Details of the foreclosure rescue bill passed by Congress and awaiting President Bush’s signature are coming out. Before we take a closer look, keep in mind we have 2.2 million vacant homes on the market, sales of new homes are plunging, and the trend of increasing foreclosure rates shows no sign of stopping.

Back to the bill. First, it won’t come into effect until October. If things continue as they are, there will be another 700,000-1,000,000 foreclosed homes on the market by then. The bill is estimated to help about 400,000 people (a little more than half the number of homes in the foreclosure process in the second quarter of 2008).

It will only apply to owner-occupied homes with mortgages dated 1/2005-6/2007 (one 30 month block). It will do nothing to help renters who dutifully pay rent and live in homes with defaulting mortgages. The homeowner has to prove that the mortgage payment is at least 31% of their monthly income, and that they won’t be able to afford paying it anymore.

Now, here’s the deal-breaker. The old mortgage company has to agree to write down the loan to 90% of the current appraised value and forgive the remainder. CNN correctly points out “that will mean a substantial loss for the lender.” A new mortgage company issues a new loan for that 90% (some sources are saying only up to 85% — where is our cash-strapped homeowner going to get that 5% difference?) and the old mortgage company has to accept it as full and final payment. One of the mortgage companies has to pay FHA a 3% insurance premium up front.

As for the homeowner, they will have to pay an insurance premium to the FHA every year of 1.5% of the principal. In addition, they will have to share any profit on the house with the FHA (100% the first year, declining to 50% after the 5th year, plus a 3% exit fee). The homeowner also must accept strict limits on equity loans.

For the sake of argument, let’s flesh out these numbers. If you own a median priced house in Las Vegas, the nice folks at HousingTracker say it’s worth $225,000. Scroll down for historical median prices. Let’s assume the mortgage originated in the middle of the 30 month window, March of 2006. Median prices then were roughly $325,000. For the sake of argument, say you had a 90% LTV, or a mortgage of $292,500.

Assuming you actually meet all the other qualifications, your mortgage company would have to agree to write down what you owe to 202,500 (lose almost $90,000 — the principal has come down a little since then unless you have an interest only loan). The local experts in bank-owned properties tell me that it costs a lender $60,000-80,000 to take a foreclosure to completion., so they really only have to bet that prices won’t decline another $10,000-$30,000 over the course of 6 months to come out ahead by refusing to play along. This bet becomes even better for your mortgage holder if you financed 95% or more of your home’s value.

But let’s also look at why this deal might be bad for you. First, somebody is going to pass the 3% FHA insurance origination fee on to you. That’s $6075. Plus there is the annual 1.5% insurance fee that will be tacked on to your payments, $3037.50 annually ($253.13 per month). And even if you sell your home 20 years from now, you will still owe the FHA half of any profits you may make on the place.

Rest assured, this deal is not a bailout. It doesn’t help much of anybody.

I’ll leave you with a couple of local interest items: 2 Nevada banks taken over by the Feds; and a Nevada court upholds term limits.