As the government's Hope for Homeowners program, designed to fend off foreclosures, kicks in this month, it could face hurdles from the government itself.

Hope for Homeowners gives the FHA the authority to back 300 billion dollars worth of restructured loans, if, among other things, the lenders voluntarily agree to drop the value of the principal to 90 percent of the home's current value.

But with the 700 billion dollar bailout also in gear, which includes the government buying whole loans and bundles of loans owned by banks, I’m hearing that many banks and lenders are choosing to hold off on modifying or restructuring loans--thinking they might get a better deal from the bailout.

Banks are also holding off on selling foreclosed properties and doing short sales, again hoping to get a better deal on those as well (short sales are when the bank agrees to let the owner sell the home for less than the value of the mortgage, which can cost less than foreclosure).

On top of all that, mortgage rates are climbing, which could make things even tougher for those troubled borrowers still trying to get help on their loans. Why are they rising? All has to do with fear and treasury spreads. It doesn’t make a whole lot of sense since the government is selling all these treasuries, causing the spread between Fannie and Freddie, but Fannie and Freddie are now owned by the government, mostly. Ah, the new landscape.

• As Recession Looms, Fed Faces Pressure to Cut More
• Fed Officials Warn of Recession Risk

Someday, someone is going to realize that behind all these credit woes and credit bailouts and emergency international liquidity bonanzas are still a whole lot of foreclosure signs, and they don’t seem to be coming down any time soon.

The Fed's trying to create liquidity everywhere, but somehow not into mortgages.

• Mortgage Applications Rise on Refinancing

Questions?  Comments? 

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