Waiting (Too Long) for Relief

A year into the worst foreclosure crisis since the Depression, the House only now is getting serious about a foreclosure prevention bill.

It is bad enough that it will be weeks or months or next year before Congress actually passes a final relief measure. Worse is that the measure is more supportive of the mortgage industry, whose shoddy practices stoked the crisis, than of troubled homeowners, threatened communities or taxpayers who may have to foot the bill.

The measure, pushed by Representative Barney Frank, the Financial Services Committee chairman, is too much carrot and too little stick. It would guarantee troubled loans that are refinanced by lenders, provided the lenders reduce mortgage balances to an amount equal to 85 percent of the property’s current value.

Participation by lenders would be voluntary. If they or other parties to the loan — like mortgage investors — did not want to reduce the loan balances, they could continue with foreclosures. That is what has happened with other voluntary approaches.

Congress could fix that big flaw by finally allowing bankrupt borrowers to have their mortgages modified under court protection. Lenders would have a real incentive to participate in the bill’s rescue plan if they knew that borrowers had the option of going to court, where a judge could change the terms of a mortgage.