International Herald Tribune Editorial - Getting the rescue right

International Herald Tribune Editorial - Getting the rescue right
Copyright by The International Herald Tribune
Published: August 10, 2007


Help has been way too slow in coming for the estimated 1.7 million people in America who will lose their homes to foreclosure this year and next. A modest bill to bolster funds for state, local and nonprofit agencies that help hard-pressed homeowners renegotiate their mortgages and restructure their debts has been slogging through the Senate since April, and it won't be passed until October at the earliest - if ever.

On the presidential campaign trail, Senator Hillary Clinton recently promised to introduce a similar relief measure - next month.

There has been far less procrastinating, however, when it comes to offering help to investors, bankers and other lenders who are feeling squeezed as the mortgage mess restricts their access to easy money.

Thursday's smackdown in the stock market - like others this year tied to mortgage woes - will likely only intensify lawmakers' desire to ride to the rescue of well-heeled constituents.

Earlier this week, two friends of Wall Street, Senator Christopher Dodd and Senator Charles Schumer, called on federal regulators to ease restrictions so that Fannie Mae and Freddie Mac - the quasi-government mortgage agencies - can buy more mortgages and mortgage-related securities from lenders. That would grease the creaky mortgage-lending process with fresh capital. The White House is considering their proposal.

What is absolutely crucial, however, is that Fannie Mae and Freddie Mac be required to use that enhanced capacity to help homeowners who are in distress.

That means buying only from lenders who commit to using their newfound capital to refinance loans for borrowers now facing default and foreclosure. Otherwise, easing the restrictions could benefit lenders and investors, without reaching the Americans who are in the direst straits.

Many strapped borrowers stuck in subprime loans, with adjustable rates that reset sharply upward, could have qualified for higher-quality loans to begin with. Instead they were steered into the sub-prime variety by brokers who earned bigger fees on dodgier mortgages. Now that the lenders are suddenly in trouble and credit standards have been tightened, those borrowers cannot refinance into higher quality, more affordable loans. They clearly deserve help to keep their homes.

In other instances, borrowers with weak credit ratings, who had no choice a few years ago but to take out sub-prime loans, now have track records of good payments. They should also be allowed to refinance into loans that would allow them to keep their homes.

Policymakers must also acknowledge that even if the limitations are eased on Fannie and Freddie - and the freed-up credit is used to help responsible borrowers trapped in irresponsible loans - there will still be many more struggling homeowners who need help.

As a quid pro quo for freeing up capital via Fannie and Freddie, policymakers and regulators must pressure lenders to do more to restructure needy borrowers' loans. Lenders could extend the low teaser rates that got marginal buyers into their now unaffordable loans, or raise those loan rates gradually rather than in one explosive surge.

And when lawmakers return to Washington in September, they must complete legislation to help states and localities provide the ever-increasing numbers of at-risk borrowers with assistance in modifying their loans. American homeowners need a hand now.