McCain backs U.S. rescue of housing lenders: advisors

ALBUQUERQUE, New Mexico (Reuters) - Republican White House candidate John McCain supports a federal takeover of mortgage finance giants Fannie Mae and Freddie Mac but wants eventually privatization, his advisors said.

"The long-term reforms are to scale down Fannie and Freddie so their size is no longer a threat. And then privatize them. Get them off the taxpayer's books entirely," McCain's chief economic adviser, Douglas Holtz-Eakin, said on Sunday.

But credit markets must stabilize first, he said.

"The next steps would be to have credit market conditions stabilize and have the ability, as a result, for firms to access capital again so that they can scale down their portfolio holdings," he said in a telephone interview.

The U.S. government on Sunday seized control of Fannie Mae and Freddie Mac, quasi-public mortgage companies which own or guarantee almost half of the country's $12 trillion in outstanding home mortgage debt, in what could be the largest financial bailout in U.S. history.

"Sen. McCain thinks this is a step in the right direction and we need to protect the taxpayers and we need to never allow this to happen again," McCain adviser Nancy Pfotenhauer said on CNN's "Late Edition."

She called the companies an example of "crony capitalism" that allowed private investors to reap profits but left taxpayers liable for the risks. The companies' political supporters should be held accountable, she said.

McCain, a four-term Arizona senator, took a day off from public events on Sunday, a day after holding a rally in Albuquerque, New Mexico.

Sen. Barack Obama, McCain's Democratic rival for the White House, has sought to portray McCain as an economic novice. McCain accuses Obama of lacking in sufficient experience, as polls show the November 4 election tightening.

Holtz-Eakin said the fallout illustrates existing problems in the U.S. housing market, not future ones.

"It's not an acceleration of the problem. The thing to look at is the market out there for homes and when do prices stabilize and inventories drop. We've got our eye on that."

(Reporting by Jason Szep in Albuquerque, New Mexico, and Randall Mikkelsen in Washington)