The federal government's multi-billion-dollar bailout of bad mortgage debt could be a game-changer for home buyers, sellers and real estate professionals.

But how much may not be clear for months, maybe even a year.

In the short term, according to Jay Brinkmann, chief economist for the Mortgage Bankers Association, the government's plan to greatly expand purchases of mortgage backed securities by the Treasury, Fannie Mae and Freddie Mac, should "provide a signal to the market that there's going to be an underlying floor on (interest) rates."

That's because when the Treasury buys mortgage securities -- and it's pledging $10 billion for this month alone, plus lots more to come - it has the effect of pumping fresh capital into the mortgage market, allowing more home loans to be made at more favorable rates.

Now, although rates should remain low, currently they're close to 6 percent for 30-year fixed rate loans on average -- that doesn't mean it'll be easier to qualify for a home purchase if you've got damaged credit or an income too low to pay for what you want to buy.

Those days are over for years to come.

What about the larger economic impacts of the bailout plan? Again, we're at the earliest stages of this whole process, but if the plan brings a sense of stability to the financial markets, then, absolutely, the net effect should be to restore confidence.

And consumer confidence is an essential ingredient for a home buying recovery. People who are worried about the safety of their money market investments and bank deposits aren't good candidates for purchasing houses -- even at rock bottom prices.

But the reverse is true as well: Greater consumer confidence in the financial marketplace -- along with modest interest rates and attractive prices -- could kick the whole cycle into gear and get housing moving again.

There's another factor here too: Without the big bailout plan, hundreds of thousands of financially distressed homeowners were on a non-stop conveyor belt to foreclosure. But when the government takes over mortgage portfolios, it's likely there'll be at least temporary halts to foreclosures and massive efforts to "work out" the terms of delinquent loans to enable owners to make payments at levels they can afford.

For neighborhoods hard hit by foreclosures -- and the distressed owners themselves -- that will definitely be a game changer.

Published: September 30, 2008

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.