Keep safe the ability to borrow on a home

In regard to Fannie Mae and Freddie Mac, the stockholder-owned companies that hold almost half the mortgages on America's homes, the public has three clear interests:

• That any financial sickness be contained, so as not to spread any further;

• That taxpayers' money be used sparingly, so as not to encourage lenders to be reckless in the future, and;

• That creditworthy homeowners continue to be able to borrow under reasonable terms — now and always.

The Federal Reserve Bank was set up 95 years ago to prevent a local failure from becoming an economywide disaster. In allowing the Federal Reserve Bank of New York to make emergency loans to Fannie and Freddie, the central bank is following exactly this role. The Fed would be backstopped by the Treasury, which will ask Congress for authority to make 18-month loans and even buy Fannie and Freddie stock. All this is needed to quarantine the problem and begin a recovery.

The second concern, that the rescue not encourage "moral hazard," is why Treasury Secretary Henry Paulson has been talking like a skinflint. It is a long-term worry, and is easy to brush aside during the enthusiasm to help people out.

But Paulson is right: It is investors' job to take risks, not dump it on the government. As steward of the public purse, Paulson has to limit his generosity.

Though Fannie and Freddie do not have the worst loans, it is clear that they will need to be reined in and regulated better. Several efforts have been made over the years to do this, and all have been beaten back by skillful lobbying. Now is the time for dictating terms.

In cleaning up the mortgage mess, the most important value is not the survival of any institution, but of the ability of creditworthy Americans to borrow on their homes.

Above all, this requires that investors have an appetite for owning mortgages. And that means new mortgages will have to be made under rules that are more sober and sane than we have seen in the past five bedazzling years.