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White House Smart To Offer Token Relief For Home Buyers

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The Tampa Tribune

Published: December 12, 2007

President Bush's plan to offer a little help for a few homeowners straining to repay adjustable-rate mortgages falls far short of financially rescuing anyone, but if it begins to restore market confidence it will be a success.

The overlapping problems of falling home values, rising foreclosures and the tightening of credit are big shocks to the economy. Investors and potential home buyers need some high-profile reassurance.

Bush's assistance is long on symbolism and short on aid, but the smallness of the action is itself calming.

Those who would have him intervene more deeply are wrong, both financially and morally. Reducing the risks for reckless investment would encourage more of it. And the vast majority of taxpayers who have not borrowed more than they can repay should not have to bail out those who have.

Others who want Bush to stand aside and let the chips fall where they may also are wrong. Fear is contagious, and if enough people start expecting the turmoil in the credit markets to spread, it will. Bush is reassuring them that the government is paying close attention and is nowhere near panic.

His plan is a voluntary arrangement with lenders to freeze for five years the interest rates paid to certain subprime lenders. He is targeting recent home buyers who have kept up their payments but whose low credit rating suggests that when their interest rates automatically increase, they'll be unable to pay.

The plan doesn't help folks already in foreclosure, folks with good credit, folks falling behind in their payments, or anyone with a fixed interest rate. It also exempts owners with less than 3 percent equity in their home.

Bush said more than 1 million people could qualify, but an independent analysis found that all the restrictions will limit the help to an estimated 145,000 families. The libertarian Cato Institute calls it "a curiously selective little group."

The more dangerous criticism is that the federal government should do much more. These critics forget that most people with a subprime mortgage are not yet in financial trouble and most of them will be fine. Many of them made large down payments, haven't lost their jobs and even though housing values have taken a dip, aren't about to walk away from their investments.

Eventually, real estate values will rebound. Interest rates for 30-year fixed mortgages remain low.

Many of the exotic and risky borrowing schemes have disappeared, punishing investors with big losses.

In responding to the crisis in real estate and lending, and its ripple effect through international financial markets, Congress and the president must guard against overreacting. A little of the right medicine is much safer than an overdose of good intentions.

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