The Fed bailout is in the news, and the blogosphere is awash with topics on the subject. Although it may put an end to the horrible hemorrhaging in the housing market, that is about all it will accomplish.  Qualifiers and a gaggle of economists opposing the move will make it a lot less worthy than it appears to be.  What concerns me with the whole scenario is the fact that there is no guarantee that lenders and investors will buy in to this plan.

Current Stats

Looking to the current market, we see that more than 30 percent of borrowers with sub prime adjustable-rate mortgages are behind on their payments.  This is before they reset. The number of Americans who fell behind on their mortgage payments rose to a 20-year high in the third quarter. These homeowners face an average mortgage increase of 26 percent.  If they are behind now, when the ARM resets, they will be out in the street. It is estimated that 775,000 homes with $143 billion of mortgage debt will go into foreclosure through the middle of 2009.

The Housing Market

The housing market is also in a world of hurt. Toll Brothers Inc., a builder of luxury home based in Horsham, Pennsylvania, has lost about $5 billion of market value since July 2005. New and existing homes are predicted to drop to an annualized rate of 5.25 million units in early 2008 from a peak of 8.5 million homes in mid-2005.  Current homes values will also drop accordingly. U.S. home prices declined for the first time since 1994, and indicator as to where the market is heading.

Stop The Bleeding

The only real solution to the mortgage mess is hard to predict.  The government is trying to help, but are unwilling to use taxpayer dollars to bail out the people who have got in over their heads.  This is as it should be, but does not make the problem go away.  What is needed is equilibrium in the market. It appears very doubtful that what we are seeing will not go away very soon, and people holding sub prime ARM mortgages are going to have to work through this mess pretty much on their own.  Perhaps people will settle down a bit and start taking a real look at their finances.  In the interim, the market will continue to fluctuate until the storm is past.