The average real estate fund tracked by Ratings collapsed 13.4% in the week ending Thursday, Feb. 19, dragged down by some of the worst housing reports in decades.

The Commerce Department's January reading of housing starts slid 17% to the slowest pace in more than 50 years. Single-family home construction shrank 12%, while multifamily apartments and townhouses plunged 28%. Why build when the real estate market is being flooded with distressed sellers and foreclosed properties available for a fraction of their previous sale prices?

To loosen up credit and stem the tide of foreclosures, President Barack Obama released details of his $275 billion plan to help Americans stay in their homes by reducing their mortgage payments to 31% of their monthly income. It would work by giving banks the incentive to absorb the cost of lowering payments to 38%, and the government would pick up the tab for the gap to 31%. Obama estimates that 9 million mortgages could be kept current under this plan.

For homeowners who won't qualify for government-subsidized mortgage modification, Obama called on Congress to pass legislation to allow bankruptcy judges to restructure mortgages, reducing the principal balance owed to the current value of the property. This cram-down provision provides hope to homeowners who owe more than the property is worth. It is also meant as a warning to mortgage lenders to get busy refinancing struggling borrowers or else risk this "nuclear option."

The worst-performing real estate fund last week was a closed-end fund,

Cohen & Steers Premium Income Realty Fund


, at minus 31.9%. Instead of paying regular monthly income to shareholders, the new quarterly income expected at the end of March is smaller than one month's payout from last year. Some of the fund's losing positions include

Colonial Properties Trust

( CLP), down 28%;

Cedar Shopping Centers

(CDR) - Get Report

, down 25%; and

Vornado Realty Trust

(VNO) - Get Report

, down 21.6%.

The big story here is in the fund's holding of mall owner

General Growth Properties


, which lost 25.8% for the period and is on the verge of bankruptcy. The company failed to make required debt repayments on $900 million in loans on two Las Vegas shopping malls that General Growth has been unable to sell or refinance during an emergency extension on loans that came due in November. Competitor

Simon Property Group

(SPG) - Get Report

is open to acquiring these or other properties at fire-sale prices but has yet to pull the trigger on these Vegas malls.

Another Cohen & Steers holding,

Brandywine Realty Trust

(BDN) - Get Report

reported fourth-quarter profits that declined 54%. The stock fell 20.4% last week. Brandywine CEO Gerald Sweeney in the quarterly conference call focused on efforts to raise liquidity and de-leverage while speaking of concerns of "existing tenant stability" and "meeting the market on rental rates."

The largest U.S. lodging REIT,

Host Hotels & Resorts

(HST) - Get Report

, one more member of the Cohen & Steers portfolio, said fourth-quarter profit dropped 59% as Americans curtailed unessential travel plans. The stock sank 18.4% as the company eliminated common-stock dividends for 2009 and may distribute shares to pay a portion of the fourth quarter's dividend to preserve cash.

The only two real estate funds that gained were

ProShares UltraShort Real Estate

(SRS) - Get Report

, up 34.6% on 200% inverse leverage, and

ProFunds Short Real Estate ProFund

(SRPIX) - Get Report

up 16.24%, betting on continued real estate carnage.

Of the remaining funds with small losses last week, the common theme for six of the 10 funds is international diversification. Losing the least,

Claymore/AlphaShares China Real Estate ETF

(TAO) - Get Report

only declined 1.91%. However, Hong Kong real estate stocks resumed their drop on Friday. The fund's best-performing holding during the period under review,

Hopson Development Holdings


, after gaining 5.2%, lost 27% on Friday on speculation the company's chairman, Chu Mang Yee, was the subject of a Chinese government investigation.

For more information, check out an

explanation of our ratings


Editor's note: Kevin Baker holds

Alpine International Real Estate Equity Fund

(EGLRX) - Get Report

in a retirement portfolio.

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.