Article Launched: 12/11/2007 07:56:07 PM PST

Think of the subprime loan crisis as a fast-moving jet plummeting toward the runway with no landing gear. We can either let the thing crash and then allow the economy go pick up the pieces, or take action now to soften the landing.

Of course, some people have no sympathy for those facing the foreclosure of their homes. The argument is that those who took out subprime loans are just speculators or people who didn't pay attention to what they were doing. In short, they deserve their fate.

That view, however, is shortsighted. One in five households that took out subprime loans in 2005-06 will go into foreclosure, and 500,000 of those will be in California, according to a study by the Center for Responsible Lending, a nonpartisan research organization.

These foreclosures are not happening in a vacuum. The Center for Responsible Lending estimates that a single foreclosure on a block decreases property values by about 0.9percent. In Los Angeles County, that translates to about $5,000 for a median-priced home. Overall, the county is expected to see a $30.8 billion erosion in home equity as a result of the foreclosure crisis.

Nearly half of the subprime loans in the county were made by lenders that are no longer in business. And many of these loans, which rapidly readjust upward after a two-year fixed rate, were geared toward sophisticated buyers, not the average homebuyer. Moreover, nonprofit groups have pointed to predatory lending practices and bait-and-switch schemes.

In recent years housing costs have soared, prompting looser lending standards and less accountability in the home loan system. "Anyone who could fog up a mirror could get a loan," said Paul Leonard, the director of the center's California office.

We applaud recent efforts by public officials to correct the lending system and contain the number of foreclosures. No one wants a publicly funded bailout of those in trouble, but officials are taking some positive steps.

Assemblyman Ted Lieu, D-Torrance, the chairman of the Assembly Banking and Finance Committee, favors a special legislative session to help some borrowers. Such legislation would include banning financial incentives given to brokers who place borrowers in high-interest loans, a ban on no-documentation loans and a ban on some prepayment penalties that in effect lock borrowers into higher payments.

Other ideas call for better access to credit counselors and mandating lenders to provide data to back up their promises to Gov. Arnold Schwarzenegger to streamline the loan modification process for subprime borrowers.

Such help should go only to residents with subprime loans who are living in their homes. It should not go to speculators and those who can easily afford the higher interest rates.

President Bush's announcement last week of an initiative to help 1.2 million people remain in their homes is also welcome. The plan includes a five-year rate freeze for qualified borrowers and help for people who seek to refinance into more affordable mortgages.

Currently, Lieu is not getting a flood of calls from residents of his Torrance-area Assembly district facing foreclosures. Harder hit are places such as the Inland Empire. But it's likely that if crisis spirals out of control, its effects will spread to the coast.

That's why it's in everyone's interest to contain the damage and stabilize the problem until the economic fortunes in the housing industry change for the better. Elected officials need to prepare for a soft landing and avert a devastating crash.