OP-ED: How to deal with foreclosure crisis

Four years into the housing bust, it’s painfully obvious that the Obama administration’s efforts to address the foreclosure crisis have failed.

A hodgepodge of federal programs has helped only a fraction of the millions in need. Billions of dollars appropriated for keeping people in their homes have gone unspent. Uncle Sam and lenders alike have moved at a snail’s pace, unable or unwilling to cut through the tangle of red tape, perverse incentives and ethical quandaries that have so far defeated attempts at relief.

It’s time for the administration to try a new and comprehensive approach. It’s in a good position to do so in the wake of the financial crisis, since 90 percent of mortgages issued nowadays are guaranteed by Uncle Sam, mostly via Fannie Mae and Freddie Mac, both now government wards. This gives Washington unprecedented power over residential lending.

First, the government needs to help millions of underwater homeowners refinance. The main thing keeping them from doing so on their own is a lack of home equity, but this is silly; refinancing actually reduces lender risk by making a loan more affordable.

Second, it’s time to overcome our national phobia about reducing the mortgage principal of underwater homeowners. Done judiciously, this can stave off a tsunami of foreclosures, rescue millions from the indebtedness that is crushing consumer spending, and get housing back on the road to recovery. It will also help save neighborhoods from the blight of empty, untended homes

A comprehensive homeowner rescue program will require incentives for lenders and, probably, changes in law. And it will cost billions. But allowing these hurdles to stand in the way will only condemn our economy to the doldrums — and too many families to foreclosure — for years to come.