The premise that Paulson is using to justify the government's purchase of these Mortgage Securities is that home values will go up because money is being made available. I am assuming then that he believes that it will raise the value of the securities being purchased by the government.
The problem I see with that argument is that the housing prices we saw from 2003-2007 was a combination of a couple of things.
1) It was so easy for buyers to be approved for loans so people were offering more for homes than list price. For example, a home might be listed for $250K and a consumer might then offer $300k for the house. Why? Because the seller would then give the buyer $50k at the closing table. It was a round about way of allowing buyers to borrow more money at mortgage rate interest rates. Often times it was meant to help investors pay their mortgage while they waited for a tenant to occupy their property. In order for that to work, the appraisers had to be willing to appraise the property higher than "market" value which was already inflated. The lender gets their 1 - 2% commission, the realtors get their commission, and the appraiser gets his pocket padded.
2) There were so many people being qualified for loans that the housing inventory was not meeting the demand. With so many people chasing houses, we were faced with a seller's market. Sellers could expect higher prices for their homes because buyers were being qualified for them. Sellers did very well during these years.
These lax policies for lending money is why we are seeing the foreclosures we see. The strict policies that lenders traditionally required when offering loans were there for a reason.
So, I don't believe this bailout is going to change home prices as much as he is predicting because so much of the housing prices were fundamentally influenced by one thing: The ease by which a person with a pulse could get a loan.
It is my opinion that in order for home prices to go up from here, creditors would have to continue to look the other way when borrowers don't have what it takes to qualify for loans. And that will continue to deteriorate the mess we are already in.
If we go back to the rules that banks have followed before this mess, then it will be more difficult for fraud to take place, which results in fewer qualified buyers. Such a scenario creates a buyer's market. A buyer's market brings down home prices.