The Senate has responded to the foreclosure crisis in the wrong way.

Our economy is careening into recession, thanks partly to weakness in the mortgage market and to the specter of 600,000 foreclosures.

While some would describe the impending foreclosures as the result of some people getting over their heads in debt, the fact is that lenders aggressively solicited the vulnerable and offered them predatory or subprime packages, as well as “boutique” mortgages with attractive short-run terms that led to long-run disaster. Homebuilders and lenders made big money when housing prices were artificially inflated, and when they inveigled the vulnerable into bad deals. Why, then, did the United States Senate pass the Foreclosure Prevention Act last week that subsidizes the villains in this mortgage crisis? Homebuilders would get tax breaks against the profits they earned from 2002-2005. Banks, too, would get a break if the federal government decides to buy back risky mortgages.

But the Senate rejected an amendment to the Foreclosure Prevention Act that might have actually protected struggling families. Senators refused to allow bankruptcy judges to modify the terms of loans to people who are foreclosed from their primary residences. Bankruptcy judges already have the power to do this for second homes, vacation homes, or yachts, but not for the basics – the homes that people rely on to provide a roof over their heads.

Another glaring class bias in the bill is the provision of a $7,000 tax credit for people who choose to speculate on foreclosed properties.

In other words, our government is offering incentives for people to profit from other people’s misery. If anybody is going to get a $7,000 tax break, why not offer it to the family that is about to be left out on the street?

Instead, our government is offering those with means an opportunity to multiply their means, while the real victims are offered “counseling” and tightened regulation.

In the House, Representatives Barney Frank (D-MA) and Maxine Waters (D-CA) offer far more helpful options to those who face foreclosure.

Frank, through the FHA Housing Stabilization and Homeownership Retention Act, would provide up to $300 billion to at-risk borrowers, offering underwriting to turn predatory mortgages into viable ones. Between one and two million families could be favorably affected, and neighborhoods could also be stabilized by this assistance.

Waters has offered two legislative initiatives, one to give some borrowers legal redress against mortgage service, and another to provide resources to cities and states to purchase and resell or rent foreclosed properties.

Waters and Frank have provided legislation that gets to the heart of the matter. I hope they are successful in amending an incredibly flawed Senate bill.

It is unconscionable that legislators would subsidize the speculation of the past – a speculation that led the mortgage banking industry to develop and aggressively market fragile mortgage instruments for needy buyers. It is further unconscionable that we would subsidize speculation in the future by paying people to swoop, like vultures, over the ruins of other people’s lives.

Julianne Malveaux is an economist and President of Bennett College for Women in Greensboro, North Carolina. She can be reached at pmproj@progressive.org.

Copyright Julianne Malveaux