Housing crisis poses test for John McCain

WASHINGTON — John McCain has been winning over skeptical conservatives by embracing tax cuts while promising a new era of fiscal discipline if he wins the White House. But his fragile relationship with the Republican base will be tested again as he decides whether to support controversial plans for addressing the mortgage crisis.

At issue is a proposal to shore up beleaguered mortgage giants Fannie Mae and Freddie Mac, one piece of a broader housing aid plan that could come to a vote in Congress as early as next week.

Leading conservatives acknowledge that relief may be necessary for the government-sponsored companies to prevent more damage to the mortgage industry and real estate market. But they are urging McCain to demand major changes, beyond what the Bush administration has proposed, in the way the lenders do business -- either to sever the government's support for them or dramatically shrink their mandate.

Pat Toomey, head of the conservative Club for Growth, called Friday for McCain to "stand up and say what's right here . . . and it's not right to just put a lot of taxpayer money into these companies and just go back to business as usual."

Another influential conservative, Rep. Paul D. Ryan of Wisconsin, the top Republican on the House Budget Committee, said he "would like to see the nominee of our party be in favor of containing these entities, so they don't put the taxpayers at risk ever again."

Those comments underscore the balance McCain, the presumed GOP presidential nominee, must strike as he attempts to satisfy his party base while showing the broader electorate that he can handle a real-world crisis that demands bipartisan problem-solving, a skill he has claimed as one of his strengths.

Fannie Mae and Freddie Mac hold or guarantee about half of the nation's home mortgage debt. Shares in both companies, which are government chartered but publicly traded, have sunk recently amid doubts that they have enough money to cover recent mortgage losses. If they worsen, problems at the two companies could further damage the housing market and the broader economy.

In response, Treasury Secretary Henry M. Paulson this week asked Congress for temporary authority to provide capital to the two companies. Under an unusual arrangement, the government would make direct loans of an unspecified size or buy company stock.