Mortgage rescue plan effect on builders unclear

By Ilaina Jonas

NEW YORK (Reuters) - A federally sponsored plan to rescue certain homeowners from foreclosure amounts to a federal bailout, and its effects could range from mitigating a crisis to creating a new one, real estate experts said on Friday.

"This would basically amount to a taxpayer bailout of dumb lending," said John Burns, founder of John Burns Real Estate Consulting which advises home builders and investment funds.

"It definitely does improve the outlook for housing, but it's not going to cause the housing market to turn around next year," he said.

"The problem for the home builders next year is the pending collapse with the resale market that they're going to have to compete with."

A meltdown of the U.S. subprime mortgage market -- loans given to people with weak credit -- helped fuel a global credit market crisis, bring down home values and leave investors reeling from mortgage-related losses.

It has also left home builders with huge inventories of homes and land, and slashed their profits.

Sources told Reuters on Friday that the Treasury Department was finalizing a plan with mortgage industry leaders that would freeze interest payments for many subprime borrowers facing higher mortgage rates and possible foreclosure.

Word of the proposed plan helped send home builders' shares soaring. Beazer Homes USA (BZH.N: Quote, Profile, Research, Stock Buzz) closed up 15 percent at $8.49 on the New York Stock Exchange. Standard Pacific Corp (SPF.N: Quote, Profile, Research, Stock Buzz) shares closed up 19.3 percent at $3.46. D.R. Horton Inc (DHI.N: Quote, Profile, Research, Stock Buzz) shares rose 14.3 percent at $11.97, and the benchmark Dow Jones U.S. Home Construction Index .DJUSHB, rose about 9 percent.