Messing with the mortgage market.(correction, Please!)(Viewpoint essay)

ITEM: "More steps by Congress and the Bush administration are likely needed to stabilize the imploding U.S. housing market, a senior White House official said on Tuesday, as more signs of distress appear," reported Reuters on January 2, 2008. "Early last month, President George W. Bush unveiled a plan to help some homeowners avoid foreclosures as some 1.8 million mortgages with low starter interest rates are due to reset to sharply higher rates this year."

ITEM: An article entitled "Subprime help: Some loan rates to be frozen" in USA Today for December 2, 2007 reported: "Homeowners with certain subprime loans will benefit from a five-year freeze in their interest rates, under a plan the Bush administration will unveil Thursday, according to people with knowledge of the deal that's being forged with the mortgage industry. The plan is intended to ease the threat to the economy from the cascading number of foreclosures among subprime borrowers. The Treasury Department estimates that the plan could grant financial relief to hundreds of thousands of homeowners."

ITEM: "Homeowners dialing up their mortgage company to get their current rate frozen could be disappointed," reported the Associated Press in the Columbia Daily Tribune (Missouri) for December 31, 2007. "The White House plan does not force mortgage companies to give eligible homeowners a break. It is voluntary."

CORRECTION: The White House rescue plan for mortgages is not truly voluntary; it is, in fact, unnecessary because lenders really do not want to go into the foreclosure business, mainly because it is unprofitable. They have a built-in incentive to come to mutually agreeable terms with borrowers to make it possible for the homeowners to stay in their homes. Of course, when the government threatens to take additional steps against lenders if they don't cooperate with the government "fix," the whole idea of voluntary participation is shown to be absurd. Senator Hillary Clinton (D-N.Y.), for one, is already selling an even worse, less "voluntary" scheme--if this supposed fix doesn't prove sufficient.

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Rest assured that the bailout of borrowers, who knowingly and willingly entered into contracts that they now can't pay, won't work as promised. But the attitude of Washington is reflected in the words of Treasury Secretary Hank Paulson: "Nothing is worse than doing nothing." This is untrue. Doing "nothing" would require discipline, courage, and a modicum of intelligence--qualities apparently in short supply in Washington.

One can trust meddlesome politicians and regulators to do one thing: make a bad situation even worse. The government is calling on lenders to violate their contracts with those who purchased mortgages, meaning, in this case, imprudent behavior--buying more than one can afford--is being rewarded. Yet, when reckless behavior is rewarded, you get more recklessness.