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A smart fix for the subprime mess

Help homeowners by tweaking the bankruptcy code.

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Over the past 15 years, homeownership, especially among people of color, has risen to historic levels. In just the past five years, 2.8 million families have bought their first homes. Now, the subprime mortgage crisis is threatening to roll back this progress.

It is clear that subprime loan foreclosures are going to get worse. How can the government help homeowners without putting taxpayer dollars at risk or sending the wrong signals to the housing market?

There is no single answer. Some ideas are intended to bail out Wall Street fund managers who made bad decisions on mortgage-backed securities. Other proposals have the unintended effect of propping up investors who bought property for speculative gain. Some notions, such as programs to educate and counsel homeowners, are a positive but small step. But the reality is that markets do work, and although credit markets are in distress, progress is being made.

I applaud the White House efforts to encourage mortgage servicers to modify existing adjustable-rate loans for a limited number of borrowers who cannot afford interest-rate resets. However, depending solely on the goodwill of an industry that bears no small measure of responsibility in this crisis is unlikely to be the full answer.

What is missing is a rational and urgent push to help the estimated 2.2 million families in imminent danger of losing their homes to foreclosure.

Congress is considering a small fix that would have more impact on these families than any other option under consideration: temporarily allowing bankruptcy courts to give the same relief to homeowners on principal-residence mortgages that business people get on real estate investment loans, that farmers get on farm loans, and that individuals receive on loans for vacation homes, cars, trucks, and boats.

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