More Bad Economic News, Yet Here Comes ANOTHER Wall Street Bailout

Americans may be extremely upset about Wall Street bailouts, but President Obama isn't listening. Come September 7, President Obama will have Wall Street investment banks lining up for another huge bailout. But such a bailout will do little to stimulate the housing market and offset the latest 27.2 percent plunge in existing home sales.

The Federal Housing Administration (FHA) will offer financial institutions holding mortgages worth more than the value of the houses, so-called "underwater" mortgages, a guarantee on 90 percent of the mortgage value if the institution will write-off 10 percent of the mortgage. These risky mortgages have been bought up by Wall Street investment banks at may be 30, 40 or 50 cents on the dollar. The government now says that if the holder takes 10 percent off the mortgage, the government will guarantee 90 percent of the mortgage. So they may have bought a $400,000 mortgage for $200,000. If the mortgage holder agrees to write-off $40,000, the government will guarantee the mortgage for $360,000.

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The 5 Dumbest Things on Wall Street

Homeowners drowning under the weight of high mortgage rates and a plunging economy are finding that their rescuer has arrived in a leaky boat without a life ring -- or even a pair of arm floaties. And the lifeline the government did manage to throw out was, apparently, too knotted and twisted for homeowners to untangle.

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'Vultures' Save Troubled Homeowners

Anna and Charlie Reynolds of St. George, Utah, were worried about losing their home to foreclosure last year. Then they got a lucky break—from an unlikely savior.

Selene Residential Mortgage Opportunity Fund, an investment fund managed by veteran mortgage-bond trader Lewis Ranieri, acquired the loan at a deep discount and renegotiated the terms with the Reynolds. The balance due was cut to $243,182 from $421,731, and the interest rate was lowered. That reduced the monthly payment to $1,573 from $3,464, allowing the family to stay in their home despite a drop in Mr. Reynolds' income as a real-estate agent. "It was a miracle," says Ms. Reynolds.

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