How the presidential candidates would address the nation’s housing crisis when the next administration takes office in January is hard to track because it is still evolving.

The downward spiral in housing prices, increase in home foreclosures and the failure of several major financial institutions led to a $700 billion congressional bailout.

What Democrat Barack Obama or Republican John McCain might do as president could depend on how well that plan and another piece of legislation enacted in July targeted to housing address the problem.

At the second presidential debate, McCain said he “would order the secretary of the Treasury to immediately buy up the bad home-loan mortgages.”

His proposal calls for spending up to $300 billion to help homeowners refinance with new low-rate mortgages based on the current value of homes. To be eligible, it must be a primary residence and the homeowner cannot have used false information to obtain the current mortgage.

The Treasury already has authority to buy the mortgages directly under the multibillion-dollar rescue plan. The Federal Housing Administration has authority to spend up to $300 billion for another program, Hope for Homeowners.

Obama’s campaign pointed out that he made a similar proposal — without suggesting a dollar amount – at a Sept. 24 news conference. “We should consider giving the government the authority to purchase mortgages directly instead of simply purchasing mortgage-backed securities,” he said then.

Hope for Homeowners offers up to 400,000 homeowners facing possible foreclosure the opportunity to refinance their mortgages with new 30-year, fixed-rate loans issued by the FHA.

The bill also created a Housing Trust Fund that will give money to states to award grants to developers to build and redevelop housing and rental units for low-income families.

McCain, who earlier in his campaign offered a plan for families facing foreclosure, plans to monitor how well the new housing legislation works and might offer suggestions to “beef it up,” according to senior policy adviser Douglas Holtz-Eakin.

Obama, on the other hand, wants the federal government to be more aggressive in helping local communities, according to Brian Deese, a campaign economic adviser.

Because the federal government took over Fannie Mae and Freddie Mac, which packaged a majority of the nation’s mortgages into securities, and Congress authorized hundreds of billions to purchase mortgage-backed securities, the government is in a position to make it easier for many to refinance.

Many congressional Democrats – including Obama – advocate going further by allowing federal bankruptcy judges to rewrite the terms of mortgages when homeowners file for court protection from their creditors. Mortgages on vacation homes and investment properties can be revised by bankruptcy courts. Mortgages on primary residences cannot.

But McCain doesn’t think it’s advisable to rewrite the bankruptcy code. Instead, homeowners should renegotiate with their lenders before resorting to a bankruptcy filing, according to Holtz-Eakin.

McCain wants the Justice Department to form a mortgage abuse task force to investigate criminal wrongdoing by brokers and lenders.

Obama supports passage of his Stop Fraud Act legislation establishing a federal definition for predatory lending. “It would substantially tighten restrictions and penalties for fraudulent and abusive lending practices,” Deese said.

Rental Reflection?

Some housing advocates say one of the reasons for the current housing crisis is that Democratic and Republican lawmakers, along with the Clinton and Bush administrations, overemphasized home ownership. What’s needed, say the advocates, is more of a balance that includes a national policy for building more affordable rental housing.

McCain “doesn’t have a specific proposal” for rental housing, said Holtz-Eakin. “What’s he’s focusing on is making sure that those people who want to become homeowners are ready to become homeowners.”

Obama supports the new housing trust fund and the effort to build more affordable rental housing. “He does believe it is something we need to put more attention on,” said Deese.