Ben says go while many taxpayers say no…

Federal Reserve Chairman Ben Bernanke said last Thursday that the government must do more to address foreclosures. Bernanke, speaking at a Fed conference in Washington, D.C., said that beyond just keeping homeowners in their homes, the Fed must continue to focus on foreclosure prevention to help stabilize the housing market and economy as a whole.

"The housing market remains central to the economic and financial challenges that we face," Bernanke said. "Reducing the number of preventable foreclosures would not only help families stay in their homes, it would confer much wider benefits."

According to Bernanke, about 15% to 20% of borrowers are "underwater" on their mortgages, meaning their homes are worth less than they owe. In addition, he said, 20% of subprime mortgages are seriously delinquent. Bernanke estimated that 2.3 million foreclosures will be initiated in 2008, compared to an average of 1 million before the mortgage meltdown.

Bernanke said the Fed, Treasury Department and Federal Deposit Insurance Corp. have already planned or put in place several measures aimed at stemming foreclosures. The government has, among other things, cut interest rates and announced a plan to buy $500 billion of mortgage-backed securities and $100 billion of debt issued by government-sponsored mortgage financers Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500).

But Bernanke said more can still be done and outlined several "promising programs." One was FDIC Chairwoman Sheila Bair's plan, which would reduce mortgage rates, extend loan terms and offer government insurance against bank losses if borrowers who receive help end up in default anyway. Another proposal includes strengthening the Federal Housing Administration's Hope for Homeowners program by reducing the premiums paid by the lender. Bernanke suggested that Congress could give FHA the ability to set premiums on a case-by-case basis rather than an across-the-board approach.

Lastly, Bernanke said the government could buy up delinquent mortgages in bulk and refinance them under Hope for Homeowners or a similar plan. He said such a plan could help more homeowners stay in their homes than if the government refinanced individual mortgages in a more selective process. The Fed chief said all of the proposals could be used in tandem and would likely require additional public funding.

It’s that last point that has taxpayers up in arms about paying for all of these bailouts. In the same issue of CNN Money was an article that chronicled the angry reactions of homeowners and those who are waiting to own a home when they can afford one. Their take on all of this was summed up by Jay Black, a CNNMoney.com reader who rents in Queens, N.Y.- "All these idiots who bought homes they couldn't really afford are going to be rewarded with loan modifications, but what about those of us who didn't make stupid decisions?"
The case for bailing out homeowners is that foreclosures have far-reaching effects. As delinquencies have skyrocketed, most of the country has suffered steep home-price declines which has helped cripple the economy. Helping some homeowners but not others may not be fair, but it's necessary to keep the economy from deteriorating even further.

"There's always the issue - 'I'm paying my mortgage even though I'm upside down and my neighbor is not,'" said Mark Goldman, a real estate professor at San Diego State University.

Letting delinquent mortgage borrowers slide into foreclosure will only do more damage to the entire financial system, according to Goldman. That's the most fundamental reason to support government funded rescue efforts.

"The appropriate public rationale [for the bailouts] is to support housing prices," he said. "The reason they're doing this is to stop plummeting prices and everyone benefits from that."

So, what is the “right” answer to this crisis? Certainly doing nothing and letting millions of home owner default and property values continue to drop does not seem to make sense. Sure it’ll seem “unfair” to some, those who have not let themselves (or caused themselves to) get caught up in this mess; however, the greater good for the vast majority of Americans seems to be best served by taking actions to stem the tide of foreclosures and restore some sanity and value stability to the housing market. I have a lot less issue with helping home owners try to stay in their houses than I do bailing out a bunch of Wall Street fat cats, not one of whom has yet volunteered to give back the billions that they made while they were creating this mess.