Mortgage mess: Who gets help and who pays?

In one sense, taxpayer-backed help is already being provided by some federal authorities – aimed especially at averting a possible meltdown in the financial industry.

"It isn't a question of whether there's going to be a bailout," says Scott Lilly, a senior fellow at the Center for American Progress, a left-leaning Washington think tank. "It's a question of what kind of a bailout."

Among the steps taken so far:

•The Federal Reserve intervened to prevent the sudden collapse of Bear Stearns, an investment bank. But the Fed took on $29 billion worth of risk from JPMorgan Chase (which plans to buy Bear). That could expose the Fed – and by extension taxpayers – to a loss. The Fed is making other low-interest loans to Wall Street firms.

•Government-sponsored housing agencies are taking on more risk to keep home loans flowing. The cost to taxpayers may be small or large, depending on how those loans go.

•The Fed has been cutting interest rates. That helps many borrowers – whose ranks include financial companies as well as homeowners. But the move could push up inflation for all Americans, and many retirees face lower income on their savings as a result.

Where McCain voiced caution about making taxpayers pay for more housing help, Democratic presidential candidates have said the government should do more.

In a speech last week, Hillary Rodham Clinton argued that the housing crisis affects most Americans, not just those at risk of losing their homes.

"In today's economy, trouble that starts on Wall Street often ends up on Main Street," she said. She added that the decline in housing prices has meant lost wealth even for homeowners who have no mortgage to pay off.

The troubles on Wall Street also mean that many consumers and businesses who never took out a subprime loan now face tougher terms on credit cards and other borrowing.

The great risk to the economy is a downward spiral, in which losses for banks tighten credit further.

If foreclosures erode household wealth and consumer confidence, home prices could overshoot on the downside just as they soared through the roof during the boom. "It's no telling how far down you go before you find the bottom in that kind of scenario," Mr. Lilly says.

That's one reason that efforts are ramping up in Congress for additional measures designed to slow the pace of foreclosures. The leading approach, for now, seems to be one backed by Rep. Barney Frank (D) of Massachusetts and Sen. Christopher Dodd (D) of Connecticut that could start moving this week.

It would have the Federal Housing Administration guarantee refinanced mortgages that make it more affordable for at-risk homeowners to avoid foreclosure.

Lilly supports this concept, but he says another approach could also spur faster restructuring of troubled loans: a tax credit to induce lenders to adjust mortgage rates downward.

In most of the plans under review, the goal is not to keep home prices from falling to a new equilibrium, but simply to avoid greater financial chaos than is already under way.

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