NEWS

Prevent flood of foreclosures

Staff Writer
Mount Shasta Herald

It's tough call whether to be cheered or chilled by the Bush administration's new subprime bailout.

Cheery is the prospect that as many as a million Americans about to be hit with higher mortgage payments might be able to keep their homes.

Chilling is the realization of how bad this situation must be for President Bush and U.S. Treasury Secretary Henry Paulson to intervene. After all, Bush claims to be the kind of individual-responsibility conservative who normally would frown upon such intrusion by government into private covenants. That his administration mediated an agreement with the lending industry suggests the White House really does fear slowed consumer spending, sagging securities markets, the threat of recession. 

As bailouts go, though, this one is modest. It asks lenders to freeze interest rates on select subprime home loans — those taken out between Jan. 1, 2005, and July 31, 2007 — which are slated to reset at higher rates between Jan. 1, 2008, and July 31, 2010. The freeze would last five years. Eligible borrowers, estimated at between 250,000 and 1.2 million, also must be current on their payments.

Clearly, the plan is meant to stave off future pain, not to bail out the half a million homeowners who foreclosed in the first 11 months of this year. Democrats note that it also won't assist borrowers who bought homes at the onset of the subprime boom, around 2004, and whose mortgages already have reset from low 'teaser' rates to 12 percent or higher. Nor will it aid those who've missed a payment or two.

Realistically, Uncle Sam can't be expected to rescue all of the 2.2 million at-risk adults who signed up for subprime products, some of which carry prepayment penalties. Nor can the feds be white knights for lenders who sought out risky clients — real estate speculators, those with poor credit, even buyers who couldn't fully document income. Republicans who want Bush to butt out are correct that some self-regulating and individual responsibility are needed.

To the degree that the subprime mess threatens the larger economy — with very real implications for otherwise uninvolved Americans just trying to make a living — we can tolerate some government meddling.

On that note, lawmakers also should explore a proposal from Illinois Sen. Dick Durbin that would let bankruptcy judges help those facing foreclosure by fixing a home loan at a lower rate. Judges already do so for car loans and other types of debt. So, too, should they follow Illinois Attorney General Lisa Madigan's lead by seeking sensible oversight of the subprime lending industry, which should forfeit some of its independence in light of this latest lousy performance.

Meanwhile, the Federal Reserve's interest rate hat trick — three cuts in a row, the latest on Tuesday — will likely help spur investment.

Another chilling wave of home foreclosures would serve no one's interests.