By Corbett B. Daly

WASHINGTON (Reuters) - A further downturn in thebattered U.S. housing market has put the Obama administrationin a tough spot with few tools to stem foreclosures ahead ofcongressional elections in which Democrats face big losses.

The administration has a $50 billion war chest to fightforeclosures, yet only around $200 million has been disbursedin a program narrowly tailored to help responsible borrowers.

A more aggressive effort is politically unpalatable andcould fall short of solving a problem that has been made worseby rising unemployment.

"At this stage in the game, there does not exist thepolitical wherewithal to do anything that would meaningfullychange the pace or the ultimate magnitude of the foreclosurecrisis," said Raj Date, chairman of the Cambridge WinterCenter, a financial services policy think tank.

"It is very very difficult to engineer some kind oflarge-scale foreclosure relief that doesn't benefit at leastone of two parties that (voters) don't want to help," he said,referring to mortgage bond investors and homeowners who boughthouses they could not afford.

A report on Thursday showed contracts to buy previouslyowned U.S. homes rose in July, but any rise in sales would becoming off an extremely depressed level.

Sales plunged a record 27.2 percent to the lowest level in15 years in July, while banks repossessed the second highestmonthly number of homes on record. Data company RealtyTracexpects more than 1 million homes to be repossessed this year.

The administration has taken a number of steps to combatthe rising tide of foreclosures, but they have fallen short ofexpectations and financial markets continue to speculate aboutpossible new programs.

But any major push, such as the wholesale forgiveness of ahomeowner's principal debt, is unlikely to find support amongpolicymakers, both because of the cost and the big potentialfor a political backlash from any move that was seen aspossibly rewarding reckless behavior by banks and borrowers.

With the November 2 elections fast approaching, PresidentBarack Obama next week will unveil a number of steps aimed athelping the overall economy.

While he has pointed toward a number of possible options,including more tax cuts for businesses to encourage hiring,Obama and other officials have been silent on housing.

The administration has "very few options" left to addresshousing directly, said Howard Glaser, a consultant to mortgagelenders and a former housing official in the Clintonadministration.

MICRO SOLUTION TO MACRO PROBLEM

The government is already lending the sector extraordinarysupport.

More than 80 percent of new mortgage originations in thethree months through June were directly or indirectly backed bythe government, including loans backed by the Federal HousingAdministration and those securitized by government-controlledFannie Mae and Freddie Mac.

But the administration's marquee foreclosure preventioneffort, the Home Affordable Modification Program, issputtering. Since its inception in April 2009, nearly half ofthe 1.3 million homeowners who have received initial help havedropped out. In fact, in recent months, more borrowers havebeen dropping out of the program than signing up.

Celia Chen, senior director at Moody's Analytics, saidabout half a million homeowners are expected to get a permanentmodification to their mortgage payment by 2012 when the programends, well short of the administration's initial goal of threeto four million.

"It's not working very well," Chen said. "I suppose savingsome homes from foreclosure is better than none."

The Obama administration, however, sees the glass as halffull and argues the program has been a catalyst for loanmodifications taking place outside of the program, which Chenexpects to reach about 1.5 million by the end of 2012.

"HAMP has been essential to assisting homeowners during theworst housing crisis in generations," said Treasury AssistantSecretary Herb Allison. "The Obama administration remains fullycommitted to helping responsible, hard-pressed homeowners avoidforeclosure during this difficult time."

The original HAMP goal was simply too ambitious, accordingto Michael Larson, a real estate analyst at Weiss ResearchInc.

"It's a post-bubble environment. All the king's horses andall the king's men can't put it back together again," he said.

Larson notes that the lofty level of unemployment, whichclimbed to 9.6 percent in August, makes the housing crisis muchharder to address than if it were simply a problem ofadjustable rate mortgage payments about to skyrocket.

"They are combating a macroeconomic problem withmicroeconomic solutions," he said.

Larson said that without the pressure of another crisis,there would be little appetite for massive interventions and,without an improvement in the jobs market, little prospect fora quick turnaround in the market.

"I think we are going to continue on this muddle-throughpath for a while unless or until we get some kind of shock." (Editing by Tim Ahmann and Andrea Ricci)