Senate approves housing-assistance package

Following their colleagues in the House of Representatives, members of the U.S. Senate Banking Committee yesterday approved legislation that would help homeowners in danger of losing their residences to foreclosure.

This measure may even win the favor of the Bush Administration, because the rescue plan avoids any direct cost to U.S. taxpayers.

You can read about the legislation here, in this story in the New York Times by writer David Herszenhorn. Basically, the Senate bill would create a fund for affordable housing financed by the two government-sponsored mortgage buyers Freddie Mac and Fannie Mae. In its first year, the fund would provide about $500 million to help homeowners facing foreclosure.

The House of Representatives, earlier in May, approved a similar measure.

Will whatever, if any, legislation finally passes help stem the rising number of foreclosures? Probably. But the real solution to the foreclosure crisis is to make sure that lenders and borrowers don’t make the same mistakes that led to the current problems. This means that lenders must refrain from making questionable loans to borrowers with bad credit histories, low incomes and high debt levels. It’s incredible how many inappropriate mortgage loans — many requiring no down payments and no documentation to prove a borrower’s income and employment statuses — were made during the housing boom.

Borrowers need to act more responsibly, too. Many — certainly not all, but many — borrowers sought out adjustable-rate loans with artificially low initial interest rates so that they could squeeze into homes they really couldn’t afford. When those loans adjusted, these borrowers suddenly faced monthly mortgage payments they couldn’t afford.

Until both borrowers and lenders learn to act more responsibly, it’s only a matter of time before another wave of foreclosures hits the country.