OPINION
Published: May 12, 2008

Beware government’s helping hand, poised to plunge into the mortgage crisis and sweep to the floor a wounded market rising, feebly but resolutely, to recover. Whether the gesture is construed as one of congressional goodwill — always a dangerous thing — or election-year politicking, a mortgage bailout chiefly would suspend the market correction now being driven by falling housing prices and increased demand. Secondarily, it would demonstrate anew the real and ethical folly of government as doting mother.

A bill engineered by Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, would allow the Federal Housing Administration to guarantee up to $300 billion in new home loans to financially distressed homeowners who could then refinance their mortgages at lower rates. The FHA would pay lenders just 85 percent of a home’s assessed value, but the loss still would be far less than what lenders would absorb in foreclosure.

Among the plan’s aims — aside from election-year pandering — is to prevent a nosedive in housing prices propelled by a rush of foreclosures. Conveniently cast to the side in this line of reasoning is the fact that the subprime crisis found its root in dramatically inflated prices and loosened lending standards in the first half of this decade. The return of rationality to lending requirements is helping to draw down prices, which in turn are rousing demand, the necessary ingredient to recovery. These developments likely would be halted by a bailout.

Also likely to be suspended by a bailout are active negotiations between lenders or borrowers to avoid foreclosure, which benefits no one. Allowing rather than subverting efforts within the market to address the crisis is preferable to government doing the job if only for the fact that it poses no risk to taxpayers.

Beyond questions of practicality are those of ethics.

Those who would receive government help account for less than 4 percent of borrowers nationwide, with the potential beneficiaries the most irresponsible. Left behind would be those who produced more up-front money for down payments and, frequently, opted for lesser homes in favor of better loan terms, people who put aside lavish inclinations for reduced risk. In addition to benefiting those with a predilection of living beyond their means, the bailout could extend to some of moderate wealth. The FHA can lend more than $725,000 to people living in high-priced areas.

Contrary to popular images of hapless “predatory lending” victims, subprime borrowers in no small number fudged upward their income and assets in loan applications in order to secure money for homes they could not otherwise have afforded.

The plight of millions of Americans facing foreclosure is difficult to ignore, whether one’s vantage point is that of politician, economist or neighbor. Who wants to see people lose their homes? Nonetheless, the congressional bailout, which President Bush rightly vows he will veto, would represent the latest indulgence of an overprotective government parent.

By restraining a hand that would hurt legions while seeking to help a few, our government could surprise by accomplishing something worthwhile, encouraging responsibility and allowing to mature the nascent trends of market recovery.

— The (Waynesboro) News Virginian