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Will the Government Own Your Home?

Let me just preface by saying we don’t and can’t know any of the details of the financial rescue plan that will come out of the negotiations between Treasury Secretary Henry Paulson and members of Congress.

Even the insiders I’m talking to, who know far more than I do, and who will be at the table, are answering my questions with: “Honestly, I’m just not sure.”

However, Treasury officials have said that the plan would likely involve the government purchasing mortgage backed securities as well as whole loans. Now the mortgage securitization process is so ridiculously complex, that I’m not even going to begin to explain where in the process the government could step in, so let’s stick to the whole loan side of the equation.

If the government is buying loans in order to get them off the balance sheets of distressed banks, and these loans are expected to be delinquent at some point soon, then what is the government's course of action once they take ownership of the loans?

Last fall, Henry Paulson spearheaded the “Hope Now” coalition of lenders and investors, the purpose of said coalition being to save borrowers by modifying and restructuring troubled loans. Does the government now join "Hope Now" itself and get in the loan modification business? But wait, if the government’s goal is to maximize taxpayer return, then that is in direct conflict with letting borrowers off the hook, right?

The politicians want the loans saved and the homeowners kept afloat, but that, in most cases, means losing money on the loan. Then there’s the issue of selling the asset at a discount…does that produce more return than the loan restructuring?

What I’ve heard is that the government would hold these assets to “maturity.” But again we’re faced with the unknown. We don’t know how many of these assets (loans) will perform and how many won’t.

Just putting my questions out there.

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Questions? Comments? RealtyCheck@cnbc.com

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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