President Bush revealed last week his policy response to the mortgage crisis. His measured plan promises to help stabilize the markets without bailing out the investors and lenders whose profligacy created the problem in the first place.

The good news for taxpayers and financial markets: The White House has produced its first big economic-policy winner in a long, long time.

The central element of Mr. Bush’s plan is to extend Federal Housing Administration insurance to homeowners with otherwise good credit histories who are looking to refinance their mortgages but fell behind on payments when the interest rate escalated. The new loan guarantees will make it easier for these delinquent borrowers to refinance, thus avoiding foreclosure.

Mr. Bush hopes this change will help slow the escalation in foreclosures, particularly among subprime borrowers with adjustable-rate mortgages. That, in turn, should help ease some of the downward pressure on home prices.

The president discussed a number of additional measures. He promised to work with Congress to change the tax code in order to provide assistance to homeowners who are refinancing loans and to give the FHA greater power to help subprime borrowers. He also called for a crackdown on predatory lending and a push to improve lending practices. Finally, he advocated creating greater transparency in the lending process so consumers are better educated about the terms of their loan agreements.

Each step has significant merit.

The problem with crafting policy in this setting is that any step the government takes to minimize the fallout of the collapse of the subprime market may easily make things far worse down the road.

The Bush proposals reflect a clear understanding of the nuances of the crisis. The key element is that there are two types of actors caught up in the maelstrom of delinquencies. The first are mostly low-income individuals who were drawn into mortgages they couldn’t ultimately afford by aggressive marketing, low down-payment requirements, and low teaser interest rates.

Many found themselves in trouble as interest rates moved up, and there are legitimate concerns that lenders did little to educate them about the risks inherent in adjustable-rate mortgages.

With house prices falling, these individuals stand to lose their homes and a chunk of their life savings to boot.

The second type of actor driving the fiasco is the speculative real estate investor. When real estate prices were rising, many sought and found “free money.” Here’s how it would work: A group of investors would form a company that would build new homes or purchase existing homes. These acquisitions cost the company little capital, since lenders were willing, in the booming market, to lend with little or no down payment.

From the point of view of the investors, the commitment to acquire homes had no downside. If the price of the home went up, they could sell it at a profit. If the price went down, then the investor could simply walk away from the loan. The lender, of course, should have been wise enough to avoid participating in the maneuver, but, sadly, many of them were not.

This speculation did much to exacerbate the current crisis. Jay Brinkmann, a vice president of research and economics at the Mortgage Bankers Association, told the Associated Press, “the areas with the fastest-growing delinquencies are the areas dominated by investor properties.”

If government were to come in and bail out these speculators, then it would send a message to future scam artists that they can play the game all over again. On the other hand, there are clearly many low-income individuals who could lose everything if the government were not to jump in.

Mr. Bush has balanced his policies deftly. Allowing homeowners who are in trouble to receive FHA insurance will help many avoid foreclosure, and even bankruptcy. But refinancing will do little for the investors who should rightly lose their money. The losses to investors will discourage wild-eyed speculation in the future.

My American Enterprise Institute colleague, Alex Pollock, has long advocated requiring lenders to provide borrowers with a one-page mortgage-disclosure form. The form provides information about the type of loan signed, the reported monthly income on which the loan is based, and the rates of payment demanded under the agreement over the life of the loan.

This type of information is often buried in long, complicated loan contracts written in incomprehensible legal language that even well-intentioned, intelligent borrowers can’t easily understand. By giving borrowers the information they need in a clear and concise format, much of the ambiguity involved with signing an adjustable-rate mortgage would be alleviated. Mr. Bush’s call for increased transparency will likely lead to something similar to Mr. Pollock’s vision.

When markets are in turmoil, there is always the risk that government goes too far, either bailing out individuals who should rightly lose their money, or regulating an industry in a manner that chills future activity. Bush has avoided the temptation to be heavy handed, and has provided welcome relief to the housing market with minimal intrusion.

Mr. Hassett is a senior fellow and director of economic policy studies of the American Enterprise Institute.