“I know Fort Myers had the highest foreclosure rate in the nation last year,” Obama said at a town hall meeting last week.

“So we are going to do everything we can to help responsible homeowners here in Fort Myers and other hard-hit communities stay in their homes.”

What Obama failed to mention is exactly how he plans to stop foreclosures and pay for the government program to heal the housing and credit markets. The cure may be worse than the disease and trigger soaring inflation once the government starts printing money to pay for everything.

Leverage got us into this crisis. Is it logical to assume that massive borrowing will get us out of it without damage?

The record 81 percent increase in foreclosure filings last year -- affecting more than 2 million people -- needs a government solution. Some of the initial relief will come in the latest incarnation of TARP, part two of the Troubled Asset Relief Program outlined by Treasury Secretary Timothy Geithner the same day as Obama was speaking in Florida.

Although specifics are lacking, “son of TARP” proposes to aid the mortgage market and stem foreclosures.

Three Approaches

-- As much as $600 billion will be spent to buy mortgage- backed securities and debt of Fannie Mae and Freddie Mac, the government-seized mortgage guarantors. This may lower overall lending rates.

-- Commit $50 billion to $100 billion to prevent “avoidable” foreclosures. I don’t know what this means, but it’s a start. The eight largest banks and the federal regulator of savings and loans said they would suspend foreclosures for a few weeks until the plan is in place.

-- Establish loan modification guidelines and “help bring order and consistency” to the foreclosure mitigation process. Regulators will be setting new rules on who gets to modify their mortgages to make them affordable.

Like most of TARP, the devil is in the details, which will be part of a “comprehensive plan” to be announced soon, Geithner says. The final package should include some loan- modification options in bankruptcy court for those in foreclosure.

Economic Truths

Southwest Florida is a good guinea pig for TARP II.

When I was there and in nearby Lehigh Acres a few days before Obama’s visit, it was as if a neutron bomb had hit.

There were more than 4,000 foreclosed or bank-owned houses in this sprawling, parched community about 15 miles east of Fort Myers, but they were mostly devoid of people. Whole blocks were empty; abandoned construction sites were frozen in time.

There was a disconnect between homebuilding and financial reality. The area grew too fast with cheap money. It thrived on new construction and quick sales. Unassuming single-family homes mushroomed on 100,000 plots set aside in the 1950s.

The American Dream was once affordable, and at one time, Florida was a dynamo for this wish fulfillment.

In 1998, the median home price was $104,000, according to the Florida Association of Realtors, a trade group in Orlando. Although values had almost doubled to $187,800 by the end of last year, they were still less than the U.S. median of $206,000.

Former Dynamo

Dreams can take strange turns, though. Sometime during the bubble, a frenzy took place in surrounding Lee County. Average prices reached a record $322,300 by the end of 2005 for a single- family home.

Why were home values triple what they were only seven years earlier? Lee County homebuyers and speculators did what most do in a mania: They confused statistics with guarantees. They assumed that recent returns would continue, so they bought as much property as they could -- even when they couldn’t afford it. Then in 2007, it all unraveled.

Now Lee County courts are clogged with more than 30,000 foreclosures. More than 16,000 houses and condos are for sale.

Property values have dropped more than 40 percent in the Fort Myers area.

Our post-bubble era demands a new lens through which to view homeownership. If you still insist on seeing your home as an investment, treat it more like a short-term government bond than a stock. It will barely track inflation.

Back to Reality

When you subtract financing, maintenance and taxes, your real home return often lags behind inflation.

There are better ways of being compensated for a loss of purchasing power than owning a home. Bolster your retirement accounts with U.S. Treasury inflation-protected securities and I- Bonds, which pay you a premium based on the consumer price index.

While TIPS may not seem to make much sense now in our current deflationary environment, they will when the government starts selling its debt to foreign governments again to finance the economic-stimulus, banking and housing bailout. Inflation will be the hardest blow of all -- if you’re not prepared for it.

(John F. Wasik, co-author of “iMoney,” is a Bloomberg News columnist. The opinions expressed are his own.)

 SOURCE: Bloomberg