Steve Chapman

Schumer hopes to avert future foreclosures by insisting that homeowners demonstrate they have the income to afford not merely the initial payment, but the highest one they will eventually face. He also plans to spare current borrowers by spending tax revenues for their benefit -- as well as vigorously pressuring private financial institutions to "direct resources" to this worthy end. The money would go to nonprofit entities, so they can help debtors and creditors reach terms to prevent foreclosure.

But lenders already have good reason to work out bad loans, so they don't get left holding a property that, in today's market, may be worth less than the mortgage. If it's true, as Schumer claims, that many borrowers could qualify for cheaper loans, they are free to go get them -- and mortgage brokers have ample incentive to seek those customers out. The senator's bizarre assumption is that absent federal intervention, all these parties will blunder around without a clue.

In fact, most of them know what they're doing. A recent study for the National Bureau of Economic Research found that thanks to improvements in the mortgage market over the past 35 years, "households are now more able to buy homes whose values are consistent with their long-term income prospects."

A family whose disposable income stands to rise in the coming years can now get a mortgage that reflects its potential. Before such innovations as subprime loans, says one of the authors, Princeton economist Harvey Rosen, "you might know that you had great prospects, but it didn't matter."

Of course, some people will overestimate what they can eventually afford, and some of them will lose their homes. But most of these loans, however dicey they look to congressional Democrats, get repaid, which suggests the borrowers know best.

Schumer, however, would overrule their judgment and dash their dreams. They can take deep consolation in knowing it's for their own good.

Steve Chapman

Steve Chapman is a columnist and editorial writer for the Chicago Tribune.

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