Safe(r) at home

Safe(r) at home

Chicago Tribune: It’s easy to find fault with President Barack Obama’s mortgage relief plan, and many critics have. It’s too expensive, they say, or it’s too small to help. It’s too generous with irresponsible borrowers, or it’s stingy toward honest homeowners caught in a maelstrom they didn’t make. It goes too far to help reckless lenders, or it violates their contract rights.

There’s some truth in all these complaints. The package won’t satisfy everyone. Obama doesn’t pretend it’s a grand solution — saying that it will merely “prevent the worst consequences of this crisis from wreaking even greater havoc on the economy.”

But that doesn’t mean it’s not worth doing. Overall, it’s a sensible attempt to contain a crisis whose effects are still spreading.

The economic downturn stems mostly from the burst housing bubble. Falling home prices have caused a surge of foreclosures. Banks holding mortgage-backed paper have seen their balance sheets erode. Lenders have cut back on lending.

Plan makes sense

All these events have stalled the economy, feeding the original cycle. So extending help to struggling homeowners makes sense for everyone, not just the direct beneficiaries — just as treating tuberculosis victims is in the interest of those who have not been infected as well as those who have.

Obama’s blueprint has two major virtues. First, it recognizes that the government can’t rescue everyone. Second, it relies heavily on voluntary incentives to spur lenders to renegotiate with borrowers instead of resorting to foreclosure. It carries a price tag of $275 billion, which once would have sounded huge but lately sounds almost modest.

Where the president goes wrong is to authorize courts to cut the mortgage balances of homeowners who file for bankruptcy. That would help today’s borrowers. But it would also upend the established rules for home loans, thus assuring higher rates and lower availability in the future.

If you want to discourage banks from mortgage lending, this is a great way to do it — and to further depress the housing sector. He or Congress should jettison that idea and focus on the rest of his plan.