Times Editorial

Small steps on housing not enough

Just as President Bush was surprised to learn that gas could reach $4 a gallon (it's only pennies away in some parts of California), his administration has been slow to grasp the gathering risk from the ongoing housing crisis. Bush got a reminder from Federal Reserve Chairman Ben Bernanke the other day. "Efforts by both government and nonprofit entities to reduce unnecessary foreclosures are helping, but more can and should be done," Bernanke said in a speech in Orlando.

The setting was appropriate. Orlando has the highest home vacancy rate in the nation at 7.4 percent, followed by the Tampa Bay area at 5.1 percent. Actually, nowhere is safe from the housing bust. Foreclosures were up 50 percent last year, and another 1.5-million subprime mortgages will have their interest rates adjusted upward this year, raising new fears.

The Bush administration has taken some steps, supporting a voluntary effort called Hope Now in which lenders have modified the mortgage terms of 278,000 borrowers, a drop in the bucket when compared with the extent of the problem. The administration finally agreed to two other measures — allowing the Federal Housing Administration to insure larger mortgages and the government-sponsored programs known as Fannie Mae and Freddie Mac to expand their mortgage lending.

It's not enough, Bernanke said. He called for "vigorous" steps to reduce "preventable foreclosures." One way would be for lenders to offer "principal reductions" to some borrowers, in which (for example) a $200,000 mortgage on a house that has fallen in value would be reduced to $180,000. That's not a bailout and could actually save lenders money over the cost of foreclosure proceedings and an auction sale.

"In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure," Bernanke said.

There are obstacles to such a fix, he noted, particularly in getting buy-in from the various holders of mortgage securities. And he stopped short of threatening regulatory action or supporting the use of tax dollars to purchase nonperforming loans, as some congressional Democrats have proposed. While lacking the necessary urgency, Bernanke at least gave the mortgage industry a warning and a game plan. He also put some money behind his words Tuesday, giving credit markets a $200-billion temporary boost, which sent stocks soaring.

Bernanke's predecessor at the Fed, Alan Greenspan, helped create the housing bubble and its collapse. Now Bernanke has to do more to help lead the way out of the mess.

Small steps on housing not enough 03/11/08 [Last modified: Thursday, October 28, 2010 9:36am]

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