Subprime mortgages

There's a cruel irony behind the implosion of the subprime mortgage industry, now visible in the national spike in foreclosures and resulting calls from political opportunists for government intervention.

Prior to the housing boom of a few years back, financial institutions faced enormous pressure from politicians and special interests to extend loans to people with poor to marginal credit, unstable employment histories, low incomes and no assets. Lenders were chided for insisting that qualifications be attached to the American dream of home ownership.

Some firms caved. They didn't just lower their qualification standards -- they ran them through the shredder, handing out "creative" financing packages to families who were an illness or a car accident away from missing a mortgage payment.

About the time the introductory rates on these loans expired and mortgage payments went through the roof, the housing market cooled. As a result, more than 2 million American homes financed through subprime loans are now at risk of default. Nevada, once the country's hottest real estate success story, has the nation's highest foreclosure rate.

Now many of the same people who demanded that lenders be more liberal are furious that they weren't more conservative. And, as usual, they want Washington to put Humpty Dumpty together again.

Thankfully, there's little support in Washington for a massive federal bailout of the mortgage industry. But many in Congress aren't above using the heavy hand of regulation to "persuade" lenders to refinance millions of loans on more favorable terms.

"We cannot sit on the sidelines while increasing numbers of Americans lose their homes," Illinois Sen. Barack Obama, a Democratic candidate for president, wrote in a letter to Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke.

No one enjoys seeing large number of Americans face a "step down" in living arrangements. But is it a legitimate function of government to help people who willingly entered a contract remain in homes they clearly can't afford? Should those who saved and worked and waited until they could really afford a house now be taxed to allow those who did none of those things to continue living beyond their means?

And when government regulation already ads tens of thousands of dollars to the cost of every home, should even tighter restrictions be placed on the lending institutions that make home ownership possible for millions? No.

High-risk home buyers aren't the only people being hurt by this market correction. Many lenders have shut down or filed for bankruptcy. Jobs have been eliminated. Investors have lost billions. And home buyers have fewer mortgage choices.

Given time, these wounds will heal. But the housing market will return to health faster if government stays out of the way.