To truly understand if any type of bailout can work or not, one has to understand the loan process. Loan process then, when the market was hot, and the loan process now. Today's loan process and parameters scoff at the bailout idea.

Take situation in the market place until mid 2007. I am not telling anything that you have not heard; however, keep reading as I shade more light on the market place. One could buy a home with zero down payment. Many of the homebuyers we have helped with came in with 5-20% down payment. Loans were easy then. Now you can get loans up to 80% of the DECLINED home value. Here is an example...

Homeowner who bought a home for $600,000 in the boom times wants to refinance. Her home has dropped in value to $500,000. If the home owner paid 5%, 10%, 15%, or 20% down, she has to come up with cash of $170K, $140K, $110K or $80K to be able to finance in today's mortgage environment. The new loans limit loan to value ratio to 80%. This was first fall out from the Hope Now program.

Then came the FHA loans. These loans were available always, just got more visibility in this crisis. With FHA you can refinance up to 95% of new home value (and up to 96.5% for loans under $417K). Continuing the same example above, even under FHA refinance to work, additional cash of $85K, $65K, $35K or $5K is required from homeowner. Also FHA loans have upfront 1.75% insurance premium. However, this gets absorbed in the loan amount. Call for details.

So FHA loans helped compared to original HOPE NOW program. However they are not sufficient to bailout the bay area.

With Fannie and Freddie under its arms, the government realized that lower interest rates might spur the home buying, just like it did it in the boom times. Now the rates are hovering just about 5%. These rates are available for loan amounts up to $417K. Rate for higher loans, now called, conforming jumbo or high balance conforming, are anywhere from 5.5% to 7% depending on the lender. So the question is how does this play out in the home buying process and does this level of bail out help us in the bay area?

Well, with 20% down payment requirements, and to take advantage of the lower interest rates, one can buy a home not more than $521,250 (80% loan at or under $417K). How many homes in the bay area are under $500K that buyers really want to buy? Majority of the homebuyers making over $100K a year are looking into homes priced at or above $600K. Also, buyers are reluctant to put their cash for purchase in declining housing market environment (this is true even for low rate refinance).

When the rates were this low in the boom time and interest only loans were available, one could qualify for 7 times their income. A person making $100K could buy a $700K home with almost no money down. Today, interest only loans are unavailable under the similar terms as they were during the boom. Today, person with $100K income qualifies for 5 time their income to $500K and needs over 100K down to buy a home. This means with lowered interest rates, for one to qualify for a home that is declined in value still needs over 100K down and much lower home price than the boom time.

Bottom line in all this analysis is parameter called affordability. Loan programs made home buying affordable during boom. Any effort made in the credit-crunched environment with stringent loan requirements is not going to reach level of affordability achieved few years ago. So I call it a bubble.. not a housing bubble rather an affordability bubble… that caused greed to set in to get a home of one's dream.

Going forward the recovery will be slow. Job losses are going to impact the housing market. In my opinion, it's going to be 2012 or later before we see any level of housing boom.