President Obama is worried about rising home foreclosures. He is exploring options to increase aid to troubled homeowners.

The president, however, has already rejected a proposal by the Mortgage Bankers Association. The bankers’ proposal is to reorganize and otherwise restructure Fannie Mae and Freddie Mac by creating several smaller, privately held companies, that would issue mortgage securities backed by a government guaranty–not a bad idea.

The U.S. Treasury placed both Fannie Mae and Freeddie Mac into conservatorships with new management nearly a year ago. This was done as banks nationwide were (and still are) sustaining huge losses caused by borrower defaults in subprime and other mortgage loans. The government guaranteed this debt and other morgage-backed securities and has committed up to $400 billion in taxpayer capital (aka bailout money) to fund operating losses caused by the deterioration of subprime products.

The administration has not yet committed to extending its program affording an $8,000 tax credit to first time homebuyers. This tax credit, which has helped to increase the first time homebuyer market, will expire in November of this year.

The government may extend unemployment benefits that are due to expire by year end thereby helping the jobless avoid home foreclosure. Also, it may increase programs to accelerate small business lending. Some of these programs (as extended) could be funded from the already existing $700 billion bank rescue fund which has not yet been depleted.

The Federal Reserve is expected to wind down its purchases of $1.25 trillion in mortgage backed securities and $300 billion in U.S. Treasury debt. These purchases are the main reason mortgage rates have been close to record lows for most of this year.

But, what happens to the economy when these programs which, arguably, have artifically inflated certain segments, have been eliminated? Will the economy revert to the malaise that existed before the first of this year?

The president is doing what he can to increase economic indicators by spending taxpayer money but it’s our fear that once these programs are eliminated, we will be left with another trillion dollars of unpaid debt and very little, or nothing, to show for it.