The housing bill passed recently by the U.S. House has a few good points. The program it creates would be voluntary. It would tighten regulation of the mortgage giants, Fannie Mae and Freddie Mac, something Congress has resisted for far too long.

    But overall, the legislation goes too far in its attempt to fix the housing sector.


    The housing bill passed recently by the U.S. House has a few good points. The program it creates would be voluntary. It would tighten regulation of the mortgage giants, Fannie Mae and Freddie Mac, something Congress has resisted for far too long.
    But overall, the legislation goes too far in its attempt to fix the housing sector.
    Probably the best course is to let the market sort out the mess on a case-by-case basis, with some government assistance for low-income individuals who were duped by unscrupulous lenders.
    The bill, sponsored by Rep. Barney Frank, a Massachusetts Democrat, would allow use of government credit to refinance troubled mortgages.
    Lenders would receive guaranteed repayment on a new loan, valued at 85 percent of the current assessed value of a home. Borrowers would have lower payments.
    But taxpayers would be left on the hook, which is worrisome for several reasons.
    Lenders would be encouraged to funnel the most troubled loans to the government. That’s one reason why the Congressional Budget Office estimates that up to a third of the proposed refinancings would still end in defaults and foreclosure.
    This would add to the trillions of dollars in unfunded federal liabilities that American taxpayers already face.
    It would be difficult, and sometimes impossible, to separate borrowers who got in trouble through no fault of their own from reckless speculators who believed that home prices would rise forever or those who lied about their incomes to obtain loans.
    The Senate must still act on this measure, and the legislative process could take so long that the crisis will have passed anyway. The legislative schedule already looks tight, with breaks for summer holidays and the political conventions. ...
    Bailing out lenders, speculators and homeowners who behaved irresponsibly would be a bad message for Washington to send — one that would be likely to encourage other financial bubbles in the future.