Homeowners come first

PRESIDENT BUSH opened a dialogue with Congress yesterday to devise a bipartisan plan to help people with mortgage difficulties keep their homes. The final package cannot be expected to protect everybody with poor credit ratings who took out a mortgage, nor should it shield investors who speculated in housing. But it ought to contain enough federal assistance to help those who have the incomes to maintain a mortgage, but are squeezed by a sudden increase in payments.

In his speech yesterday, President Bush made the first move in what promises to be a negotiation with congressional leaders that will last well into the fall. He endorsed the bill proposed by Democrats that would end the tax penalty for renegotiating a mortgage loan downward in a declining housing market.

This bill ought to be passed. The government should not treat the difference between the original mortgage and the new, lower amount as earned income.

And the president was also on target when he sought to extend the reach of the Federal Housing Administration, which insures home mortgages. The administration on its own will offer more families this insurance, at a higher fee then usual, to encourage them to switch from mortgages with ballooned interest payments. That's a sound policy change, but it's only expected to help 80,000 borrowers, a tiny fraction of the 2 million who will face higher mortgage charges in the next year and a half.

Bush wants Congress to allow the FHA to insure bigger loans and reduce down payment requirements so than more homeowners can take advantage of these insured mortgages. Bush's plan dovetails nicely with one proposed by Representatives Barney Frank of Massachusetts and Maxine Waters of California. Congress ought to approve enhanced FHA authority quickly this fall.

It is also worthwhile to consider expanding the lending capacity of Freddie Mac and Fannie Mae, the two federally chartered home lending corporations. This may be necessary to provide the money needed to refinance mortgages so that they come with reasonable interest rates. Bush has ruled this out for fear of intruding too far into the private mortgage market, but he needs to be flexible if Congress can show him that this can be done without bailing out investors who took undue risks.

The Wall Street Journal reported yesterday on one form of speculation. It found that between 21 and 32 percent of all foreclosures in California, Nevada, Florida, and Arizona occurred on properties not occupied by the owner. The federal government needs to make sure that programs to help homeowners do not inadvertently bail out absentee buyers, or the investors who bought up these and other marginal loans.

Federal intervention in the housing market will require a delicate balancing of protection and risk. If Congress and the president work cooperatively, they can devise policies that, as Bush said yesterday, keep as "many people as possible in their homes."