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The trust factor in mortgage bailouts

The latest rescue plan for bad mortgages relies on fixing the bond between lenders and borrowers.

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By now, most Americans have lost track of who is being rescued by Washington. AIG, yes. Lehman, no. Fannie Mae, yes. GM, maybe. Still at the heart of this mess, however, are troubled mortgages. The latest plan to help homeowners strikes a right note. It aims to restore a key and illusive factor in business contracts: trust.

Simply throwing taxpayer dollars at problems such as rising home foreclosures or sinking US automakers doesn't solve the fundamental issue that certain industries have suffered a breakdown of confidence over many years. Americans feel deeply betrayed.

Why should taxpayers, for instance, now trust GM, Ford, and Chrysler to make vehicles as consistently reliable and affordable as foreign competitors if they are handed billions? The evidence is not yet in. Simply "saving jobs" doesn't make sense if those jobs still make cars many buyers don't want.

The same is true for troubled mortgages. How can government help fix the broken bonds between lenders and borrowers? Money isn't the primary answer. There needs to be a renewed faith that both sides are now honest in their current assessment of a new mortgage deal.

Government is not very good at such assessments. Nor may be many bankruptcy judges, if Congress decides to let them renegotiate mortgages for debtors who are over their heads. This week's government rescue plan does, however, lay down some guidelines for financial institutions, starting with Fannie Mae and Freddie Mac, to follow in conducting "workouts" for mortgages that can be saved.

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