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Mortgage relief the right way

Mortgage relief the right way

Mortgage relief legislation deserved to live

President Bush won’t even get a chance to make good on his threat to veto a bill that properly would have forced bankers and mortgage lenders to bear some of the financial burden for the subprime mortgage mess they helped create that now threatens to put hundreds of thousands of homeowners out in the streets. Senate Republicans effectively killed the bill Thursday with a filibuster threat.

The bill would have allowed bankruptcy judges to modify the terms of some 1.8 million primary subprime mortgages — something that, strangely, they’ve never been allowed to do. And why shouldn’t they, since most other kinds of debt — including mortgages on investment property and vacation homes — qualify for restructuring when the borrower declares bankruptcy?

Well, the mortgage lenders and bankers, who raked in billions on these and other loans during the housing boom, raised a stink, convincing Republicans that such interference would be bad for their business. They insisted it would lead to not only tighter but more expensive credit — a plausible argument, but not entirely unreasonable given that the industry’s reckless behavior granting loans to people who weren’t qualified for them was what led to this mess.

The alternatives to slightly tighter, slightly costlier credit — foreclosing on hundreds of thousands of homeowners, or a taxpayer-funded bailout — hardly seem preferable. The market is already so glutted that prices in some areas of the country have fallen in the double digits; dumping more houses on the market would be calamitous. Likewise, a taxpayer-funded bailout would be unfair to the majority of Americans who had nothing to do with this debacle.

The government should make the principals — the lenders and mortgage holders — share the burden. President Bush wants the former to voluntarily restructure some of the loans, but that seems unlikely.

Meanwhile, nobody is saying bankruptcy judges should entirely relieve borrowers from their responsible. They should be granted only enough relief to continue making payments so they don’t lose their homes, which aside from being disastrous to them would be ruinous to the economy.

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