Lehman Brothers declared bankruptcy, Merrill Lynch readied to be acquired, Fannie Mae and Freddie Mac were bailed out by the federal government, and the Treasury sought $700 billion to buy mortgages and mortgage-backed securities. Losses stemming from the mortgage market has hit Wall Street hard, but what does this mean for vacation home buyers on main street?

Money will get tighter, but will it get cheaper?

The stock market zigzagged last week and mortgage rates are on the same roller coaster. Last week mortgage rates fell dramatically to 6.15 percent, down more than a half of a percentage point from just four weeks ago, only to rise again this week. So which way are rates headed? Even the experts are stumped. Bankrate.com’s Mortgage Rate Trend Index, a weekly survey of industry insiders, sees the panel almost evenly split with nearly half thinking rates are headed up, while the other half anticipate a dip.

Regardless of where rates are going, there is agreement that loans are only going to get tougher to get. If rates do drop, that’s good news for buyers with the strong credit. Keep in mind that mortgage rates on second homes are typically at least a half a point higher than loans for primary residences.

Loans for fractional residences are available, but lenders are cautious

The market for fractional and condo-hotel loans remains tight. “It’s gotten harder,” said Jon Pedersen, an economist at Birmingham, Mich.-based mortgage broker Vacation Finance. Until now, there has been just one national lender offering loans for fractionals, said Pedersen. “They have been impacted,” he said. “They are not as aggressively lending.”

Vacation Finance has a letter of intent with a second bank to start offering loans for fractional properties but the current economic climate has delayed closing that deal. That said, Pedersen said he thinks the overall impact of the recent stumbles on Wall Street will be positive for consumers seeking loans for a fractional residence, since those borrowers often have high income and stellar credit histories. “When the smoke clears,” he said, “these are the demographics that banks will want to lend to.”

Will this government intervention do anything for home prices?

The big question remains whether cleaning up the mortgage mess will have any immediate impact on the state of the home market. The S&P/Case-Shiller Home Price Index, a measure of national home values, sank 15.4 percent in the second quarter of this year alone. Prices in June didn’t fall as much as values in May, a sign that some areas were beginning to see some small price recovery.

Just how sour the market is largely depends on location, of course, and just how much prices ran up in the boom. Several popular locations for second home buyers, including Las Vegas, Scottsdale and south Florida saw the biggest price increases at the height of the real estate market and are now grappling with the toughest, and most dramatic, slowdown.

Jack McCabe, a real estate consultant in Deerfield Beach, Fla., thinks the greater Miami area has years to go before prices recover. While he points to properties of $5 million or more as the strongest part of the market in south Florida, overall, he said, home prices have not yet hit bottom. “You are looking at 15 to 20 percent in price declines,” said McCabe. He expects prices to continue to fall until the end of 2009 or mid-2010 and then remain flat until 2011 or 2012.

While a few years of flat prices might be welcome after double digit annual price dips, the biggest change might be to the Miami skyline, once filled with construction cranes as developers raced to build high rise condominiums. “We won’t see any new development for five to seven years,” said McCabe, noting that any condo developer seeking a bank loan now has a tough road ahead. “In Miami, they would laugh at you.”