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The federal government has tossed hundreds of billions of dollars at the various problems that ail the U.S. economy, but housing, the root cause of the crisis, will require more time than money to heal.

Despite the best efforts of the Treasury Department and the

Federal Reserve

, banks' wariness about


financial health has become so dramatic, that even the unprecedented measures taken by authorities over the past few months to spur lending and boost the economy will take a good deal of time to have a measurable effect.

The government seems to be using all the tools in its arsenal to tackle housing from all ends. On the lender side, the Treasury Department has agreed to buy up to $500 billion worth of banks' bad loans; invest $250 billion in

preferred equity

stakes in banks to spur new, better lending; and engineered the rescue of several companies that were crumbling under the housing catastrophe.

On the borrower side, the Fed has drastically lowered key


targets in an attempt to make loans more affordable, and Treasury and other agencies have aided efforts to alter distressed borrowers'


to keep them in their homes.

Despite those efforts, mortgage rates have spiked higher, home prices have continued to plunge and delinquencies and foreclosures have climbed at a steady pace. Those factors, combined with weak economic growth and rising unemployment, have led banks to tighten lending standards further. While loans represent a key business, banks aren't eager to dole out cash to people who may never pay it back.

"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.' "

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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),

Freddie Mac

( FRE),

Lehman Brothers



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Washington Mutual



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Goldman Sachs

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Morgan Stanley

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But while the capital infusions will help restore the financial system and the broader economy, a massive housing bubble that took years to create will not correct itself as quickly as it burst.


the government is really trying to do is build confidence in terms of saying, 'We're here; we'll protect these loans; we'll protect the banks that make the loans," says Latha Ramchand, an associate professor of finance at the University of Houston's Bauer College of Business. "But the banks that are making the mortgages are still worried about risk. So whether it actually percolates down to more mortgages being made, that's going to depend on the grassroots confidence."

One positive takeaway will be a reversion to more prudent standards of the past: It's not a bad thing that buyers must document income, hold a job, provide a significant down payment and generally be able to afford the home they want to buy. But it holds a negative connotation, since the shift from no-doc and no-down-payment mortgages to full-doc and 20% down was so rapid and dramatic.

"If you look at today's lending standards and compare them to the 80s and 90s, or 70s and 60s, it's the same thing: Borrowers have to have good credit," says Gumbinger. "If you're on the risk-management side of the coin, the prudent-lending side of the coin, the side that tries to keep people from overextending themselves, is it a good thing? Yes. It's absolutely beneficial in the long-run."

One group that is primed to take advantage of the housing downturn is first-time buyers, who may also provide the ammunition for a recovery. First-time buyers don't have homes to sell, allowing transactions to occur more quickly, with fewer strings attached. They also tend to be young, which means more appetite for risk and less vulnerability to economic downturns than older peers -- who have kids to put through college, cars and vacations homes to manage, or retirement funds to worry about.

"First-time homebuyers haven't been hurt by the

stock market

because they're already broke," says Dave Luczkow, vice president of business development for OptHome, a Web site that offers housing advice.

Luczkow, a former manager of a Fannie Mae mortgage-security portfolio at Morgan Stanley, says first-time buyers have been hoarding cash and waiting for the right opportunity. Recent upticks in home sales provide evidence that prices have fallen far enough -- at least in some foreclosure-stricken markets, like California -- for a national turnaround to take shape in the not-so-distant future.

Still, housing transactions and mortgage revisions take months to complete and banks still have years' worth of bad real-estate inventory to sell. But the silver lining in the murky clouds of the housing implosion is that while a full recovery will not be speedy, measures have been put in place to get it under way.

"Real estate is local," says John Jay, a senior analyst of financial services at Aite Group. "So what you see in California is not what you're going to see in Pennsylvania. But to the extent that the government is putting capital into these institutions, at some point they really are incentivized to lend. That is their business."