Why It Won't Work

There's a reason why we're in a housing depression death spiral right now and will continue to be.  Mortgage rates have hit their lowest levels in four decades, and still home sales are plummeting into the abyss.  So why?  There are several reasons:

Banks aren't loaning as much.  With home prices still falling, taking out a new mortgage now when the prospective homeowner could easily end up underwater is not anything banks want to take chances on.  Only the best of the best can get credit these days...especially with rates so low.  The last thing a bank wants to do is loan out a 30 year mortgage at under 5%.  That's great for the homeowner, and lose-lose for the bank.

Millions of homeowners right now are underwater.  Underwater loans can't be refinanced, even with these ridiculously low rates.  Homeowners are trapped for the most part with a mortgage worth more than the house is...last count, well over 15 million Americans are in this hell now.  Obama's foreclosure relief plan is only helping a few hundred thousand of these folks.

Unemployed people don't buy new homes.  With the listed unemployment rate hitting 12-14% in the worst hit states and the effective underemployment rate well above 18-20% right now, people just aren't going to be buying homes or refinancing, since even if you are employed, it's much harder to qualify for refinancing now anyway.

Congress failed to help before and won't help now.  The one easy thing Congress could have done was cramdown relief, allowing judges to adjust mortgage rates in foreclosure cases on a case-by-case basis.  That failed to even make it out of the House...twice.

Any of these could have scuttled the recovery, but all four means we're in real trouble heading into 2011.