Which candidate benefits from new housing flap?

By Steve Holland - Analysis

WASHINGTON (Reuters) - Which presidential candidate stands to gain from the new uproar in the U.S. housing market -- Democrat Barack Obama or Republican John McCain?

At first blush, Obama would seem better positioned to reap the benefits from the emerging crisis surrounding Freddie Mac and Fannie Mae, two institutions with fanciful names that are flirting with collapse.

But there is also a case to be made that the more experienced McCain could better guide the reforms that experts say are needed to bolster two companies that combine hold $5 trillion in mortgages.

First, the Obama scenario:

Conventional thinking is that a sagging economy in a presidential election year favors a candidate running against the party in control of the White House.

Example: A savings and loan crisis in 1990 contributed to a picture of an economy on the ropes, and incumbent President George H.W. Bush lost his 1992 re-election bid to Democrat Bill Clinton.

"In the broader picture, anything that is bad news for the economy is bad news for McCain, and this is bad news," said William Galston, a former Clinton White House domestic policy aide.

With the November 4 election still almost four months away, opinion polls show Americans believe Obama is better prepared to deal with the economy and are clamoring for change.