A few weeks back there were positive signs that some mortgage companies were beginning to work with their customers to avoid defaults on subprime loans. It looked like the private sector might take care of the problem it helped create.
Thursday's announcement of a new government plan to freeze interest rates for up to five years on some of those loans is an acknowledgment that the subprime problem had become so deep that regulators had to step in to avoid an even larger meltdown in the housing market. In short, the mortgage industry wasn't moving fast enough, and more defaults and foreclosures were on the horizon.
The Bush administration deserves credit for recognizing that government intervention was an unfortunate but necessary move. Treasury Secretary Henry Paulson worked with industry representatives to come up with a plan that calls for a five-year interest- rate freeze on some adjustable-rate subprime loans, 2 million of which were set to adjust to levels as high as 11 percent.
In October, Countrywide Financial Corp. said it would offer 82,000 customers -- including several thousand in Minnesota -- the opportunity to refinance mortgages to avoid defaults. It's unfortunate that a private-sector initiative couldn't cure what ails the mortgage industry. But Congress heard troubling testimony last week that there was too little industry response too late in the game.
The Mortgage Bankers Association reported Thursday that home foreclosures hit a record high in the July-September period. Without government intervention, the fear was that the problem would only grow and further hurt the weakening national economy.
There's a definite downside to the federal plan. In effect, the government is telling investors in U.S. mortgages -- those who actually own the loans after the banks sold them as securities -- that they'll have to settle for less interest income. That's not the kind of signal the markets like to receive.
But there are plenty of losers in the subprime mortgage debacle. Irresponsible lenders made loans to customers with questionable credit histories. Individual borrowers signed up for loans without paying attention to the details. Personal responsibility is a good thing when money is involved.
The White House-backed plan is a good start. So is the work being done by the counseling and lending programs operated by state and local government agencies in Minnesota and other states. The Bush plan is not a cure-all. Lenders still have a lot of work to do with the thousands of debt-strapped customers who will not benefit from the freeze. There will be more defaults and foreclosures before we reach the bottom of this hole. But there are likely to be far fewer, which is a good development in an otherwise horrible story that has made too many dream homes into nightmares.