The federal government should move swiftly to enact a second economic stimulus package to help teetering homeowners or face another possible crisis -- banks stuck with a massive stock of vacant homes, Gov. Arnold Schwarzenegger warned Wednesday.
A day after urging congressional leaders to consider a new jolt for the ailing economy, the Republican governor said Washington needs to "put money into the housing market." California has been devastated by the mortgage crisis, with thousands of foreclosures and median home prices falling sharply.
"The key is to make people stay in their homes," the governor said during a panel discussion with investor Warren Buffet. "I think that this is the direction that the second economic stimulus package should go in."
Money should be used to buy loans, he explained, after the value of homes has been adjusted to reflect lower market prices.
His proposal appeared to mirror John McCain's prescription to ease America's mortgage crisis. The Republican presidential candidate has proposed a $300 billion plan for the government to buy bad mortgages and renegotiate them at a reduced price. Democrat Barack Obama wants a mandatory 90-day freeze on some foreclosures.
Schwarzenegger warned that if banks seize a large number of homes, their condition and value can quickly deteriorate without regular maintenance. He imagined swimming pools turned into breeding grounds for mosquitoes.
"They don't want to get stuck with the homes," he said. "I think there is something in there for everyone if government helps with those homeowners."
On Tuesday, Schwarzenegger urged congressional leaders to support a second economic stimulus package that would include a temporary increase in federal Medicaid funds for states and another extension of unemployment insurance benefits for those who remain jobless.
He also called for more spending on large-scale construction projects, such as roads and bridges. The letter did not mention troubled homeowners.
Schwarzenegger's appeal for urgent federal help comes at a time when foreclosures have ravaged the California market, jobless rates are climbing and Sacramento contends with an ongoing budget crisis.
This week, the governor said he will summon legislators back to the state Capitol, barely a month after passage of an overdue state budget. In a troubling sign, tax revenues have already slipped $3 billion below expectations.
The governor wants to address the shortfall in this year's budget and figure out how to stimulate the sputtering economy. He did not set a date for lawmakers to reconvene, but aides said the budget crisis is so severe that a special session must be called before the new Legislature is sworn in Dec. 1.
Democrats in Congress are pushing efforts to assemble a second economic stimulus program that could total $150 billion or more.
On Monday, Federal Reserve Chairman Ben Bernanke said a "significant" stimulus package is appropriate. The White House has yet to endorse the idea, but has said President Bush was at least willing to consider a second stimulus measure. World leaders will gather in Washington on Nov. 15 to discuss the global economic meltdown.
Congress enacted a $700 billion financial rescue plan earlier this month.
Last month, Schwarzenegger vetoed a bill that would have prohibited some of the lending practices advocates say contributed to the downturn in California's housing market.
The legislation would have banned so-called negative amortization loans, in which homeowners pay less than the interest on their loan and can end up owing more than their homes are worth. It also would have prevented mortgage brokers from steering borrowers into more profitable but higher-risk loans if those buyers actually qualified for lower-cost mortgages.
It was one of several bills related to the housing crisis sent to his desk, some of which he signed.
Schwarzenegger's chat with Buffet ranged over issues that included the meltdown in the housing market and the governor's recollection of a job selling ice cream as a youngster. The governor and Buffet appeared during the annual women's conference organized by California first lady Maria Shriver.
Buffet said he had no quarrel with big paychecks for chief executives -- if they succeed: "I do have a quarrel with people failing and making a lot of money," he said.
They both displayed boosterism about the prospects for the American economy, but Buffet warned that pulling out of the economic crisis will be "sloppy ... messy."
While calling for more government intervention in the economy, Schwarzenegger recalled that he left his native Austria "because of the socialistic kind of environment."
When government is on your back, he said, it "stifled the opportunities."
Echoing a frequent McCain complaint, Schwarzenegger said he didn't want to return to a system that fosters a "redistribution of wealth."