What about this Bush plan?

The administration has announced a plan to help borrowers in danger of default. Broadly, the terms seem to be:

1) Increasing the number of homeowners the FHA can insure, which will help them refinance at lower rates. The FHA (Federal Housing Administration) doesn't offer loans itself; it just helps people with shaky credit or financials qualify for mortgages by guaranteeing to pick up the tab in case of default.

2) Suspending the tax penalty for people who get their loan values reduced. Normally, the IRS taxes any such reduction, in order to prevent companies from giving their employees "loans" which they then "forgive" as a way of evading taxes on salaries. I wouldn't be precisely shocked if some valued employees with employer-sponsored loans, but without financial problems, see their debt reduced during the tax holiday.

3) A joint initiative between Treasury and HUD to offer as-yet-unspecified help to people in danger of defaulting.

Overall, this seems to me like a pretty good package. It doesn't, as many of the more generous plans do, offer irresponsible borrowers free home equity at the expense of either the lender or the taxpayer. But it does give them a chance to get some breathing space by working out terms with their lender. And it stops the rather horrid practice of taxing people who've had to sell their house for less than the value of the mortgage.

Of course, one wonders how much help the Treasury/HUD initiative will really be--it may just consist of Federal employees saying, in stentorian tones, "You sure do have more house than you can afford, there." But overall, it seems like a pretty good package, and the expense to the taxpayer seems admirably minimized.