Banks have spurned potential home buyers who rely on government-backed loans in favor of less money for all-cash offers -- a development that might disrupt county and local plans to heal a foreclosure crisis, analysts say.

As part of a $4 billion housing bailout by Congress, Riverside County received $48.5 million to address the foreclosure crisis locally and has used most of the money to expand first-time home buyer programs that encourage people to buy foreclosed homes.

But analysts said the plans will do little or nothing to help a foreclosure crisis that has sent 14,000 Southwest Riverside County houses back to the banks since 2007:

- Banks might not agree to sell foreclosures to borrowers with county-backed loans because federal legislation requires the money be given only on purchases with a 5 percent discount.

- Banks have shown a preference for all-cash offers. While not many buyers have a pile of cash to buy a home, investors have been actively purchasing low-priced houses in the heaviest foreclosure areas.

- Helping buyers purchase foreclosures does nothing to prevent foreclosure.

- The programs are too small in scale.

San Diego County received $5 million from the program and plans to use that money to encourage affordable rental units and expand first-time home buyer loans for unincorporated areas such as Fallbrook.

But with more money, Riverside County is able to implement a different set of programs.

In addition to making loans for first-time home buyers, the county should make a direct impact with plans to buy $20 million of foreclosures, said Tom Freeman, spokesman for the county's housing program. Some of that money could go to Lake Elsinore and Winchester, two communities that scored among the highest in the county's risk assessment based on foreclosures and price declines.

Still, even if the county purchased each house for $200,000, which is below the county median of $230,000, the program could absorb only 100 houses across the county. In Southwest County alone, about 6,700 houses are in some state of foreclosure, according to ForeclosureRadar, a Northern California data tracking firm.

The huge volume of foreclosures has sent the federal government scrambling to help stabilize home prices by aiding first-time home buyers with government-backed loans, often times backed by the Federal Housing Administration, or FHA. But banks, which decide who gets to buy their foreclosures, aren't playing ball -- at least not yet.

FHA loans come with a bevy of conditions, including fixing broken windows and eradicating termite infestations, that can delay a sale or cause an offer to fall through. Instead of waiting weeks or months for such a loan to close and paying for maintenance, banks would rather take less money on a cash offer that rids them of the cash-sucking properties immediately, mortgage brokers said.

Further, the government programs require banks to take less money, adding another disincentive compared to cash offers.

To speed up the process, banks have slashed the prices on foreclosures and elicited bidding wars across the region. That has attracted all-cash investors looking to rent out the properties or flip them for a profit, and left buyers who rely on the government loans frustrated.

"I feel like we just haven't been given the opportunity to compete," said Christin McLaughlin, a first-time home buyer looking in the Rancho Bernardo area in San Diego County. "If we could compete, we wouldn't have a problem. But with a FHA loan, we're at a disadvantage."

Still, government officials said they are hopeful the new programs will help get buyers into houses, increasing demand and stabilizing the market.

In San Diego County, officials will not receive the home buyer funds until next spring. By that point, banks might be more willing to accept FHA-backed offers, said Catherine Lichterman, director of San Diego County's housing program.

"It could be the credit markets are much more open and amenable to lending -- that's what our hope is," Lichterman said. "There's so much uncertainty that it's difficult to say at this point how challenging this will be for a limited number of households to get into a homeownership situation."

But even if the government programs failed to make an impact, signs of recovery have started to pop up in pockets of San Diego County real estate.

Low prices have attracted buyers, quadrupling the number of sales from a year ago in certain areas.

Contrary to reports a year ago of foreclosures priced too high and languishing on the market for months, real estate agents said lenders have recently cut prices, bringing about a slew of interested buyers. And banks, who consider foreclosures an encumbrance, have shown a preference for the all-cash offers, even if it is a lower price.

Lyle Anderson, a real estate agent based in Poway, said one of his foreclosure listings sold to an all-cash buyer for $80,000 less than a buyer with a loan.

"If you needed to sell your house yesterday, you're going to take that all-cash offer and leave money on the table," Anderson said.

Contact staff writer Zach Fox at (951) 676-4315, Ext. 5412, or zfox@californian.com. Read his blog, "On the Realside," at bizblogs.nctimes.com.