Sinking Fast

The housing market was ground zero for this recession. It's where the downturn began, and it's where aftershocks continue.

The federal government must continue looking for ways to help deserving homeowners and protect the nascent economic recovery. Several approaches bear consideration, including giving federal bankruptcy judges the ability to modify home mortgages.

Rising mortgage delinquencies are like ripples on the surface of the ocean before a tidal wave. More delinquencies equal more foreclosures. Fannie Mae, one of two mortgage giants now owned by Uncle Sam, reported last week that serious delinquency rates among conventional single-family mortgages were at nearly 5 percent of its portfolio — up from less than 2 percent a year ago. Federal regulators said about 28 percent of adjustable-rate mortgages were seriously delinquent or in foreclosure. Nationwide, a third of homeowners with a mortgage owe more than their homes are worth. In Milwaukee, nearly 5 percent of the housing stock already is vacant or in some form of foreclosure.

The Obama administration's feeble effort to prevent foreclosures has provided only 10,000 homeowners with permanent loan modifications amid complaints that the $75 billion program is bureaucratic and hard to use.

It provides mortgage companies and investors with incentives to reduce loan payments. But a recent study by the Federal Reserve Bank of New York suggested a more effective approach. The study found that reductions in principal were far more effective at avoiding foreclosures.

Giving deserving borrowers relief through the bankruptcy process is a sensible way to ensure they have some skin in the game. Judges already can modify other consumer loans; they should be given the option of reducing the principal of home mortgages.

Lending leftover money from the Troubled Assets Relief Program — or TARP fund — to borrowers who are in danger of losing their homes because of unemployment is also worth a look. And the Federal Reserve should extend its trillion-dollar program to prop up mortgage lending, which is due to expire March 31.

Saving deserving homeowners is not only the right thing to do; it also helps preserve a weak recovery that could easily be washed away.

REPRINTED FROM THE MILWAUKEE JOURNAL SENTINEL.

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