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Housing dilemma

The Baltimore Sun

For more than 13,000 Maryland homeowners whose houses are in foreclosure and 2 million more across the nation likely to face the same fate this year, a rescue package tentatively agreed to yesterday in the U.S. Senate is likely to provide only limited relief.

It offers $100 million to provide counseling, bonds to fund refinancing and tax credits for purchasers of foreclosed houses and $4 billion in grants for local governments to buy foreclosed properties to protect neighborhoods. They're all useful steps, but they are unlikely to do more than ease the impact of the housing bust and allow both parties to say they are attacking the problem.

More expansive proposals, including one that would guarantee up to $300 billion in refinanced mortgages, are also under consideration. But regardless of how ambitious the government rescue efforts, significant economic hardship from the national housing bust is certain to linger, a painful lesson on the cost of the housing bubble.

For any federal refinancing rescue to work, lenders will have to accept significant declines in the value of their loans, as they should, because the alternative of foreclosure is likely to cost them more. Borrowers may still face heavy burdens with monthly payments of interest and principal possibly as high as 40 percent of their income. Many homeowners with poor credit might not qualify for refinancing.

Despite such challenges, the Senate also will consider an aggressive effort to rescue as many as 1.5 million subprime borrowers to stem a continuing collapse of home prices and the extended credit freeze likely to accompany it. The goal would be to limit broader economic damage and encourage a swifter revival of home building and buying.

But with credit standards tightening and family economics constrained by a likely recession and soaring energy costs, many homes purchased in the recent boom years will be less affordable to middle-class families. With fewer potential buyers, their value is likely to continue to fall.

For all its limits, the relief aid agreed to yesterday should be endorsed by the House and quickly passed. The housing crisis is far from over, and better remedies are in demand.

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