud. In order to accomplish both goals, Obama would:

• Create a 10 percent universal mortgage credit, providing tax relief to homeowners who do not itemize. The majority of the 10 million homeowners benefiting from the average $500 credit earn less than $50,000 per year.
• Ensure more accountability in the subprime mortgage industry, fighting mortgage fraud and protecting consumers against abusive lending practices. As a senator, Obama introduced the STOP FRAUD Act, providing a federal definition of mortgage fraud, increasing funding for federal and state law enforcement programs, creating criminal penalties for mortgage professionals found guilty of fraud and requiring industry insiders to report suspicious activity.
• Establish a Homeowner Obligation Made Explicit (HOME) score, providing potential homeowners with a simplified and standardized borrower metric for home mortgages and allowing individuals to compare various mortgage products and understand the loan's full cost.
• Eliminate the provision that prevents bankruptcy courts from modifying an individual's mortgage payments in order to prevent the subprime mortgage industry from being shielded by outdated federal law.

Disagreement Over Who Takes the Loss

Though McCain and Obama both agree that the government should purchase distressed mortgages, they disagree on who takes the loss -- homeowners, lenders or the government.

McCain believes that in instances where homeowners made down payments on their homes, the government should take the loss. Under his plan, once the homeowner refinanced for a reduced amount, the loss would be passed along to the government such that the government would accept a loan payoff for that reduced amount.

Obama favors a plan where lenders take the loss, much along the lines of the Hope for Homeowners program. Under that program, homeowners would receive government-issued loans in an amount of 90 percent of the diminished value of the home. The original lender of the loan would then lose the difference between the amount of the original loan and the new loan.

How will struggling homeowners ultimately be affected? It may all depend on the outcome on November 4th.

More...

• Mortgage Rescue: Where McCain, Obama Stand
• Protecting Your Home and Finances in Tough Times
• Top 10 Real Estate Myths Debunked
• How to Sell Your House Fast When Foreclosure Looms
• Fighting Foreclosure Guide