IT'S BEEN THREE months since hurricanes Katrina and Rita hit the Gulf Coast, and it's probably safe to guess that most Americans, preoccupied with Iraq or Christmas shopping, didn't mark the anniversary. Not so for the hundreds of thousands of people whose mortgages are due, following a 90-day extension, on houses that are uninhabitable or nonexistent. This week the Federal Housing Administration announced that it would continue to pay such mortgages for some 20,000 homeowners in Louisiana as well as four other states -- as long as they have FHA insurance and as long as they live in their homes or intend to live in them within 12 months. According to Housing and Urban Development Secretary Alphonso Jackson, HUD wants the families to "concentrate on putting their lives in order without having to worry about making mortgage payments."

Now comes a much bigger test: Does the federal government, or anyone else, feel the same compassion for the hundreds of thousands of people who do not have FHA insurance or who are not in a position to move back into their wrecked homes within the year? Best estimates are that some 205,000 homes in Louisiana were destroyed and 35,000 more were badly damaged. An attempt by the AFL-CIO and community groups to negotiate an extension for those homeowners fell apart this week. That means banks may be about to foreclose on hundreds of thousands of properties, some of which have no resale value right now. The possible consequences of such a mass foreclosure include the collapse of the local banking business (whose presence is also needed to help restart the Louisiana economy), years of legal wrangling, a halt to the reconstruction of properties that have no clear ownership -- and financial ruin for hundreds of thousands of people.

Dumping money on the problem indiscriminately is not the solution, because it doesn't make sense to rebuild all of the houses immediately. It's looking as if the only possible solution is one we've noted before: That Congress pass some version of the bill proposed by Rep. Richard H. Baker (R-La.) to set up a development corporation that could buy property at a price that bears some relation to the amount of equity individuals hold -- if not at pre-Katrina value -- with a plan to redevelop the land, for housing or other purposes, down the road. The cost to taxpayers would be minimal, since the profits from later sales could repay the federal government.

Everyone has bad memories of government development projects, and this one would have to be monitored carefully by architects and city planners as well as by financial watchdogs. No one wants to be forced legally or financially to abandon their property. But whatever the drawbacks, Mr. Baker's bill at least would give thousands of people some of their equity, allowing them the option of returning home, if they wish, even if it's to a different New Orleans neighborhood. Without this bill, or something like it, neither the economy nor the culture of New Orleans or Louisiana will revive. Solving this problem should be Congress's pre-Christmas priority.