In search of mortgage 'victims'

WASHINGTON -- She who would be president excoriates, as Democratic presidential candidates must, the current president and almost all his works. But she and he largely agree regarding the subprime mortgage problem.

Granted, she greeted his response to it with the cri de coeur without which Democrats would be speechless: "More!" She upped his ante by proposing a moratorium, for 90 days, on foreclosures. But the crux of her proposal is the crux of his -- a selective five-year freeze on the rates of subprime adjustable-rate mortgages.

Hillary Clinton already is intimating that a seven-year freeze might be needed. Let the auction begin. Any freeze makes it likely that lenders will henceforth add risk premiums to the cost of money for less-than-prime borrowers.

Although the freeze of adjustable mortgage rates amounts to a revision of perhaps hundreds of thousands of contracts, it will help a relatively small number of people. And it will not help scrupulous borrowers who have scrimped and sacrificed to fulfill the obligations of their contracts. According to Treasury Secretary Hank Paulson, 93 percent of American mortgages are paid on time. At most, 15 percent of recent "resets" -- mortgage rate increases -- have resulted in foreclosures. Alan Reynolds of the Cato Institute says that only about a third of adjustable-rate mortgages are with subprime borrowers and barely half of subprime mortgages have variable rates.

In helping lenders to cooperate with each other in reducing their distress and that of their customers, the government has played only "a convening role," says Treasury Secretary Paulson, who adds: "This is a private-sector effort, involving no government money." But the second half of that statement does not validate the first. The government is now implicated in the making of arbitrary distinctions.

Clinton says the rate freeze should last "until the mortgages have been converted into affordable, fixed-rate loans." What does "affordable" mean? Paulson says: "Homes in foreclosure can pose costs for whole neighborhoods, as crime goes up and property values decline. Avoiding preventable foreclosures, then, is in the interest of all homeowners." But all foreclosures are "preventable" if all mortgage contracts can be revised. Regarding "predatory lending," remember that Congress often operates on the principle "first criminalize, then define." But did "predatory" lenders expect the borrowers upon whom they supposedly preyed to default?

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SPEAKING ILL OF LENDERS BEGAN when homo sapiens acquired language, hence it is unsurprising that many people who until recently were criticizing lenders for not making money available to marginally qualified borrowers are now caustic about lenders who complied. Clinton is fluent in the language of liberalism, a k a Victimspeak, so, denouncing "Wall Street," she says families were "lured into risky mortgages" and "led into bad situations" by those who knew better. So, lenders knew their loans would not be fully repaid?

Jesse Jackson speaks of "victims of aggressive mortgage brokers." But given that foreclosure is usually a net loss for all parties, what explains the "aggression"? While granting that "borrowers share responsibility," Clinton's only examples are those "who paid extra fees to avoid documenting their income" and "speculators who were busy buying two, three, four houses to sell for a quick buck." Everyone else has been victimized.

Paulson has been criticized for saying that some subprime borrowers "will become renters again." But some borrowers put no money down on their houses, or took mortgages with negligible "teaser" rates, or mortgages requiring them at first to pay only interest, not principal. Such borrowers are effectively renters.

The president says: "The homeowners deserve our help." But why "deserve"? The principles of "compassionate conservatism" are opaque, but they might involve liberalism's premise that Americans are so easily victimized they must be regarded as wards of government.

Perhaps Washington's intervention in the subprime problem reveals the tiny tip of an enormous new entitlement: People who voluntarily run a risk, betting that they will escape unscathed, are entitled to government-organized amelioration when they lose their bets. The costs of this entitlement will include new ambiguities in the concepts of contracts and private property.