The rejection of the Wall Street rescue plan may have jolted Sacramento's struggling economy and harmed the fragile recovery in the region's housing market.

A small but extreme example: As the House voted down the bailout plan Monday, real estate broker Steven Krohn was called by a client who's trying to sell a home near Fruitridge Road. The instructions: Drop the listing price by one-third, to $129,000.

Krohn, who's also an economist, had been seeing evidence lately that housing prices were firming up in Sacramento. Now he wonders where the market's going.

"We have a lot more gloom and doom than confidence," Krohn said.

The record 777-point drop in the Dow Jones industrial average, as investors fled the stock market in response to the House vote, surely didn't boost anyone's spirits. Even if the bailout is revived later this week, the continuing upheaval on Wall Street and Capitol Hill likely will have damaged the confidence of consumers, business owners and investors.

"I think it's dangerous and potentially disastrous," said Mark Friedman, president of Sacramento developer Fulcrum Property. "The entire system is based on confidence. … The confidence has been shaken dramatically."

Others, though, were pleased with the House vote. Rick Hagstrom, chief operating officer at Tri Counties Bank in Chico, called the bill "a gross disruption of free markets" and said its proponents were exaggerating the severity of the problem. There's money available, he said, but borrowers are becoming gun-shy.

Vicky Henderson, senior loan consultant at Sacramento-based Vitek Mortgage, said she's seen the anxiety firsthand in the past week.

"People that are putting something down (on home loans) are afraid they'll never get it back again," she said. "Home values continue to fall, and they're concerned about that. They're also concerned if the mortgage company they're with will be around."

Still, Henderson said business has been brisk the past few days.

"We had one of our biggest funding days ever on Friday," she said. "First–time homebuyers and people who are qualified have really had a range of products available."

Those in favor of the rescue package say its crucial to avoiding an overall meltdown of credit markets that are already tight. But it won't end the economy's problems overnight.

Jeff Michael, director of business forecasting at the University of the Pacific, said it will take some time for the rescue plan to begin unlocking the credit markets.

"Whether they pass it today or not, credit is tight, it's going to remain tight, and the economy is weak," Michael said. Business will have "a much harder time finding short-term money."

The bailout bill included some vaguely written steps that would have enabled the government to renegotiate mortgages for troubled homeowners. Critics said it didn't go far enough, but at least it represented some kind of a lifeline for homeowners like Bakyra Moore of south Sacramento.

Moore is struggling with an adjustable payment-option mortgage that costs $2,900 a month and "feels like this never-ending mountain that you have to continue to climb."

The 37-year-old AT&T technician said he can't refinance because his house, valued at about $226,000, is worth considerably less than he owes. But his lender won't negotiate with him because he hasn't yet fallen behind on payments. Maybe the government would be more flexible, he said.

"That's what I'm hoping," he said. "It's a constant topic in my family."

Pam Canada, executive director of the Sacramento office of NeighborWorks, a nonprofit agency that advises troubled homeowners, said phones have been ringing off the hook in the past week as borrowers seek counsel about the bailout.

"The last week or so, we've just been barraged with people who want to know, 'What does this mean for me? What's in there that's going to benefit me?' " Canada said.

She said the economy needs "a bailout of some nature."

The weakening economy is increasingly worrisome in communities like Sacramento, where the 7.4 percent unemployment rate is the highest in 12 years. California's unemployment rate of 7.7 percent is the nation's third worst.

Many experts believe the economy won't get better until the real estate sector improves. But tight credit is chasing away would-be homebuyers and making things difficult for developers.

Friedman, for instance, has a loan coming due in January on an out-of-town office building. He wants to refinance, but so far he can't find any willing lender.

The building is doing well, so "it's not a question of credit quality," said Friedman, whose projects include the East End Lofts in midtown Sacramento. "It's simply a complete lack of availability."

If he can't refinance, he'll have to pay off the loan in January. That means he'll have less money for some other project.

Krohn agrees the government needs to do something.

"The economy can be described as an engine, and certain parts of the engine need more oil than others," said Krohn, who is with Real Estate Analytics, which provides market analysis. "If there's not enough short-term lending in the system, the engine doesn't work."

As currently written, the bill would give the U.S. Treasury broad powers to buy up troubled mortgage-backed securities from financial institutions. Krohn hopes the bailout package can be reworked in a way that gives more weight to market forces.

Kevin Harper, a resident of Cool in El Dorado County, had his house repossessed this year. A carpenter who worked on bridges, he was injured on the job. Unable to work, he said the banks wouldn't help him stay out of foreclosure. Now, he has no interest in seeing Wall Street bailed out.

"I think they should have to pay exactly like I had to pay," he said. "I had to declare bankruptcy. Those fools, they should, too."

Call The Bee's Dale Kasler, (916) 321-1066.