Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation, stands out among the heads of the Treasury Department, Federal Reserve and government agencies in the Bush administration who have paraded to the podium in the last month to promote an unprecedented taxpayer bailout to try to avert a deepening recession.

And not just because she’s the only woman.

She’s the only head of a top government agency who has criticized the $700-billion bailout because it does not include a focus on what she calls the heart of the problem: falling house values and the resulting foreclosures.

“I support all the measures: I’ve been a part of all the measures that have been taken,” she told The Wall Street Journal. “But we are attacking it at the institutional level as opposed to the borrower level, and it’s the borrowers defaulting. That is what’s causing the distress at the institutional level. So why not attack the borrower problem?”

She’s right.

There is no question that the scope of the crisis requires multipronged government actions that include buying troubled assets and investing capital in big financial services companies to loosen the credit crunch that is strangling the economy.

But as long as the crisis continues to be fed from the bottom, as more mortgages go sour, forcing more foreclosures and more trouble for banks, it won’t end.

And there’s plenty of evidence that the problem at the ground level is growing.

About 7.3 million U.S. homeowners are expected to default on their mortgages between 2008 and 2010, with 4.3 million of those losing their homes, according to Moody’s Economy.com. A separate report from RealtyTrac, a California company that tracks foreclosures, found third-quarter foreclosure filings increased 71 percent nationwide and 33 percent in Rhode Island from the comparable period a year ago.

One reason is that housing prices are declining and are forecast to continue to fall deep into 2009.

Already, the median home price in Rhode Island has lost about one-fifth of its value since the peak in 2005. And in the Rhode Island-New Bedford-Fall River area, one in four homeowners who bought houses from 2003 to 2007 owe more on their mortgages than their property is worth. Those “underwater properties” are in danger of default.

More foreclosures means more pressure to push down prices of other houses in the neighborhood, accelerating the spiral of depreciation.

There’s another problem.

Homeowners use the equity in their homes to borrow money to buy cars or household appliances or to send their children to school. With no equity, there is less borrowing and spending. With consumer spending representing two-thirds of economic activity, a slowdown would push the country deeper into recession.

By the end of last week, there was some evidence that Congress and the Bush administration were starting to listen to Bair.

After her testimony before the Senate Banking Committee, lawmakers endorsed plans to help struggling homeowners, perhaps with new legislation right after the election.

And the Treasury Department, headed by Hank Paulson, also is working on a plan to use part of the $700-billion bailout to directly buy and renegotiate mortgages.

The movement indicated that the Bush administration was acknowledging that the voluntary efforts to stem the mortgage foreclosure crisis, such as the Hope for Homeowners program launched by the Federal Housing Administration, is not adequate. That program allows homeowners who owe more to the bank than their home is worth to get government insurance for a new loan, if the bank agrees to reduce the principal outstanding.

The new proposals being debated late last week in Washington included allowing the government to give banks a direct financial incentive to turn troubled loans into more affordable mortgages. One plan would use part of the $700 billion rescue package to pay the incentives to the banks.

So far, the federal government’s response to the financial crisis has been erratic, with changing focuses. First, there were the bailouts of single firms, such as Bear Stearns and AIG. Then there was the $700-billion bailout designed to buy troubled assets from the investment banks and lenders that were struggling under the weight of portfolios loaded with mortgage-backed securities. Then, some of that $700 billion was redirected to invest fresh capital in banks to free up lending.

Sooner or later, the government will get it right. And that plan will include direct help to mortgage holders to prevent foreclosures and curb the steep decline in housing prices — the root of the crisis.

Listen to Bair. She knows what she’s talking about.

jkostrze@projo.com