NEW YORK (Map, News) - A government-backed mortgage bailout is needed, and it must be done right away.

Before shouting about all the reasons why taxpayers shouldn't rescue the profligate who took on more debt than they could handle, think about this: New research estimates one in 33 subprime borrowers will foreclose on their homes in the next two years.

That means the mortgage rot could be on the street where you live. And it could spread to your schools, to your hospitals and to the roads that you drive on.

This is one of those times when doing the right thing isn't necessarily fair, but it needs to be done for the greater good.

Foreclosures aren't someone else's problem. They hit all of us hard. Some 40 million homeowners could see their property values and their municipalities' tax bases drop by $356 billion over the next two years if this situation lingers on, according to a recent report from the nonprofit Pew Charitable Trust.

The rise in foreclosures not only knocks down what your house is worth - by $8,800 on average, according to the Pew report - it also means there will be less money for projects in your communities, too, because of declining tax rolls. At the same time, homes in foreclosure are more apt to be targets of crime and vandalism.

"If your neighbor forecloses on their house and it sits empty, that depresses the property value for everyone around it," said Kil Huh, a project manager at the Pew's Center on the States who worked on the report. "And often houses that foreclose sell for less than what they would have been worth."

Clearly something is needed to stop the cycle: Lower home prices lead to higher foreclosures, which then depress prices even more. Many of those walking away from their debts are borrowers whose houses are worth less than their mortgages so they see no incentive to keep paying what they owe.

Federal Reserve Chairman Ben Bernanke focused on this issue during a speech Monday night when he urged Congress to take additional steps to alleviate the problems. He noted some 1.5 million U.S. homes entered into the foreclosure process last year, up 53 percent from 2006, and the rate of new foreclosures looks likely to be even higher this year.

"High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets and the broader economy," Bernanke said. "Therefore, doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It's in everybody's interest."

Bernanke and other government officials gave a similar spin in March after the Fed took extraordinary step of rescuing Bear Stearns from the brink of bankruptcy due to its credit-market exposure.

The Fed was sharply criticized for brokering the deal that allowed JPMorgan Chase & Co. (JPM, News) to buy Bear Stearns using $29 billion in special financing that the central bank approved. Government officials said it was done to stabilize the nation's financial system.

That's the same reason why mortgage relief is needed now.

In his comments Monday, Bernanke appeared to throw some support behind a $300 billion housing-aid package pushed by House Financial Services Chairman Barney Frank, a Democrat from Massachusetts.

Frank's measure is estimated to cost $2.7 billion over the next five years and help some 500,000 homeowners. It would relax standards at the Federal Housing Administration so it could back more affordable, fixed-rate loans for borrowers currently too financially strapped to qualify.

Those homeowners could refinance into new loans if their lenders agreed to take substantial losses on the original mortgages. Borrowers would have to show they could afford to make payments on the new loans. They would have to share with FHA at least half of their proceeds if they profited from selling or refinancing again.

The House passed the housing aid plan on Thursday, but President Bush says he will veto the bill.

During an interview with The Associated Press on Wednesday, Treasury Secretary Henry Paulson called the measure too broad. He said the administration would continue negotiating with Congress for an acceptable bill, but he did not offer any details of what type of mortgage relief the administration would support.

"Housing is an important area and there are certain things that we need to get done there from Congress," Paulson said. "I view my job as to work to get something that is acceptable and that the president can sign."

But while Washington fiddles, time is slipping by, housing prices are dropping more and the crisis intensifies.

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Rachel Beck is the national business columnist for The Associated Press. Write to her at rbeck(at)ap.org

Comments from Examiner Readers

10:06 AM MST on Sat., Apr. 5, 2008 re: "ALL BUSINESS: Fed's Big Gamble"

Examiner Reader said:
the hell with the fence on the southern border (wont get built anway) lets put a electrified fence around wash d c,with all the politicos inside.

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4:53 PM MST on Tue., Mar. 18, 2008 re: "ALL BUSINESS: Markets Driven by Fear"

Examiner Reader said:
FEAR! isnt that what we are supposed to be living under. wash hired madison ave to promote it for the last seven years,so it must be a good thing.no wonder the world hates america.

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12:28 PM MST on Mon., Jan. 21, 2008 re: "ALL BUSINESS: More Misfortune for Banks"

Examiner Reader said:
just think ,you would have to be 80 or 90 years old to remember 1929.

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4:38 PM MST on Sat., Dec. 15, 2007 re: "ALL BUSINESS:What's Behind Foreclosures?"

Examiner Reader said:
big money making bigger money off the slave class.whats so complicated bout dat,dummy! oh ,i left out natural disasters and war.very profitable that bottled water, unused trailer houses and red chinese made combat boots.

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1:00 AM MST on Sat., Sep. 8, 2007 re: "Likelihood of Fed Rate Cut Less Clear"

Examiner Reader said:
Who is this Bernake guy? And where is Greenspan?? Let's not turn this into another Katrina case. Housing likely remains most people's largest investment. There's a lot of people hurting out there as a result, maybe homeless. This is a massive hurricane wreaking havoc and destroying lives that people or maybe the feds just don't see. Let's stop repeating these errors and miscalculations. We need a 1/2% rate cut!

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