Most people call it the $700 billion bailout, but in Washington it goes by the unglamorous name: TARP.

That stands for Troubled Asset Relief Program, and it's the centerpiece of the federal government's effort to take bad mortgages and other toxic financial products off the books of banks.

The idea is that by buying those assets at a fair market price, the banks will have the capital and confidence to begin making loans again to small businesses, home builders and individual consumers - thereby helping to ease the current credit freeze.

TARP is barely a week into official operation, but there are important developments underway that anyone interested in real estate ought to know about.

Treasury Secretary Paulson picked a 35-year-old whiz kid from his former Wall Street firm, Goldman Sachs, to run the entire program. His name is Neel Kashkari and he's an aeronautical engineer by training who used to work on satellite designs for NASA.

High on Paulson's and Kashkari's priority list will be to quickly start buying up defaulted "acquisition, development and construction" (ADC) loans made by local and regional banks to home builders. That's potentially huge for real estate because it could eventually set the stage for a slow revival of new home building.

Another target: Defaulted equity lines of credit and second mortgages made to home buyers during the boom years. You probably remember the wildly popular "piggyback" plans that allowed people to purchase homes with no downpayment.

Many of those second liens are gushing red ink in bank portfolios right now. By getting them off the books, the program should eventually allow local and regional banks to begin offering credit lines and seconds to homeowners who need them and qualify for them.

Though TARP will also be buying up billions of dollars of complex mortgage securities from giant banks -- and that's extremely important -- its help to small and medium-sized lending institutions on ADC loans and home equity lines may well have more immediate, tangible impacts on local real estate markets around the country.

Still another key priority: Reworking the repayment terms of tens of thousands of "underwater" and delinquent mortgages to allow home owners to remain in their houses and avoid foreclosure.

That, in turn, should gradually begin to have positive impacts on local real estate market conditions.

But don't expect miracles overnight. This is going to take months and years to fully work its way through the system.

In the meantime, Realty Times will keep a close eye on TARP -- and keep you posted on important developments.

Published: October 13, 2008

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.