Feds Can't Rebuild Housing in a Day

"There is still a core of quality borrowers with good credit, who are still having opportunities to receive good, cheap financing," says Keith Gumbinger, vice president of HSH Associates, a firm that tracks the mortgage market. "But those seeking jumbo loans, or those who are not credit worthy, can't document their income, or have excessive debts -- they're going to have to get used to hearing 'no.' "

Stringent standards have further whittled down the pool of eligible borrowers, while high down payments and far-from-lucrative mortgage rates have made them less eager to take on new debt. No borrower wants to put down 20% on a $200,000 home if he thinks it will be worth far less next year.

For now, the lack of confidence is keeping lenders and borrowers on opposite sides of the ring. Unfortunately for the feds, confidence isn't something money can buy.

"The problem we've been dealing with is not really liquidity -- we've been knee-deep in liquidity," says Vicki Bryan, a senior analyst at GimmeCredit. "It's a problem of confidence."

Some say the Treasury's plan to inject capital and buy bad loans is a necessary step to rebuild the system's cornerstones of confidence by removing uncertainty from the market. Fears that any bank might collapse on any given day exacerbated the crisis and helped lead to the demise, bailout, buyout or restructuring of some of the country's largest and most respected firms, including Bear Stearns, Fannie Mae (FNM Quote), Freddie Mac (FRE Quote), Lehman Brothers, AIG (AIG Quote), Washington Mutual, Wachovia (WB Quote), Goldman Sachs (GS Quote) and Morgan Stanley (MS Quote).