DESPITE HIS UPROARIOUSLY partisan campaign commercials blaming Republicans for the current economic predicament, Rep. Barney Frank, chairman of the House Financial Services Committee, was sounding downright Republican the other week: “We are not going to spend a penny of taxpayers’ money buying up loans that should never have been made in the first place.”

Admirable sentiments indeed. But, only a few weeks earlier, Frank was a chief whip for passage of the law to do just that, buy up toxic mortgages with taxpayers’ money. Will the real Barney Frank please stand up?

Given that his sentiments seem to turn on a dime, it was less than reassuring that Frank also insisted, “We cannot interfere with existing contracts.” Indeed, after Bill Frey, who manages a portfolio of performing mortgage-backed securities, wrote the servicing banks’ warning that unilateral mortgage modification was a contract violation, the congressman’s reaction was swift, sensational and intimidating.

Rather than inquire as to whether Frey’s interpretation of the contracts was correct, Frank fired off an acerbic letter ironically accusing Frey of threatening the voluntary program by failing to volunteer. Frank demanded that Frey show up in Washington to testify, implying that if he did not, the constables would be sent after him.

So, Bill Frey spent a week carefully preparing his remarks and dutifully attended the hearing on “Private Sector Cooperation with Mortgage Modification.” But Frank, in typically erratic fashion, refused to hear his testimony.

Frank’s ideas of cooperation and voluntarism have a distinctly Orwellian bent. He and ally Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation who with Frank sees a bright future in the Obama administration, are pushing mortgage servicers to alter contracts without the owners’ consent. Does that sound voluntary to you?

Realizing the fine line they are treading, Bair has proposed that Congress bail out her idea by immunizing servicers from lawsuits over these loan modifications.

One has to admire the chutzpah of these banks that have seen the bailout funds originally aimed at bondholders diverted to the banks’ own coffers. As if that weren’t enough, the banks are now poised to be relieved of liability for confiscating a measure of the bondholders’ collateral while continuing to profit from servicing fees exacted from the bondholders. This is Public Choice Economics 101 and you can see which faction is winning. Little surprise that servicing banks are lapdogs for the FDIC approach.

And when one of these bondholders, Bill Frey, speaks up against this policy, he is alternatively lambasted and shunned by Chairman Frank. This should send shudders down the spine of all who have enjoyed the liberal blessings of this land. The aphorism that “no man’s property is safe when the legislature is in session” is coming true before our eyes.

Frank and others decry the liquidity crisis. Lenders will not lend; so buyers may not buy; and real-estate prices sink, leading to more foreclosures. But why are lenders shrinking from legitimate borrowers, i.e., loans that should be made? To no small extent, because the investors are legitimately worried that the government is going to vacate their collateral.

The solution must be constitutional and done with scrupulous respect for the property rights of investors. This property includes your pensions, your 401(k), your kids’ college funds and the endowments of the colleges they may attend.

The one power that the federal government properly has to force renegotiation of contracts is bankruptcy law. Recent Democratic proposals to alter bankruptcy law were not so wide of the mark. They provided for “cram downs” — writing down loan principal to the present worth of the property — a widely accepted bankruptcy technique that runs afoul of an ambiguous prohibition on residential property-loan modification.

But, as a policy matter, having the homeowner get the upside of appreciation while the lender sustains the downside of depreciation is patently absurd. The balance that is equally widely accepted in bankruptcy practice is that the “wart” — the unsecured debt written off in the “cram down” — is compensated with an equity interest. The Democrats left that part out of the bill.

Following the teaching of the renowned economist Hernando deSoto, who has shown developing countries that the way to prosperity is secure property rights, Ocean State Policy Research Institute has proposed a more circumscribed approach that offers a streamlined residential bankruptcy handled in small-claims-court fashion, recognizing the debt-for-equity model in existing bankruptcy practice, and limiting court-ordered interest resets to risk-based market rates.

This would be a constitutionally defensible resort for borrowers who wish to force restructuring negotiations but would offer them no free lunch. This option provides a way out for every potential foreclosure, unless it is a loan “that should never have been made in the first place.” It respects contract and property rights, and doesn’t give the taxpayers’ money to lenders or borrowers.

This differs from Frank’s stance. He wishes to force lenders to accept modeled, not real, economic gains, and his committee recently shepherded legislation that gives equity penalties associated with mortgage write-downs to the government and junior lien holders, even though the senior lender sustains the write-down and pays insurance premiums for the loan on top of that.

Despite our belief that Congressman Frank is playing fast and loose with the Constitution, he is at the eye of the storm, and we would prefer to work with him rather than against him to improve mortgage markets. The bailout is in his court.

Brian Bishop is the Fellow for Regulatory Policy for the Ocean State Policy Research Institute. Suzanne Carcieri, wife of Rhode Island Gov. Donald Carcieri, is on the institute’s board but did not review or approve this article.