Editorial: Lending a hand

Monday, Sept. 24, 2007 | 7:16 a.m.

The Bush administration and Congress are poised to increase federal backing of mortgages to help certain homeowners who are facing foreclosure - a move that taxpayer advocates call risky.

Housing and Urban Development Secretary Alphonso Jackson has predicted that as many as 500,000 of the 2 million subprime loans could go into foreclosure when the interest rates reset at higher rates at the end of next year.

The outlook is especially bleak in Nevada, a story by the Las Vegas Sun reported on Thursday. Nevada, California and Florida, respectively, had the nation's highest foreclosure rates in August.

The House and Senate passed measures last week that would allow certain homeowners to refinance their homes with federally backed loans. In August, President Bush initiated a temporary program to help homeowners obtain government-backed refinancing.

Details of the various proposals vary, but they would make the new loans available only to those who actually live in the homes facing foreclosure. Speculators who bought houses hoping to turn big profits would not qualify. Investors own one-third of the properties facing foreclosure in Nevada.

Advocates of limited government say it is naive to think that investors will not find a way to abuse a government-backed program. One Duke University researcher told Sun reporter Lisa Mascaro that, in the end, lenders will be the ones to benefit because they will be able to unload the troublesome loans and suffer few consequences.

That should change in the future, Federal Reserve Chairman Ben Bernanke told a House committee on Thursday. Bernanke wants to clamp down on predatory lending practices, such as lenders failing to ensure that borrowers have the income to repay a loan and lenders including prepayment penalties that prevent borrowers from getting out of loans that are beyond their means.

Bernanke's proposals are on the right track but come too late for thousands of homeowners. Investors who bought homes like so many lottery tickets should not be bailed out, but unsuspecting homebuyers who fell prey to predatory lenders should be afforded some help - which also could help prevent a blow to the U.S. economy resulting from tens of thousands of families being thrown out of their homes.