Senator John McCain was the second candidate to outline his solutions to the housing and credit situation. He restated the history leading up to the current situation and placed the blame for the crisis on:
- Speculators who moved into the housing market during the bubble and overwhelmed normal market forces with rampant speculation.
- Lenders who became complacent because of the sustained period of rising home prices and consequently failed to maintain their lending standards.
- The explosion of complex financial instruments that were not well understood even by sophisticated investors and were largely off-balance sheet and hidden from scrutiny.
- A crisis of confidence arising out of initial losses in the market which has caused banks to no longer trust each other and credit to dry up.
Calling it "straight talk," Senator McCain said, "I will not play election year politics with the housing crisis."
"I have always been committed to the principle that it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small 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.
The Senator said that no assistance should be given to speculators and that any aid should be limited to homeowners and their primary residences, must be temporary, and not reward people who were irresponsible at the expense of those who weren�t. "I will consider any and all proposals based on their cost and benefits."
His most specific proposals include:
- Reforms to the system including transparency and accountability. Homeowners should be able to easily understand the terms of their mortgages and in return should provide truthful financial information and be subject to a penalty if they do not.
- Lenders should be held accountable for the quality and performance of those loans and strict standards should be required in the lending process.
- The Senator said he opposes proposals to reduce the down payment requirement for FHA mortgages and that, as conditions allow, the existing down payment requirement should be raised.
- Financial institutions should be encouraged to increase capital reserves to serve as a buffer against losses. Methods of encouragement should include removing regulatory, accounting, and tax impediments to raising capital.
These four, the Senator said, would be the principals against which he would examine and evaluate new housing proposals.
He also advocated convening a meeting of the nation�s top mortgage lenders with the goal of extracting a pledge that they will provide maximum support and help to their cash-strapped but credit-worthy customers.