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Cleaning Up The Housing Mess

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The Tampa Tribune

Published: October 3, 2008

The public is seething about the bill the U.S. House must pass today, and the anger is justified.

Even many of the Senators who voted for the latest version of the financial rescue package on Tuesday are stunned that so much could go so wrong.

But if the House again rejects the rescue, no one is sure what would happen in an economy already gasping for more credit than is currently available. The bill must pass.

One popular complaint about the proposed rescue is that it does too much for banks and too little for individual homeowners in trouble.

Florida Sen. Bill Nelson voted no in part because the Senate bill "does not require financial institutions participating in the program to modify or refinance any loan. It only requires the Treasury to encourage loan modifications."

Another Democrat, Rep. Kathy Castor of Tampa, voted against the House measure for a similar reason. In a letter to the House speaker, she wrote that "we need an army of people" helping homeowners renegotiate their delinquent mortgages.

She's right, but it's not as if homeowners have been thrown to the wolves. Banks and credit unions are renegotiating locally, and could certainly use help. In the past 14 months nationwide, a reported 2.26 million homeowners have worked out better terms that kept them in their homes.

Also, the U.S. Department of Housing and Urban Development is sending $541 million to Florida to buy foreclosed homes to prevent the blight deserted houses can bring to a neighborhood.

It's hard to see why a few more measures geared toward homeowners were not added to a bill that has grown from three pages to 451. Senators even added a tax break for the makers of toy wooden arrows.

But the reality is that in the frenzy of easy loans and rapidly rising property values, many Americans simply bought houses they could not afford. Many more have been pushed into the red by divorce, layoffs or illness, along with higher costs for insurance, fuel and groceries. Every situation is different.

That's why Castor's approach of more individualized attention makes sense. Everyone should agree that a taxpayer who bought a small house and used car should not be forced to help someone else buy a large house and new car.

Market-based solutions, administered with some compassion, are ultimately the best way to get home prices and incomes realigned. The immediate problem is how to survive the current economic emergency so that messy but essential process can continue.

As magazine editor Steve Forbes put it, "If we don't restore confidence and order to our economy and lay the foundation for reliable credit for small business owners, we could see an economic collapse that rivals the Great Depression."

Many details have been added to the rescue bill, including a provision allowing Florida residents to continue deducting state sales taxes from their federally taxable income next year. The vital heart of the plan remains a big increase in federal power. The Treasury is authorized to buy up bad assets of private financial firms.

It is a necessary step that raises many questions Congress still needs to answer. One is raised by Nelson: Why did securities backed by risky subprime mortgages earn very top credit ratings, which encouraged pension funds and insurance companies to buy them?

Congress must come to the rescue of the sinking economy, but it shouldn't pat itself on the back and consider its job done. Much hard and politically embarrassing work remains ahead.

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