Mortgage rates are continuing to trend down this week, driven both by the bad economy and simple inertia.  Its as though the mortgage industry were waiting for a shoe to drop — and so they are.

The Obama Administration has been subtly reworking its mortgage proposals.  Everything that used to be there is still there, but not to the same scale.  The Public Private Investment Partnership, for example is still in operation and the principle firms were announced this week, but the program that was supposed to buy up to $1 trillion in distressed mortgage securities now looks to be limited to around $30 billion, tops, because of specific limits on buyer leverage.  That’s a more than 97 percent decline in what was supposed to be a key program for mortgage industry recovery.

The Administration has to come up with something else — another program to benefit homeowners — but until then the market waits and waits.  How can it do anything else?  If the new answer is forced principle reductions that’s a HUGE blow the owners of mortgage securities.  Or will Obama have the nerve to even take that path?

Nobody knows.  And so we wait.

cringely Pulse