Massachusetts officials have launched a website aimed at providing senior citizens with guidance on reverse mortgages, which let homeowners over age 62 borrow against the equity of their homes.

Some seniors trying to get by on fixed incomes have used them to help pay unexpected bills, or help stretch out Social Security payments. The loans can be disbursed in several ways, including a lump sum or a line of credit, according to state officials. Repayment is not usually required until after the borrower dies, sells the property, or moves.

But the loans should be seen as "a last resort," according to a statement by Len Raymond, executive director of Homeowner Options for Massachusetts Elders. Seniors, he said, should "be wary of high pressure sales tactics to obtain a reverse mortgage or use the proceeds of a reverse mortgage to purchase annuities or other financial products."

Gillette Stadium in Foxborough.

The Federal Reserve Bank of Boston is rolling out all the stops tomorrow to help homeowners who may be facing foreclosure, and the organization is teaming up with an unusual partner for the event – the New England Patriots.

Homeowners from around New England who are struggling with mortgage payments will have the chance to work out their problems with lenders from 1 to 8 p.m. at a free foreclosure prevention workshop being held at Gillette Stadium in Foxborough.

Sponsored by the Boston Fed and the New England Patriots Charitable Foundation, the workshop will include 20 mortgage servicers and 80 of their representatives. In addition, 50 housing counselors from nonprofit and government agencies will be there to offer advice.

Yesterday I wrote about a bunch of Indiana mortgage brokers who basically lost their license to do business in that state, after state lawmakers passed tougher licensing rules in hopes of stemming the number of foreclosures there. Anyway, that got me thinking about how buyers choose a mortgage lender.

This is a key decision in the home buying process. And I’m sure most people don’t enter into the decision lightly.

If you’ve purchased a home before, how did you find a mortgage lender? Did you talk with multiple lenders, or go with the first lender you spoke with? Did you use a local bank? Go to a broker? Did you get recommendations from friends and relatives? Or did you search the Internet for rates and lenders?

Would you do anything differently now that you have been through the process? What advice would you give someone who is shopping for a lender for the first time?

About 40 percent of Indiana’s mortgage brokerages had lost their license to do business as of yesterday because they hadn’t complied with a new state law tightening licensing standards, the Associated Press reported.

Indiana set a Tuesday deadline for brokerages to comply with the law, which requires each brokerage to name a principal broker -- who has at least three years experience and has passed a state exam -- to oversee his company’s business affairs, according to AP. Industry members had backed the law, which was passed last year. It also requires background checks and boosts the annual licensing fee from $100 to $400.

As of yesterday, 361 of Indiana’s 950 brokerages hadn’t met the deadline and another 143 had voluntarily surrendered their licenses, AP reported.

Here’s an idea whose time has come: a public rating system of mortgage lenders.

Massachusetts officials are working on such a system as part of the Act to Preserve Home Ownership, according to David Cotney, who is the chief operating officer for the state Division of Banks. The act was signed into law in November. The legislation also included a “right-to-cure” provision, which took effect May 1 and says lenders must grant delinquent homeowners a 90-day grace period before foreclosing, and prohibits them from tacking on fees to the overdue balance during that period.

The division is still working out regulations to implement some aspects of the law, including creating a system for evaluating mortgage lenders in several areas, like how they deal with loan modifications, Cotney said. Many consumer advocates and government officials have been encouraging lenders to allow struggling borrowers to modify mortgage terms that have trapped them in expensive monthly payments.

The regulations that are being developed are similar to the Community Reinvestment Act regulations, which already apply to banks and credit unions. The state is basically extending those regulations to cover mortgage lenders.

After a system for evaluating mortgage lenders is in place, the division will launch a public rating system, Cotney said.

We have rating systems -- government and non-governmental -- for many other common purchases. You can check Consumer Reports for the scoop on a new car, get restaurant ratings from Zagat, and check an airline’s on-time arrival rate with the US Department of Transportation. So seems like it’s time for consumers to be able to check mortgage lender ratings.

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Fresh on the heels of yesterday's somewhat good news from the Case-Shiller Home Price Index that house prices were up a tad in the Boston area, we have more bad news on the foreclosure front.

Foreclosures more than doubled in Massachusetts during the first half of 2008 when compared with the same period last year, according to a report released today by Warren Group, which publishes real estate data.

There were 6,707 foreclosure deeds recorded in the first half of 2008 -- up 117.6 percent from 3,083 in the same period of 2007. Foreclosure deeds indicate completed foreclosures.

We all agree that it is cheaper to rent than to buy. We haven’t discussed how hard it is to rent here without a pretty hefty income.

In order to afford fair market rent in Massachusetts for a two-bedroom apartment, and in order to pay 30% or less, of their income for rent, a household needs an annual income of $47,719. That’s full-time at over $22 per hour, or nearly three full-time jobs at minimum wage ($8 per hour.)
It gets worse when you look at the Boston-Cambridge-Quincy area, where you need $54,120. That’s full-time at $26 per hour, or more than three full-time jobs at minimum wage. It is no better in “non-metro areas,” which is the Commonwealth with the city areas taken out of the mix. There, on average, you need $58,520. That’s $28 per hour full-time.

This week, Fannie Mae and Freddie Mac have been generating scary headlines. There has been speculation the agencies, which basically buy loans from banks to keep mortgage money flowing to borrowers, may require a government bailout. Yesterday, Fannie Mae’s stock fell 14 percent, to $13.20 -- its lowest price in three decades. While Freddie Mac fell 22 percent to $8. And several politicians, including presidential candidate John McCain, have weighed in saying the government couldn’t let anything happen to Fannie and Freddie.

In a story in today's Washington Post, one analyst essentially says that talk of this nature can affect people’s mind-set and basically turn into a reality.

What do other people think? Is too much being made of Fannie and Freddie’s financial situations? Or are the agencies' executives and the country’s policymakers not acting fasting enough to head off a potentially big problem? Furthermore, should this subject be getting more attention in the presidential race?

This morning Worcester officials will unveil a public-private partnership aimed at jump-staring local real estate sales. With the help of area businesses and government agencies, a program called Buy Worcester Now will allow prospective buyers to become owners.

It’s an effort to stimulate sales by knocking people off the fence if they’ve been waiting for prices to plummet further.

Eleven local banks and credit unions have pledged more than $60 million in loans, at below-market rates, for the program, according to City Manager Michael O’Brien’s office. That money could provide an estimated 250 mortgages -- ranging from $300,000 to $400,000.

In America, boom-bust cycles have a standard third act: Prolonged litigation. And so we have the news over the last two days that the states of Illinois and California are suing the nation's largest mortgage lender, Countrywide Home Loans.

First the news from Ilinois:

"The nation's biggest mortgage lender engaged in "unfair and deceptive" practices to get homeowners to apply for risky mortgages far beyond their means."

Then the news from California:

"Countrywide and its top executives, beginning in 2004, plotted to loosen or ignore lending standards so they could make more sub-prime mortgages and other adjustable-rate loans that were promoted by emphasizing low initial rates."

Countrywide told the LA Times it had no immediate comment.

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Remember the client I told you about who came in second of five offers on a condo? Well, they were the bridesmaid, not the bride, again this week. They were second of three offers. The top offer had the most flexibility regarding closing time. My buyers were unwilling to allow more than two months until closing.

That brings me to today’s topic:
What is the cost and risk of delaying a closing beyond the typical 4-6 weeks between offer and closing?

I am starting a series on bad behavior on both sides of the landlord-tenant relationship. Please write me an email if you have stories and want an opinion. If you comment here, please remember no naming names, no identifying properties.
Recently, I got this first-hand account of a landlord who tried to get a little more money before falling into foreclosure:

The declining real estate market has taken from many Americans the option of borrowing money against the value of their home. The finance blog Calculated Risk reports that home equity extraction fell to $51.2 billion in the first quarter of 2008, down from $135.7 billion during the first quarter last year. The graphic comes from Calculated Risk.

Foreclosures are the most obvious and most dramatic consequence of the housing crisis. They also tend to concentrate in lower-income neighborhoods, fostering the impression that the crisis is concentrated in those neighborhoods. The home equity numbers are a less obvious and less dramatic consequence, but they are a good reminder that the crisis is hitting more affluent families, too.

There are people, including New York Times columnist David Brooks, who saw the boom in home-equity borrowing as evidence that America was overcharging its national credit card. Worse, it was evidence of moral decline. Which makes the current crisis a judgment on a spendthrift nation.

"The United States has been an affluent nation since its founding. But the country was, by and large, not corrupted by wealth. For centuries, it remained industrious, ambitious and frugal.

"Over the past 30 years, much of that has been shredded. The social norms and institutions that encouraged frugality and spending what you earn have been undermined. The institutions that encourage debt and living for the moment have been strengthened. The country’s moral guardians are forever looking for decadence out of Hollywood and reality TV. But the most rampant decadence today is financial decadence, the trampling of decent norms about how to use and harness money." [Emphasis added]

Or maybe it's just business.

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The federal government encouraged Fannie Mae and Freddie Mac to buy more than $400 billion in subprime mortgage loans between 2004 and 2006, helping to fuel the boom in risky lending, the Washington Post reports.

The story underscores an important issue: The federal government didn't just fail to prevent the subprime lending explosion. Rather, it encouraged, abetted and participated in the subprime lending explosion.

Fannie and Freddie were created by the government to buy loans from lenders -- basically, to repay loans upfront and then collect the money from the borrower -- so lenders could make more loans more quickly.

The two companies literally defined the prime loan market. Loans they were willing to buy were defined as prime. Everything else was not.

How did they wander into the subprime lending business? The Post reports that the federal government in 1992 started requiring the companies to purchase a certain number of loans to lower-income families. Basically, the companies bought huge numbers of those loans without effective quality controls.

They failed to make sure the loans were affordable to the borrowers.

You know how the story ends, or at least where it stands now.

About 60,000 Massachusetts borrowers were behind on their mortgage payments at the end of March, and about a quarter of those borrowers faced imminent foreclosure. Thus says the Mortgage Bankers Association, which released quarterly data this morning.

The good news, I suppose, is that things are worse in other places. About 7 percent of Massachusetts borrowers are behind on payments, compared to more than 8 percent nationwide.

Also, fewer Massachusetts borrowers are behind on their payments than in the fourth quarter of 2007. The overall delinquency rate fell from 7.46 percent to 7.16 percent. On the other hand, the share of seriously delinquent borrowers rose from 1.94 percent to 2.28 percent.

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Meet WMALT 2007-OC1. W, for short, is a pool of mortgages collected by Washington Mutual and sold to investors in May, 2007. These were not subprime mortgages. The average credit score was 705. But something has gone very wrong. At the end of April, less than a year after the pool was created, 29 percent of the borrowers were badly delinquent. Six percent already have lost their homes to foreclosure.

The story of W has been carefully tracked by a blogger named Mike Shedlock, of Mish's Global Economic Trend Analysis. Shedlock writes that W has one determining feature: 88 percent of the borrowers were allowed to state their income. That is, instead of asking the borrower to bring in a paystub, or a W-2, or any proof of income, the lender simply allowed the borrower to write down a number.

The industry has a nickname for such stated-income loans. They are called "liar's loans," because most people lie.

In a recent piece on Slate relating the history of the liar's loan, Mark Gimein recounts that an examination of 100 "liar's loans" in 2006 found that 90 borrowers had overstated their actual income. About 60 borrowers inflated the actual number by at least 50 percent.

People who made $3,000 a month were getting loans based on a supposed income of at least $4,500 a month.

Gimein calls this epidemic of lying "an astounding breakdown of social norms."

I tend to agree. It is the part of the mortgage crisis that I least understand.

A struggling borrower sends an email to Countrywide Financial Corp. pleading for help.

"My number one goal is to keep my home that I have lived in for sixteen years, remodeled with my own sweat equity and I would really appreciate the opportunity to do that. My home is not large or in an upscale neighborhood, it is a “shotgun” bungalow style of only 900 sq. ft. built in 1921. I moved into this home in May of 1992…this was the same year I got clean and sober from drugs and alcohol, and have been ever since, this home means the world to me."

The borrower soon gets a response from the very top, the company's chairman, Angelo Mozilo. But it's not a very nice response:

"This is unbelievable. Most of these letters now have the same wording. Obviously they are being counseled by some other person or by the Internet. Disgusting."

Disgusting?

Listen, Angelo Mozilo is a good candidate for "The One Person with The Most Responsibility for The Mortgage Crisis."

Hyacinth and Andrew Doman bought a Dorchester home last August, paid $220,000, and this story isn't headed where you might think. Today I'm writing about good news. The Doman's mortgage bill is $1,350 a month, an amount they can comfortably afford. And this morning, state officials gathered to celebrate Hyacinth Doman as the 10,000th recipient of a loan from a state program designed to encourage home ownership.

The SoftSecond program basically reduces the cost of ownership by as much as 20 percent for buyers who qualify and agree to take ownership classes. The program, which began in 1991, has a foreclosure rate of 0.35 percent, lower than the rate on loans to borrowers with the best credit and qualifications.

Demand is on the rise: The program made 1,138 loans last year, the highest annual total in its history.

"If foreclosures are a hurricane, then this is an eye of the hurricane," said Ruston Lodi, a spokesman for the Mass Housing Partnership, which administers the program.

Many borrowers understand very little about their mortgages. That was the predictable but dismaying finding of a study published last fall by the Federal Trade Commission. The results were recapped in a recent article at Forbes.com:

Of those surveyed, 25% could not identify the annual percentage rate of their mortgage, and 25% could not identify the amount of settlement charges. Half could not correctly identify the amount of the loan. Two-thirds were unaware of prepayment penalties that could be charged during refinancing. Three-quarters did not recognize that the loans included charges for optional credit insurance.

That's not good. And it has occurred to some people that better-educated borrowers might be less likely to take loans they can't afford. Therefore the Senate held a hearing last week, entitled: "The More You Know, the Better Buyer You Become: Financial Literacy for Today's Homebuyers." You can read some of the testimony. It basically expands and elaborates on the hearing title.

I don't doubt this is true. One of the great mysteries of American life is why so few public high schools provide any kind of financial education. Sex education, driver's education, but no how-to-balance-a-checkbook education. Go figure.

But it's also important to understand the limits of education. Mortgages are by their nature highly complex financial instruments. Mortgage sellers are full-time experts. Borrowers only borrow once every so often. So there's an inherent imbalance.

Even harder to overcome is that many borrowers simply aren't susceptible to education.

The housing bubble was basically an auction attended by middle-class families desperate to live in the best school districts. Historically, bidders were restrained by lending guidelines. When mortgage companies were allowed to dispense with guidelines, prices went through the roof.

So writes Cornell professor Robert Frank in Sunday's Washington Post. The point of his version of recent history? The federal government should regulate the mortgage industry, basically as a means of regulating the conduct of middle-class families.

Primary responsibility rests squarely on regulators who permitted the liberal credit terms that created the housing bubble.... If a family stood by while others exploited more liberal credit terms, it would consign its children to below-average schools. Even financially conservative families might have reluctantly concluded that their best option was to borrow up....

The financial deregulation that enabled them to bid ever larger amounts for houses in the best school districts essentially guaranteed a housing bubble that would leave millions of families dangerously overextended.

Frank's storyline seems basically sound. Clearly non-parents and empty-nesters also drove up prices, but I'm willing to believe prices generally soared more in towns with the added value of better public schools. The Boston area, with its atomized system of town schools, would appear to offer a compelling case in point.

But Frank's facts strike me as unlikely to move people on the other side of the regulation debate. Some people look at the absence of self-control and see a need for government intervention. Others see a need for more self-control.

What are your thoughts: Do we need the government to save us from ourselves?

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Six months ago, an epic disaster was widely predicted. Interest rates on many adjustable-rate mortgage loans would rise sharply. Borrowers would be overwhelmed. Foreclosures would rise. It was said the number of resets would peak in the spring of 2008. Right about now.

Then the crisis was defused by the Federal Reserve, whose rate cuts reduced the magnitude of the resets. But foreclosures keep rising anyway. Has anyone been helped by the lower rates?

Just like every other respectable newspaper, we published an ominous piece last September predicting the consequences of the rate reset wave.

These rate increases will add hundreds of dollars to homeowners' monthly mortgage payments, and some housing specialists predict hundreds, and perhaps, thousands of borrowers will be unable to afford the higher costs.... "This is an unprecedented wave of resets," said Wellesley College economics professor Karl Case.... "People are getting hurt badly when their houses are taken away from them."

The good news: Everyone was completely wrong!

We've received an amazingly steady flow of stories from readers who have lost access to their home equity lines of credit (HELOCs). No post on this blog has drawn a more sustained reaction than my January post about Countrywide's decision to start suspending HELOCs. Since then, other major lenders have done the same, spreading the pain.

The latest response, submitted last night by Lilah Noleston, is particularly poignant:

We took out this line of credit as our very last attempt to pay for the costs of adopting a child. After years and years of trying, and then going through the adoption process, we were finally so close to the end. Now our line of credit has been frozen. We have never defaulted or even been late on a payment, but they said our home value declined. So after all of this, they brought much more than a home improvement project to a screeching halt.... We had no idea that this could happen, wish we had read the paperwork more thouroughly.

What's the matter with jumbo loans? Kimberly Blanton writes in the morning Globe about the latest attempt to reduce interest rates on mortgage loans larger than $417,000. The basic problem: The average interest rate on smaller loans is about 5.875 percent. Above that amount, the average interest rate is at least 6.75 percent.

Here's a short history of the reason: Two companies created by the federal government basically promise to buy loans below the magic size, known as the conforming loan limit. Loans above that size, known as "jumbos," must be sold to private investors. And right now, private investors don't want to buy jumbo loans.

The reluctance is understandable. Mortgage companies and bond-rating firms basically stand accused of lying to investors over the last several years about the quality of packages of mortgages called mortgage-backed securities. Their actions were the equivalent of taking a quality assurance label trusted by shoppers and slapping it on all manner of products, some of which deserved it and some of which did not. The label in this case was a AAA bond rating, and it was supposed to indicate a high likelihood those mortgages would be repaid. But many of those mortgages were not repaid.

The latest victim of the mortgage crisis? How about the Mortgage Bankers Association. The trade group is scheduled to close on a new $100 million headquarters in Washington, D.C. this spring. But what once seemed a fitting statement for a rising industry has become a different kind of metaphor. The Washington Post reports that the group is struggling to pay the bill.

Tightened lending standards mean the Mortgage Bankers must pay a 10 percent larger downpayment than originally planned, and their loan will carry a higher interest rate. The bill is coming due just as the trade group's revenues are in sharp decline. The group lost 500 of its 3,000 members in the last year. It expects revenues to fall by a similar amount from the $47 million collected in 2006.

But don't accuse the Association of hypocrisy. It is standing by the notion that it's a good time to buy. "Anytime is the best time to buy," said Kieran P. Quinn, chairman of the association. "Over a 10-year horizon, [the purchase] looks great."

Here is the issue with mortgage brokers in a nutshell: A new study finds that among borrowers with good credit, those who go to mortgage brokers get better interest rates than those who go directly to a lender such as a bank. Which is great. But among borrowers with bad credit, those who go to mortgage brokers get much higher interest rates. Which is not.

In fact, the typical subprime borrower who uses a mortgage broker pays more than $1,000 a year in additional interest.

It's as if there are two industries using the same name: One that helps its customers, and that doesn't.

The study was released today by the Center for Responsible Lending. The borrower advocacy group has been hammering on this issue for years. It wants the government to regulate and restrict the fees that mortgage brokers receive -- particularly "premiums" they are paid for convincing customers to accept a higher-than-necessary interest rate. The higher the rate, the larger the premium.

The authors argue that brokers are less likely to try overcharging customers with good credit, because the loans are relatively easy to process and the customers are presumed to be knowledgeable. By contrast, customers with bad credit may seem vulnerable.

A California mortgage broker, probably trying to fill time once spent arranging mortgages, has taken to writing haikus about the present predicament. Each of his poems is printed on a piece of Japanese art.

The broker, Mike Mueller, told the San Jose Mercury News that he wrote the haikus mostly for an audience of other real estate professionals. Consider the example at right, which bemoans the industry's plight.

Others, however, will resonate with borrowers, too:

Homeownership dreams
or a financial nightmare?
I am your mortgage.

Accusing a mortgage broker of creativity generally is not a compliment, but of Mueller I mean it in the nicest possible way.

Have a real estate haiku in you? The standard poem is three lines of five, seven and five syllables. Post yours below.

Fascinating new tool from the New York Fed, allows users to customize maps showing the impact of non-prime lending on communities across the U.S. The nice thing about the Fed is they have tremendous resources to create this kind of stuff. Too bad they didn't care about nonprime lending until the day before yesterday. Somebody might have noticed a pattern.

Have fun playing with the map, and come on back tomorrow.

An interview with an "investment banker" on the subject of how the world came crashing down and what should be done about it, performed by the British comedy due of John Bird and John Fortune. My apologies to those of you who may have seen it already. I had not.

It reminds me of Dave Barry's summary of the housing mess in his eulogy for 2007:

"There was a major collapse in the credit market, caused by the fact that for most of this decade, every other radio commercial has been some guy selling mortgages to people who clearly should not have mortgages. (''No credit? No job? On death row? No problem!'') It got so bad that you couldn't let your dog run loose, because it would come home with a mortgage. The subprime-mortgage fiasco resulted in huge stock-market losses, and the executives responsible, under the harsh rules of Wall Street justice, were forced to accept lucrative retirement packages.

"So they did OK. But for the rest of us, it was another bad year..."

Ah, 2007. Glad we put that behind us.

The Federal Reserve keeps cutting interest rates, but interest rates on mortgage loans aren't falling. Just the opposite. The chart above, from the front page of today's Globe, shows the pattern nicely.

The basic reason is that the Fed keeps cutting the price banks pay for short-term loans. But that's not the money mortgage companies, including banks, use to make mortgage loans. Instead, companies mostly borrow the money from investors. The interest rates they pay those investors determine the rates they charge borrowers.

Right now, mortgage companies are searching hard for investors willing to provide money, which is forcing the companies to offer higher returns, which in turn means they must charge borrowers higher interest rates.

In the debate about the future of Massachusetts housing prices, I'm inclined to pay particular attention to the opinions of those with the most money at stake. Wells Fargo & Co., one of the nation's largest lenders, quietly sent mortgage brokers this week a list of areas where it believes real estate prices are most likely to decline. In those areas, the company is cutting the maximum amount it will lend relative to the value of the home -- basically, requiring larger down payments or limiting the size of refinance loans.

No Massachusetts county appears in the worst category, "Severely Distressed Markets."

The next, "Distressed Markets," includes Barnstable, Berkshire, Norfolk, Plymouth and Suffolk counties.

The last, "Soft Markets," includes Bristol, Essex and Worcester counties, along with Rockingham and Strafford counties in New Hampshire and all five counties in Rhode Island.

The exact implications are complicated, but basically the most you can borrow in soft markets is 85 percent of the home value, and in distressed markets 80 percent of the home value. In many cases, the maximums are even lower.

To paraphrase and summarize, Wells Fargo thinks our prices are going to keep falling, but things are even worse in other places.

An interesting map of January foreclosures in Boston, from John Keith's Boston Real Estate Blog. The map underscores that foreclosures tend to cluster. When they do, the surrounding neighborhood tends to suffer. Hendry Street in Dorchester is so far the worst-case example.

I mention this apropos of two stories in the news this morning. First, the Wall Street Journal reports that several major philanthropies are considering how to help stabilize neighborhoods. Proposals include spending money on counseling, on refinancing loans and on buying foreclosed homes.

Second, the executive branch is voicing its opposition to the various bailout plans for mortgage lenders circulating in the legislative branch. Senior Democrats are talking with industry groups about the possibility of buying large numbers of loans, which would limit lenders losses and preserve borrowers from foreclosure. Treasury Secretary Henry Paulson panned the idea yesterday. Today, Paulson's boss chimed in.

The plan, said President Bush, would "do more to bail out lenders and speculators than to help American families keep their homes."

Many of you responded with outrage to the idea of the federal government buying up bad mortgage loans, described in my last post. The latest developments probably are not going to improve your mood.

The New York Times reported Saturday that Bank of America is circulating a proposal to members of Congress that the government:
1. Buy loans that might fail from the companies that might lose money.
2. Forgive debt in excess of the value of borrowers' homes (Meaning taxpayers would swallow the losses that lenders otherwise might bear.)
3. Refinance the borrower into a government-guaranteed loan with a lower interest rate.

More than 10 percent of American homeowners owe more on their mortgage than the value of their home, according to a new study by Moody’s Economy.com. This is what happens when buyers make minimal down payments, and then housing prices start falling.

The consequences are all bad, which you can tell by the term the industry uses to describe the situation. Such borrowers are said to be “underwater” -- they are drowning.

The role of mortgage servicers -- companies that collect payments from borrowers -- is starting to receive more attention. These companies don't make loans, and they don't own properties, but they generally are responsible for deciding who will be foreclosed, and for reselling foreclosed properties.

Maryland has just become the second state, after California, to require loan servicers to provide the state with lists of home owners who may face foreclosure. The emergency regulation is intended to help the state contact those borrowers before they fall so far behind on payments they can't be helped.

The window to refinance may be closing. Average interest rates on new 30-year loans climbed to 6.09 percent from 5.71 percent last week, the Mortgage Bankers Association reported this morning. It's a big jump that may seem bigger to some borrowers because rates are now back above 6 percent.

(Bankrate.com reports average rates are at 5.92 percent. Freddie Mac releases its weekly survey tomorrow.)

The reasons for changes in mortgage interest rates are always a bit obscure, but historically, rates never stay below 6 percent for very long. That window may just have closed. Did you manage to seize the opportunity?

You can’t tell the mortgage boom is over from the advertising on radio and television. Companies such as East West Mortgage Co. continue to heavily promote their ability to arrange loans, even for people with credit problems.

In part, companies are advertising more because they’re having more trouble convincing people to borrow money. The New York Times reported yesterday that the industry’s spending on advertising hit $409 million in the third quarter of 2007, more than companies spent at the peak of the housing boom in 2005.

Some of the pitches are surprisingly brazen for an industry whose leaders and lobbyists have lately been spending time acknowledging past excesses. One example recently delivered to the home of a colleague featured a picture of a baby on the front. Inside, it offered to lower his monthly mortgage payment by refinancing him into an Option ARM. The loan works like a credit card: You can pay less than your balance each month, but if you do, the balance grows larger as the interest accrues.

Readers: Are you being bombarded by offers to refinance? Have you heard or seen an ad that made you feel like we were living 2005 all over again?

Mortgage rates rose again last week. The average rate on a 30-year fixed-rate loan climbed to 5.72 percent from 5.61 percent, according to the Mortgage Bankers Association. Rates on other types of mortgage loans rose by similar increments.

As might be expected, the number of applications for mortgage loans dropped about 2.1 percent, though the trade group said demand for new loans remained 65 percent higher than during the same week last year.

Application volume surged as interest rates declined through the fall and into January. The great unanswered question is how many applicants actually are qualifying for loans. Tighter standards mean many applicants may be turned away. And the tighter standards may themselves be causing an increase in the number of applications as people work to find a lender willing to give them money.

Is it time for you to get a new loan? Check out a recent article in the Globe, and an earlier post on this blog.

Major mortgage companies and the federal government held another press conference yesterday to talk about helping troubled borrowers. Meanwhile, the Wall Street Journal reports this morning that the Hope Now hotline, touted this fall as a source of help for homeowners, has provided counseling to just 36,000 people in the last two months. That is well behind hopes and projections.

Finally, someone has stepped forward to defend the subprime lending industry. The chief executive of a luxury home builder, writing today in the Washington Post, says rising home prices forced the rise in subprime lending because the financial system failed to provide borrowers with alternatives.

The truth is that subprime lenders, by responding to demand, were the finger in the dike for the whole housing market. The real problem is affordability and the incongruity between incomes and home pricing.

Countrywide, the nation's largest mortgage lender, is suspending withdrawals from some borrowers' home equity lines of credit (known as HELOCs). The company said about 122,000 borrowers nationwide would be affected.

An internal memo is posted at the Mortgage Lender Implode-O-Meter. Perhaps the most interesting line:

This is not unique to Countrywide and our competitors have implemented similar initiatives with their HELOC customers as well.

Keep reading for details:

It's the nightmare of the mortgage industry: The possibility that home owners stop making payments before they run out of money -- walking away from their homes because they have no equity -- or worse yet, remaining in the homes and living rent-free.

A Los Angeles Times story on Wednesday quoted one Leandro Hernandez on the subject of what he would tell his lender if the company doesn't agree to modify his loan

Foreclose me.... I'll live in the house for free for 12 months, and I'll save my money and I'll move on.

With the 30-year mortgage rate at a four-year low, many people have mortgage questions they want answered, such as: Is now the right time to refinance?

Here is your chance to get some answers. Holden Lewis, senior reporter at Bankrate.com and author of the blog Mortgage Matters, will answer your mortgage and refinancing questions in a noon chat today at Boston.com.

Subprime mortgages and foreclosures, are you sick of hearing about them yet? Obviously not! Back in August, I wrote on this blog defining subprime mortgages and showing why there was incentive to entice consumers to buy them. In July and October, I wrote again about wide-spread use of subprime loans among minorities and women – even those with good incomes.

Seven states including Massachusetts have created a shared database to track the licensing of mortgage loan originators, including mortgage brokers and loan officers at banks.

The Nationwide Mortgage Licensing System, launched today, will allow regulators to prevent loan originators banned in one state from working in a different state. Eventually, perhaps by 2009, customers also will be able to search the database.

Boom. The Federal Reserve tightened the screws on the mortgage industry this morning after years of insisting that increased oversight was either inappropriate or impractical.

The proposed rules (read them here) are stricter than many observers had expected.

What are your thoughts on the Fed's action?

The administration's proposal to freeze interest rates on certain subprime loans (a Globe story here describes the plan) is drawing plenty of heat.

The Washington Post reports borrowers who took prime loans feel punished for their financial probity (here).

The New York Times says the plan may help lenders more than borrowers (here).

And Bloomberg News reports it just may not make much of a difference (here).

What are your thoughts?

Mortgage brokers maintained, even in the midst of the subprime loan crisis, that the specialized mortgages for people with poor credit histories had a purpose.

But it appears their role in the housing market may be much smaller, however, according to new information on the industry's loan volume.

Now that foreclosures finally have the attention of the Boston Fed, the institution plans to focus some of its research muscle on a pair of questions:

1. Is there a better way to pay mortgage brokers?

2. How can help people understand the risks before they take adjustable-rate loans?

Keep reading for more on these questions, then tell us what questions you think the Fed should be exploring. I'll forward the best ideas to the Boston Fed's research staff.

New research by the Federal Reserve Bank of Boston shows more than half of subprime borrowers have yet to miss a mortgage payment, and many may be eligible for cheaper loans.

Eric Rosengren, president of the Boston Fed, said Monday that 26 percent of subprime borrowers in New England likely were eligible to refinance to loans with lower interest rates based on their credit scores, the equity they held in their property, and their original loan terms.

He urged a focus on helping these borrowers refinance rather than attempting to save borrowers who have already fallen behind on their mortgage payments. He said a focus on borrowers in better shape was likely to be more productive and "may avoid much greater costs later on."

Rosengren spoke at a breakfast meeting convened by MassInc, a local think tank, at the Omni Parker House hotel. (The text of his speech is available here.)

A coalition of consumer groups plans to ask bankers at five of Wall Street's largest firms to donate their year-end bonuses to a foreclosure prevention fund.

The coalition wants to highlight the role of investment banks in funding -- and thereby fueling -- the loose lending now resulting in record numbers of foreclosures.

In a new report (available here), the coalition argues that the boom in subprime lending was primarily driven by Wall Street's hunger for mortgages it could package as bonds and sell to investors -- and not by consumer demand for the high-risk loans.

An article in The New York Times today said the agency charged with monitoring the US Bankruptcy Court is looking into two Florida foreclosures.

The agency issued subpoenas to Countrywide for the borrowers' mortgage records. The move comes amid a growing realization that mortgages were sliced and diced and sold to Wall Street investors in so many packages that it may be difficult to determine who is the true holder of an individual mortgage.

Politicians and regulators at multiple levels are moving quickly with measures and ideas to stop the wave of foreclosures sweeping the country.

In Massachusetts, the state Legislature passed a bill late Tuesday that gives borrowers who fall behind on payments 90 days to catch up. It also limits the fees lenders can charge for converting an adjustable-rate loan to a fixed-rate.

Meanwhile, in California, Gov. Arnold Schwarzenegger struck a deal with four major loans servicers--the bill collectors--to agree to freeze the lower, introductory rates of borrowers with adjustable rate subprime loans. The governor's office said there are a half-million borrowers in California with subprime loans that will adjust to higher rates--and higher monthly payments--over the next two years.

Those of you who have followed this blog since its beginning know that my father taught me how to understand the use of numbers found in newspaper articles.

In the Sunday Boston Globe, Trey Skehan explained the use (and misuse) of averages, medians and means in discussions of income.

A new congressional study projects 22,292 Massachusetts homeowners will lose their homes to foreclosure by the end of 2009. The study by the Joint Economic Committee, available here, estimated the foreclosures will reduce property values by $3 billion and cost the comunitiesin the state almost $26 million in property tax revenues.

The study ranked Massachusetts only 19th among states in the number of expected foreclosures. But the state's relatively high property values mean Massachusetts ranks 6th in terms of the expected economic damage.

According to the authors, the studies methods and assumptions likely underestimate the total number of foreclosures, and the impact, over the next two years. For example, the study looked only at borrowers who took subprime loans.

Plymouth County's Register of Deeds reported 738 foreclosure deeds were filed in the county last month -- that's more than double the 304 deeds in October 2006.

However, initial notices of foreclosure filed by lenders against homeowners are down sharply: 147 in October, compared with 259 in March, the Register said in a memo on activity in the county.

But, as more adjustable mortgages have their interest rates reset to higher levels and push up borrowers' payments, "we are likely to see that volume of foreclosure notices continue," the Register, R. Buckley Jr., said.

Property sales recorded in October were 7,102, down 7 percent from 7,594 sales a year earlier.

A federal court has temporarily prevented the Department of Housing and Urban Development from fixing a gaping loophole in the federal program that encourages lending to lower-income families.

The Federal Housing Administration insures loans to lower-income families, promising to pay lenders if borrowers don't. That encourages more lending. As for borrowers, there's only one major restriction on participation: They need to make a 3 percent down payment.

Borrowers who fall behind on mortgage payments are often reluctant to contact the lender.

Perhaps not surprisingly, it turns out that a lot of borrowers don't trust the mortgage industry. Many feel they got into trouble by talking to lenders. Why should they do it again?

At a closing, there is a piece of paper that flies by the borrower that says something like, “Disclosure: lenders may not discriminate in regard to race, gender, national origin...” Well, it is becoming pretty clear that there was a lot of discrimination going on.

US Treasury Secretary Henry Paulson Jr., called on mortgage lenders and their affiliates to move more quickly to help struggling borrowers avoid foreclosures on their homes.

In a speech this morning at Georgetown Law Center, Paulson noted that an industry group is already working on ways to intervene with troubled borrowers before they get too far behind in their mortgage payments.

But, he added, "We have an immediate need to see more loan modifications and refinancing and other flexibility. For many families, this will be the only viable solution. The current process is not working well. This is not about finger pointing; it is about putting an aggressive plan together and moving forward."

US Representative Barney Frank has scheduled a hearing this morning at Roxbury Community College to discuss patterns of mortgage lending in the Greater Boston area.

Frank, a Massachusetts Democrat, is the chairman of the House Committee on Financial Services.

According to Frank's office, the hearing will focus on mortgage lending disparities in the Boston area, including data that reveal that black and Latino borrowers were much more likely than whites or Asians in this area to receive higher priced loans.
(By Chris Reidy, Globe staff)

Last week, I wrote about the difference in buying power for consumers who spend 50 percent of their income for housing costs, instead of the 33 percent that is conventional wisdom.

I made a mistake. I calculated the ratios based on net income, not gross.

In response to a comment, I also confirmed that people with big down payments and excellent credit can borrow more than 50 percent for housing costs, still! These are conventional loans, not “Alt-A” or subprime loans.

Fannie Mae allows borrowers to spend up to 50% of their net income on their mortgage for a conventional loan. Really. Today! Granted, to borrow that much, you must have great credit, work history and little other ongoing debt. Here’s the problem:

Suppose Family A earns $52,000 a year. Assuming 25% income tax, they have a net income around $39,000. Divide by 12 months, and their monthly net income is $3250. If they spend one third on housing, their mortgage payment would be $1083. That will get them a loan of about $160,000. That’s not enough. So they stretch to half their income. They get a loan of $260,000. That leaves them $1625 a month to pay all their other bills. Now, they are headed for trouble; there is not enough cushion, IMHO.

If we double the income to $104,000 a year for Family B, their net monthly income goes up to $6500. A third of that allows a loan of $320,000 and spending half allows $510,000. (Taxes are higher; that’s why it isn’t just double the figures above). They have $3250 left every month for groceries, medical, daycare, transportation and home repairs.

You can easily see how a family earning $150,000 or $200,000 would still have lots of expendable income, even if they spend half their income on housing.

People at median income who spend 50% on housing are locked into being house-poor. But for people with large incomes, especially young, upwardly mobile ones, this may not be so risky. I still don’t recommend it; I’m financially conservative.

The Mortgage Bankers Association today released its weekly index of mortgage applications, and they're down.

Applications have declined 2.8 percent since last week.

But since the beginning of August, when the mortgage crisis gained momentum, the index hasn't shown any clear pattern -- it's up about half the time and down the other half

However, there are numerous reports that some people who apply for mortgages are being rejected. Or if they do qualify, they are finding rates are too high, making their ideal property unaffordable.

Timothy Warren, chief executive of The Warren Group, which reported yesterday the state's housing sales declined 5 percent in August, says the mortgage meltdown's impact hasn't yet affected the market.

What do you think?

Although I do not predict, I have been happily anticipating the fall real estate market. I have reason to expect it will be a good market for buyers who are financially prepared.

It is still pretty quiet out there in real estate land... Mostly, I’ve been house-hunting in “Greater Cambridge.” I’ve seen lots of quiet open houses this September. There have been some “lightning strike” busy open houses and a few fast sales. But, overall, I expected more activity. I checked this perception with my office-mates, and they sensed the same thing: we all have good clients, but there is not much in the way of new and interesting listings for them.

Maybe it is because the Red Sox played “them” this past week, or because the Patriots were making news, but this fall seems to be a bit anemic.

For buyers, things just got even better! The reduction of the benchmark interest rate is a good thing for people who are buying now. Whatever you were going to spend every month on your principle and interest just went down.

Now, all you need is a property you want to live in!