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A press release Monday from the Treasury Department outlined the new Homeowner Affordability and Stability Plan to mixed reactions. ABCNEWS reported that this program has the potential to help numerous people find the homes they need.

The administration said the new plan will help keep mortgage rates low, and increase resources for low and middle income borrowers to buy or rent homes.

"This initiative is crucial to helping working families maintain access to affordable rental housing and homeownership in tough economic times," Treasury Secretary Tim Geithner said in a statement. "Through the years, many low and moderate income Americans have been well served by state and local HFAs, but the housing downturn has hit these organizations too."

Over the years, state and local housing finance agencies have helped over 3 million working families get financing for new homes, but they have been hurt by the current financial crisis.

The biggest worry from most who hear of this initiative is the cost to taxpayers and the strain it will put on the budget. Michael Barr had an answer to that.

Whatever the eventual size of the program, Barr said American taxpayers will be reimbursed through fees paid to Fannie Mae, Freddie Mac, and the Department of the Treasury. All these agencies are major backers of mortgages.

"There will be strong taxpayer protections," he said, adding that the "expected cost to the federal government is zero" because of these fees.

Not everyone is so optimistic. The Atlantic took each of the goals and dissected them to ascertain their usefulness in this climate.

Lower Interest Rates

The first and third points essentially means lower interest rates. This leads me to ask: do we really need to get mortgage rates lower? In case you don't follow mortgage rates, they're already pretty darn low. Here's a chart I made based on data from mortgage-x.com:

Even at their high point for the year, they were around the low for the past six years.

More Rental Properties?

The next point is perhaps the most interesting, and not in the earlier report I commented on last month. Do we really need more rental properties? To my knowledge, there is already an overabundance of empty housing out there. Why spend money rehabilitating additional properties -- just let the market set the price for what's existing. It's already been driving down the price of renting recently, making what's already available more affordable. I'm not sure why government intervention is needed to aid a phenomenon the market is already providing.

HFAs Taking The Losses

The new plan boasts that the HFAs will foot the bill, which is a round about way of saying that they will maintain exposure for most losses. I'm not convinced. Here's what the press release says:

HFAs will pay fees set to minimize costs to the Treasury Department and to taxpayers.

And:

Fannie Mae and Freddie Mac will administer a Temporary Credit and Liquidity Program (TCLP) for HFAs to help relieve current financial strains and enable them to continue to serve their important role in providing housing resources to working families.

Okay, so the idea is that the HFAs will pay fees which will act as cushion for potential losses to the financing that Fannie and Freddie are providing. How high are those fees? The rates they're going to offer to borrowers are already lower than the market rate -- the price which is supposed to cover the risk involved and cost of funding. Given how incredibly low those rates already are, how can the HFAs make money off these mortgages if they're paying a fee to cover the remainder of the risk? After all, on the population we're talking about, that risk is significant. Even beyond pure loss, there's also servicing cost to worry about, which could be substantial on loans like these.

The reality, I suspect, is that these fees won't possibly be high enough to cover most losses taxpayers will face if the loans go bad. They can't be, or else the HFAs wouldn't be able to make any money from the loans.

HFAs To Seek Market Sources For Capital

Speaking of those fees, here's how the Treasury intends to incentivize the HFAs to move to private sources of capital:

The fee for HFAs to use the TCLP will increase over time. This increasing cost to the HFAs will encourage the HFAs to transition from the TCLF to private market financing alternatives as quickly as possible.

This sounds like good intentions gone awry. First of all, what private sources in their right minds would want to finance these loans? Their return is below market and their risk is high. I like the idea that there should be an incentive to move these to private capital, I'm just entirely unconvinced that there's much private capital out there that wouldn't charge a lot for financing. If there was, then why would they need Fannie and Freddie in the first place? Meanwhile, if HFAs can't get other financing, they'll lose money not only on associated mortgage losses (which could be high) but also face increasing fees.

A more pressing question was being asked by Money Morning, however.  Should the focus be on creating jobs instead of supporting the housing industry?

The worst recession since the Great Depression has already eliminated 7.2 million jobs, and analysts figure 750,000 more jobs could disappear over the next six months. That means the administration of U.S. President Barack Obama may be forced to employ a second stimulus if it wants to preserve the fledgling recovery that has carried the Dow Jones Industrial Average back above 10,000.

The U.S. unemployment rate officially hit 28-year high of 9.8% in September, according to the Labor Department. But that number grows to 16.8% when you add the number of “total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers,” also known as the “underemployment” rate.

When 16.8% of the workforce is unemployed or underemployed, any growth in gross domestic product (GDP) is likely to be severely constrained. And in this case, a protracted jobless recovery promises to extend the housing and banking crisis, put a damper on wages, and further reduce consumption, which is the traditional path to a sustained economic recovery.

“This recovery looks like road kill, “Christopher Rupkey, economist at The Bank of Tokyo-Mitsubishi UFJ Ltd. told The Associated Press. “The heavy layoffs have stopped, but there are simply no new jobs available, and the harder the jobs are to get, the harder and longer this road to recovery is going to be.”

In July – the last month the government released statistics – there were more than six officially unemployed persons for every job opening. Historically the ratio is closer to 2-1.

The job market always tends to lag the broader economy’s recovery. But after a recession of such severe magnitude, businesses are more reluctant to resume hiring.

“There’s extreme caution among businesses about managing the bottom line and not getting overextended,” Brian Bethune, the chief U.S. financial economist for IHS Global Insight Inc. told NPR. “There just isn’t enough confidence out there for them to think about raising employment levels.”

Meanwhile, productivity – or output per worker per hour worked – has continued to rise. That means businesses won’t necessarily feel compelled to hire new worker, despite improved economic conditions.