Extending a Lifeline

No legislation can sweep away all the debris from the storm in the mortgage markets, but a bill Congress is expected to consider this week would help borrowers move from risky subprime loans to fixed-rate mortgages through the Federal Housing Administration and offer aid to troubled mortgage-finance giants Fannie Mae and Freddie Mac.

The House and Senate should pass this bill, and President Bush should sign it.

Those who worry about moral hazard — the idea that risk-takers must be flogged sufficiently by the market to learn their lesson — should consider the damage that the housing downturn already has caused. The twin tempests of historically high oil prices and the housing downturn have left the economy on the shoals.

As Treasury Secretary Henry Paulson warned, Fannie and Freddie are "central to the speed with which we emerge from this housing correction" and housing is at the "heart of our nation's economy."

The severity of the foreclosure problem varies from region to region and is being felt worst in California and Florida.

As of the end of March, the Milwaukee market was 50th in a ranking of foreclosure activity of the top 100 metropolitan areas. Detroit, Indianapolis, Cleveland and a half-dozen other Midwestern cities were worse off, according to statistics analyzed by RealtyTrac Inc., an Irvine, Calif., company that operates an online market for foreclosed properties. Second-quarter results are due out Friday.

The bill would extend a line of credit to Fannie Mae and Freddie Mac, which account for about half of the nation's mortgage market, and give the Treasury Department authority to buy their stock. The bill also would create a stronger regulator for the government-sponsored enterprises. In addition, qualifying homeowners would get a chance to refinance to safer loans and first-time home buyers would get tax breaks.

House Democrats want to add $4 billion for block grants that authorities could use to buy foreclosed properties. The intent may be laudable, but the effects of this proposal may not be if that big pot of money gives banks more incentive to foreclose. Congress should debate this provision separately and not let it hold up the important work at hand.

REPRINTED FROM THE MILWAUKEE JOURNAL SENTINEL.

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