When I published comments from readers who thought their Offers were not being presented to lenders in short sales and foreclosure situations. I suggest that agents and consumers could do something about it. James wrote:

Where's the incentive for an honest agent in all of this? It seems like it's a lot of work for the agent, and he still won't get a commission. If the lender thinks the borrower is crooked, there will be a Fraud Alert flag on that file forever, making reasonable Offers nearly impossible to approve. Sure, it's the right thing to do, but it takes a lot of time, effort, and money (lawyers ain't cheap), and it doesn't get your client any closer to buying the house. Good community service (if you can get the bank to listen to you), but it won't pay the bills.

First a disclosure: on the bottom of the email address that I use with my clients is this statement:
Always do right. This will gratify some people and astonish the rest. --Mark Twain
So, I am someone who tilts at windmills; that’s who I aspire to be. Marcus thinks doing right to do right is a sign of hopeless naivety. But so be it. Attorney Michailidis thinks I owe someone an apology for saying there is something wrong with hand-picking low Offers to send to a lender in a short sale.

Back to James’ comment: why blow the whistle on sellers and their agents? James is right that the self-interest angle is weak, in the short run. The long-run upside is that action to stop those messing with the process will clear the path for buyers to buy properties; if the lenders are waiting forever to see market-rate Offers, would-be buyers are waiting along with them.

Mary wrote:

Like JGC, I wish regulators would look more closely at short sales. My suspicion is that not only are some brokers not submitting all offers, they are in collusion with the seller to sell the property to a relative or friend (a not "at arm's length" buyer). I have buyers putting in very good offers on short sales who are not getting the properties, and watching the properties sell for less than their bid. Where are the regulators?

There are a lot of accusations in what Mary wrote above. She’s not the only one. I also got this email from another commenter and blog-buddy of mine:

Rona, I’ve heard tales of people taking out cash loans on credit cards and cars in order to appear in dire straits and qualify for a short sale. If a savvy person knows the rules, I could see it working in this business/banking climate.
They'd be short selling it to someone they know as cheaply as possible, then renting it back. The idea is also to buy back after some time. Works well with tight knit ethnic groups. I think this is happening more where similar, although arms length, deals are common. Say, CA, FL, NV, AZ.

So, here’s the scam:
1. Get behind in your bills, so you can prove that you can’t keep the house that has depreciated below to loan amount.
2. Make a case for a short sale with your lender.
3. Go through the motions of selling on the open market with a crooked agent. Have the agent send only the low Offer of your confederate to the lender.
4. Once you sell to your not-arm’s-length partner, rent it back from him/her or buy it back at a later date.
(I have, in the past, run into agents who don’t present Offers. But, I can’t prove it is happening now, or for this reason, based on my experience in the marketplace. I am experiencing the inability to see properties, which may be a symptom of the same disease.)

Readers, I don’t recommend that you try this for a number of practical reasons that go beyond the obvious moral reason: it is stealing and bank fraud. You go to jail if you are caught; it’s a nice jail (Devons or Danbury), but it is still jail.

Welcome back to Attorney Richard D. Vetstein. Today, he looks at the wild world of short sales to tell buyers what they can expect...

A short sale is special type of real estate transaction between a homeowner, his mortgage holder, and a third party buyer. In a short sale, the homeowner’s mortgage company agrees to take less than what is owed on the outstanding mortgage, thereby being left “short.” In some but not all cases, the lender will agree to wipe out the entire debt. Many people believe that short sales offer bargain basement prices, but lenders will do their best to get as close to fair market value as possible so as to minimize their loss.

Short sales are a unique type of transaction and far different from the typical transaction between parties of equal bargaining power. Likewise, the legal aspects of a short sale are unique.

Sam Schneiderman, Broker-owner of Greater Boston Home Team continues his Monday series. Short sales are going to be with us for a long time. What should a buyer know if he/she wants to buy one?

A “short sale” is typically the sale of a property by a seller that cannot continue to pay his monthly mortgage(s) and cannot sell the property for enough money to pay off his mortgage balance(s) in full. In a “short sale” the seller must ask his/her lender(s) to take a loss on the mortgage(s) in order to allow the seller to sell the house and move on. The seller’s lender(s) will accept a discounted mortgage payoff and usually forgive the seller’s debt. Buyers, sellers and their agents need to know that lenders have the last word in accepting an offer and final purchase price even after the seller “accepts” an offer.

Lenders might agree to short sales when it’s obvious that they will probably never be able to get paid the full amount of the mortgage balance and it is cheaper and faster to agree to a short sale. (Maybe the seller lost his job or had serious illness that prevents continuing mortgage payments. Maybe the value has declined substantially.) If the seller can’t pay off the mortgage from sale proceeds, the choices are: foreclosure or short sale of the property.

Most people think that short sales are automatically granted but that is not true. In order to grant short sale permission, lenders typically consider two things: the seller’s financial situation and the property’s market value.

FULL ENTRY

When Jenifer McKim wrote about bidding wars ignited by the coming tax credit deadline, she quoted my friend and colleague Pat Magnell. Pat and I are both on the Board of Directors of the Massachusetts Association of Buyer’s Agents. Jenifer wrote that Pat said this:

Pat Magnell, a real estate agent with Buyer’s Choice Realty in North Andover, said she is surprised by the number of people who are only now deciding to look for a home because of the federal incentive. Although the credit is attractive, Magnell said, it should not drive such an important purchase.

Yet, it seems like the $8000 is burning a hole in too many pockets.

Buyers need to have their accepted Offer to Purchase and Purchase and Sales Agreements well in advance of the November 30th deadline. If you find a property too late, you will not be able to get your mortgage approved and cleared to close before the deadline. So how late is too late? I am beginning to hear rumors that so-and-sos competition will not promise to close by the deadline. But, to date, no lenders have told me that it is already too late.

Welcome back to Attorney Richard D. Vetstein. Today, he explains the new FHA regulations and how they will put more obstacles in the path of would-be condo buyers.

Under revised guidelines set to go into effect November 2, 2009, the Federal Housing Administration (FHA) is implementing a new stricter approval process for condominiums to be eligible for FHA financing. Similar in some respects to the new Fannie Mae regulations issued earlier in the year, the FHA guidelines will surely slow down condominium mortgage financing, and negatively impact first time home buyers for condominium units.

For those who don’t know, FHA is a government program designed to help more people buy homes, and more borrowers will qualify with FHA financing than with conventional financing. It is a low down payment (3.5% down) program and the credit standards are much looser. The mortgage rates are typically better, as well.

FULL ENTRY

Sam Schneiderman, Broker-owner of Greater Boston Home Team continues his Monday series. Last week, we discussed the concept of an “exit strategy” when buying a home. That means that before you get into the house, you need a plan to get out of the house. Kind of like a pre-nuptial agreement for your home.

Part of that “exit strategy” should include planning for how much the mortgage balance will be when it’s time to sell. That means that the mortgage should be integrated into the exit strategy and home ownership plan. While it’s nice to have the lowest possible payment, it’s also nice to have the lowest possible mortgage balance left to pay off when it’s time to move on. If someone buys a home at age 40 and plans to retire at 65 and continue living in that home, it seems to me that a 25 year mortgage makes more sense than a 30 year mortgage.

For as long as I can remember, thirty years has been the “standard” length of most mortgages. Lenders advertise fifteen year mortgages, but most people are not aware that mortgages of any length are available. The shorter the loan term, the lower the rate and the faster the principal balance will decline. The longer the term, the higher the rate and the longer it takes to begin making a significant reduction in the principal balance, but the monthly payment is lower. When values were rising rapidly, there was discussion about whether 40 year mortgages made sense to keep payments more affordable.

Lately, I’ve been wondering if it’s time to retire the thirty year mortgage since most people don’t stay in their homes beyond 10 years. With the high cost of college, many middle-class families sell their homes (which they probably shouldn’t) in order to pay for college. At the most, those families probably only live in their homes 15-20 years. A shorter mortgage term would give them more equity when they sell.

Struggling homeowners seeking relief from banks and other lenders on their mortgages have too often been plunged into a bureaucratic nightmare.

Particularly mind boggling are mortgage servicers who plunge ahead with foreclosure filings, and then, when called on it my activist groups, say they have no power to stop the proceedings since they don’t own the real estate!

Now it appears the legal system may slam the brakes on this runaway corporate train wreck.

A pending decision in Massachusetts Land Court could invalidate the sales of hundreds, if not thousands, of foreclosed homes in Massachusetts, the Globe reports.

It’s been real quiet – too quiet in fact – on the shady real estate lending front.

The collapse of the subprime industry may explain some of it. Still, you have to wonder what happened to all those aggressive brokers made a killing signing home buyers onto high-interest rate mortgages they couldn’t afford.

After all, they didn’t go to jail. And the rare few who faced any sort of civil penalties likely brushed them off as a cost of doing business.

According to new report by the Boston-based National Consumer Law Foundation, questionable brokers and their sleazy subprime tactics have found a new home in the reverse mortgage business.
http://www.consumerlaw.org/news/PR-reverse-mortgage1009.pdf
Brokers with “perverse’’ financial incentives are aggressively selling reverse mortgages to elderly home buyers, and possibly misleading seniors in the process, the report finds.

I welcome readers from the print edition of The Boston Globe. Some of you may be here for the first time.
My entry that was noted at the bottom of Jenifer McKim’s article today is this one.
(Boston.com online readers were sent right to it, but newspaper readers would need to scroll down a bit to find it.)

I have been writing about this $8000 credit since February, when I explained how to calculate adjusted gross income to be sure you qualify for it.
I explained how the credit works.

I posted another resource about how it works in April.

I got some great responses to my post about underwater homeowners who walk away.

Not long ago, they would have been called “deadbeats’’ by some. Now they have a much more respectable name, “strategic defaulters.’’

But let’s put the moral question aside for a moment.

The cheerleaders for walking away like to pitch the idea as a hard-headed business move.

In a world where major corporations gin up their stock prices with layoff announcements, homeowners who do the math and walk away are simply protecting their own interests with the same, steely resolve, or so the argument goes.

After all, your credit report turns over every seven years. So it’s just a simple matter of doing the math and figuring whether it makes more financial sense to stay or go, or so the pro-walkers contend.

There’s no real financial disincentive to walking and moral arguments against it are “naïve,’’ writes “Tim,’’ who I quote below.

Sam Schneiderman, Broker-owner of Greater Boston Home Team continues his Monday series.

Last Monday, we began a discussion about market forces to consider when buying.

I asked two questions:
1. Based on a good look at the indicators, do you think that timing the market is really possible?
2. Should buyers and sellers try to time the market or just move when they are ready?

Overall, those that answered the questions were balanced between those that thought the market could be timed and those that thought it could not. If our small survey is correct, then Lai was correct when she said:

“I find people who said the market will bottom in next 12 months and people who said the market will crash 20% in next 12 months equally overconfident about their opinion. We just don't have that crystal ball.”

There were also those that were buying or in the market because they were ready or needed to at this stage of their lives and they could get a mortgage they could afford. I agree with John, who said,

“There is really only one factor that drives home prices and that is the ability of a person or household to service the mortgage debt (and all other related household expenses). The ability to service the debt in turn, is tied to wages, interest rates and credit availability.”

What surprised me is that there was not much talk about prices vs. interest rates.

That’s a fancy sounding name for the latest trend in the nation’s troubled real estate market.

It refers to homeowners who choose to walk away after finding themselves underwater in the worst real estate downturn since the Great Depression.

Now a new study is shedding some additional light on this trend – and it sure isn’t pretty.

Credit bureau Experian teamed up with consultant Oliver Wyman to look at 24 million credit files.

Let’s just say the folks who are doing this are from fitting the stereotype of the struggling homeowner battling just to make ends meet.

It looks like jumbo loans, if not back, are at least getting a little more palatable.

The Globe reports the gap between jumbos and conventional loans has fallen by half, down from two percentage points to one.

And that should be good news for the high end of the market, with any mortgage above $523,750 thrusting the buyer into jumbo territory.

The shift comes after a couple years in which both would-be buyers and lenders considering whether to issue a jumbo mortgages were increasingly wary of taking on such out-sized loans,

The mortgage industry helped plunge our country into the worst downturn since the Great Depression, writing millions of hideously bad loans.

As foreclosures have steadily mounted over the past few years, a host of state and federal initiatives have given the lending industry chance after chance to start repairing some of that damage.

The response has been corporate bureaucratic stonewalling that would put many a government hack to shame.

So I don’t have a problem with U.S. Rep. Barney Frank’s new, get-tough approach with the mortgage industry.
The chair of the powerhouse House Financial Services Committee has put the mortgage business on notice that there will be some consequences if it doesn’t start embracing loan modifications for struggling homeowners.

Richard D. Vetstein, today, he explains a legal case regarding foreclosure:

In late March of this year in the case of U.S. Bank v. Ibanez, Massachusetts Land Court Judge Keith C. Long issued one of the most controversial rulings in recent years which has called into question hundreds if not thousands of foreclosure titles across Massachusetts.

The Facts
In the Ibanez case, the Land Court invalidated two foreclosure sales because the foreclosing lenders failed to show proof they held ownership of the foreclosed mortgages through valid assignments. In modern securitized mortgage lending practices, the ownership of a mortgage loan may be divided and freely transferred numerous times on the lenders’ books. But the documentation (i.e., the assignments) actually on file at the Registry of Deeds often lags far behind. The Land Court ruled that foreclosures were invalid when the lender failed to bring the ownership documentation (the assignments) up-to-date until after the foreclosure sale had already taken place.

The Ibanez decision has called into serious question the validity of any pending or completed foreclosure where the lender did not physically hold the proper paperwork at the time it conducted its auction. The mortgage industry has criticized the decision as form over substance. The judge is presently reconsidering the ruling, but whatever the outcome, the case will likely end up before the Massachusetts Supreme Judicial Court given its far-ranging impact.

This entry is about the practical implications of mortgage appraisal. It is about why you need to care about “failed” or “bad” appraisals. I wrote about appraisal in June, but I am finding that the buying public still does not know that it costs them money to make an offer on a place that will not appraise for their asking price.

How it works:
After the buyer and seller agree to a price, the buyer needs to get a mortgage for the sale price minus their down payments. The lender must establish that the value of the property is sufficient to cover the debt. The appraiser works for the lender and the lender’s investors to set a value on the collateral house. The appraiser and the lender should not care a whit about the buyer, the seller, or the brokers.
In most cases, the appraisers can find recently sold properties that work well to establish the value. With good comparable properties, the appraiser stands on solid ground to state a value for the lender. When the comparable sales don’t exist, the appraiser has to look farther away and longer ago. The numbers get sketchy.

There’s a lot of confusion out there about the foreclosure crisis.

I remember editors at one paper I worked for seeking in vain a suburban counterpart of battered, boarded up and foreclosed Hendry Street in Dorchester.

Anyway, I am sure there was a lot of salivating over potential headlines, Wellesley’s Foreclosure Alley and things of that sort.

Of course, it turned out to be the El Dorado of foreclosure stories.

The fact is, you are not going to find a bunch of Hendry streets out in the suburbs, especially in towns like Wellesley and Weston, where foreclosures, while hardly unknown, are not a huge problem.

Anyway, I remember trying to explain in vain the idea, that, at least here in Massachusetts, the vast majority of foreclosures are taking place in low income areas that were flooded during the boom with crazy, high-risk subprime loans.

I might have better luck had I been able to roll out this nifty, new graphic just released by the Boston Fed detailing foreclosure trends in Massachusetts since 1990.

Sam Schneiderman, Broker-owner of Greater Boston Home Team continues his Monday series.

Financing is available to those that can satisfy a lender’s standards and answer all of the lender’s questions. Here’s a story seen on a couple of blogs to illustrate the point:

Supposedly, a Louisiana man hired a lawyer for help with an FHA loan. The client was informed that his loan would be granted if he could show clear title to the property.

The lawyer researched clear title dating back to 1803. He forwarded documentation to the FHA. They responded as follows:

“Upon review of your letter adjoining your client's loan application, we note that the request is supported by an Abstract of Title. We must point out that you have only cleared title to the proposed collateral back to 1803. Before final approval can be accorded, it will be necessary to clear the title back to its origin.”

H and L faced the prospect of selling their condo, but found another way. They are a lot like other young college educated adults. They are hard workers and good planners. They are 27 and 28 years old. They are willing to make compromises in order to not go backwards on their life plans.

L is still in graduate school. H is now out of full-time work and going back to school. Their combined student loans are $250 a month, so far. That is better than average. Finaid.org lists near $93,000 as average debt for H’s degree and $40,000 for the one the L is pursuing. One of the compromises that H made was to go to a less prestigious professional school. That is one of the bars to his ability to get another high-paying job now. Compromises have consequences.

OK…back to how they kept the wolves from the door of their condo:
They are renting it and moving to a cheaper place. Kudos to those who guessed right last week.

H and L nearly lost their condo this summer, when H lost his job.
They bought in the summer of 2008. They had just returned from living abroad and were living in a sublet. Not a living soul wanted to rent to a young family with a newborn and a pre-schooler. The place they sublet didn’t have a functioning toilet. Life was pretty tense…

They had saved a 20 percent down payment based on H’s professional job. They were able to spend far less than the 31 percent their lender would allow, so they would be able to continue saving while paying the mortgage. It seemed like the right time to get out of the rental market with their children.

Now it seems that another job like H just lost is not going to come around again in the current economy. He needs to get some more education so he could sell his skills in a lower-paid, but saner, part of his field. That will require a year or two of much lower-paid work while going back to school.

National Association of REALTORS® , NAR, surveys its membership pretty often. Frequently, the results seem predictable to me. (Like questions about how we think the market is doing.)

The results a recently of a recent NAR survey had some curious data. The survey was about changes due to the Home Valuation Code of Conduct (HVCC). I suspect that there is a bias here due to the voluntary nature of the survey. (My guess is that those who responded are those who are experiencing issues regarding these changes.)

For me, in my little Cambridge office, I have seen no change in appraisals. No increase in time, no increase in price. I answered the survey, and I find myself in the minority. NAR also has members who are appraisers. So, there are responses from agents as well as appraisers.

The respondents to the survey say that since May 1, 2009:

Ohio Attorney General, Richard Cordray, filed a joint lawsuit with the Ohio Department of Commerce against Carrington Mortgage Services, LLC. The lawsuit alleges that Carrington breached its agreement with the state to offer reasonable loan modifications to eligible borrowers. The lawsuit also alleges that Carrington violated Ohio's Consumer Sales Practices Act by providing incompetent, inadequate and inefficient customer service in connection with its servicing of Ohio mortgage loans.

"This lawsuit makes it clear that we have reached zero tolerance for this kind of behavior from loan servicers," said Cordray. "We've tried to work with them, but now we must take action. I am determined to see that mortgage servicers step up, take responsibility and start making it right with Ohioans. No more excuses."

Ohio is the first, filing on July 31st. It may not be the last. New York’s attorney general, Andrew Cuomo, published a report about bank exec bonuses. The New York Times covered the story of bank execs and their bonuses during the crisis.

“All told, the bonus pools at the nine banks that received bailout money was $32.6 billion, while those banks lost $81 billion.”

I had a conversation with a listing agent whose seller is insisting on a price that has no basis in current comparable properties. Partly, it is an odd-duck kind of place. Partly it is over-improved (that means that it is too nice for the building and the neighborhood.) Partly, the sellers bought it at peak.

My buyers like this place. When I did my CMA, I could not justify the price. Not even close. I asked the listing agent what he was thinking. He gave me comparables in a totally different neighborhood (it would be like comparing Jamaica Plain to Back Bay.) When I said that the comparables don’t work based on location and an appraiser would know that, he reminded me that the appraiser may very well be clueless about this location issue.

He might be right about that.

Neil Barofsky is the Special Inspector General (SIG) for Troubled Asset Relief Program (TARP). He is also a former prosecutor. Being a lawyer and being a prosecutor makes him someone who is going to be suspicious until innocence is proven. That, IMHO, makes him a good man for this job.

So, what’s his job? To follow the money handed to the lending institutions for lending. He has to follow the money without looking at the books. His most recent report says that 80 percent of the lending institutions say they have use the funds to support lending. Of the 364 institutional lenders surveyed, more than 100 spent on residential mortgage loans. Sixty-one more claimed to support other forms of consumer lending.

The information is not verified by a look at the books (since Mr Barofsky, our SIG, doesn’t have the authority to do so.) Banks are required to give all lending data on a monthly basis. But that’s not enough to end the questions. Mr. Barofsky wants more transparency. “The program itself and American people’s view of the program suffers when there’s this sense that the money is going into a black hole.” That’s what Barofsky told NPR yesterday.

Really, what took these guys so long to start asking some pointed questions?

That’s my reaction to the news that some in Congress are starting to get ornery about the absurdly slow pace of the nation’s foreclosure rescue programs.

Members of the Senate Banking Committee took aim last week at the Obama Administration, angered over the painfully slow progress of the president’s much touted, $50 billion foreclosure prevention drive.

The money, as you may recall, goes to lenders in various incentives to prod them into modifying mortgages and prevent yet more foreclosures.

But after months of efforts, just 160,000 homeowners have had their mortgages modified – hardly enough to start putting a dent into the nation’s foreclosure rate, which continues to skyrocket.

“Pathetic’’ was the word used by Sen. Christopher Dodd, (D-Conn.), chairman of the Senate Banking Committee, to describe the lack of results in the government’s battle to stem the rising tide of foreclosures.

A month ago I wrote about my client’s quest to get a re-appraisal for her refinance. Well, she did just that and she got the loan she wanted. She writes:

Hi Rona, What a difference a few weeks make! I called the appraiser and told him what our situation was, and he was open to doing a new appraisal after [property address A] closed (for an additional fee of his labor expenses--$150) using new comps that post-dated the effective date of the previous appraisal. The bank decided that since we had originally gotten an exterior only appraisal, they would order up a full appraisal which would allow them to use the new number without any difficulties stemming from re-doing the appraisal. The appraiser came out last Friday, and used 3 new comps (not [property A], which still hasn't closed), all of which had closed in the past couple of weeks. New value: $512K, a difference of $42K. Unbelievable. FULL ENTRY

Remember those broken promises? Shaun Donovan told a room full of Realtors that buyers would be able to get their $8000 credit at closing. Then the back peddling two days later. Then, Shaun was at it again, promising the National Association of Homebuilders.

Well, the mischief has been managed by the Commonwealth today. [the link is https, so your browser may object]

First-time homebuyers who use MassHousing loans can now have their $8000 tax credit up front. Payback is due by June 1, 2010.

Here is the first set of details:

I love that line, which comes from a New York Times piece on the now absurd degree to which banks have tightened mortgage lending standards.

After years in which all sorts of fraudsters and folks with little or no income were able to walk away with out-sized mortgages, banks seem determined to reject any and all mortgage applicants now, including those who are pretty obviously solid credit risks.

The “stuck at stupid’’ line, which sums up perfectly the shift from no standards to a paranoid pat-down of all potential mortgage applicants, is offered by the owner of a Colorado mortgage bank.

OK, just when I am throwing my hands up in the air over hapless mortgage rescue programs, Congressman Barney Frank comes along with a pretty good idea.

It’s pretty clear the battle to save struggling homeowners stuck with crazy subprime mortgages is over.

Maybe not an abysmal failure, but given they skyrocketing foreclosure rates, it’s hard to see how these rescue efforts have made much of a difference.

But a second wave of foreclosures is building, this time among homeowners with traditional mortgages who are in danger of being chewed up by this meat grinder of a recession.

Is it time to pull the plug on some of these wonderful sounding, and frankly pathetically ineffective, mortgage rescue efforts?

The past two years has brought one dramatic announcement after another of big new government initiatives to curb the rising tide of foreclosures.

Each one sounds great, with a big price-tag to boot, a few hundred million here, a billion there.
President Obama’s newly launched drive to give $75 billion to banks and financial institutions to modify the mortgages of struggling homeowners is just the latest in a long series of such efforts.

But a recent Fed study, detailed in the Globe, raises some serious questions about whether the Obama effort and the myriad of other programs like it stand much chance of even putting a dent in sky-high foreclosure rates.

Here’s a good sign for the battered upper reaches of the real estate market.

It’s too early to say the market for jumbo loans is back, but the nation’s biggest banks are once again showing an appetite for such outsized mortgages, Bloomberg reports.

That’s good news given the jumbo lending shrank to $98 billion last year, down from $348 billion in 2007.

JPMorgan Chase & Co. has resumed buying jumbos from other banks while Citigroup has again begun offering jumbo mortgages through independent brokers.

In hopes of better protecting the consumer, our government has changed regulations that govern residential mortgages. I heard from Jill Buzny at Wells Fargo Mortgage about the changes that are afoot:

These changes are meant to protect consumers by not allowing lenders to charge fees until the application is completed, requiring that the consumer gets a copy of his/her appraisal in a timely fashion, and requiring that the Truth in Lending Statement be accurate and presented in a timely fashion to the buyers.

As these changes come into practice, expect delays in your loan processing. There will be times when the time-table will need to be shifted back because consumers need to get information before they can be charged for application fees (delaying the application), and closing may be delayed to give consumers ample time to review their appraisal and to get a correct Truth in Lending Statement.

A client of mine wrote me about her refi:

So, the question: we are in the midst of refinancing, and the appraisal has come in low ($470K). Got any advice on challenging an appraisal? Also, there are 2 potential comps on the market right now. Both are Sale Pending. One was listed as a comp but not weighed in the result, as far as I can tell (I assume because sale hasn't closed). The other was not considered, perhaps because it wasn't yet UAG as of the time the appraisal was done last week. I know they won't necessarily turn out to be helpful, but is it ever possible to find out from a seller's agent when the closing is supposed to take place, and even what selling price was agreed on? I think we have enough cash to basically repay a bunch of the principal and take a much smaller refi loan, but we'd prefer not to have to do that. If we can bump the appraisal up by even 20K, that would make a big difference.

This question brings up two things that I have been thinking about bringing up, here at Boston.com:

1. Should you time your refi, so that you can take advantage of the higher prices that show up in the spring?

In every market, bear and bull, the housing prices around here are higher in the spring and early fall, relative to the rest of the year. When the prices were double-digit inflating, it was harder to see. But even then, summer and the dead of winter were still the times for the lowest prices.

Even now, prices are going up in several towns compared to last winter’s sales. They are likely to go down as the year goes on. This happened last year, too. Many towns showed price gains in the first half of the year, but fell overall in 2008.

Has anyone had luck with timing their re-fi appraisals?

Sam Schneiderman, Broker-owner of Greater Boston Home Team continues his Monday series:

Last Friday, Rona touched on the risks that buyers take when lenders continue to review the loan documentation after issuing a commitment.

A mortgage “commitment” is a letter from a lender that is supposed to bind them to lend money secured by real estate. Note the word “commitment”. In my opinion, a commitment letter is like a marriage contract. The parties should expect loyalty without any ifs, ands or buts.

There are conditional and “clean” commitments. Simply put, conditional commitments contain clauses that give the lender a way out of funding the loan (a/k/a weasel clauses like “subject to MFHA approval, PMI company approval, or investor funding of the loan…”). “Clean” commitments contain only common conditions (like requiring good title and insurance) that also protect the buyer’s interests.

There is the practice among some lenders to issue conditional mortgage commitments (that they will not update) and continue to request paperwork from the borrower, causing closing delays and putting buyer’s deposits and rate locks at risk. Since few borrowers understand this, thorough buyer’s agents and attorneys monitor mortgage commitment dates and review commitment letters to protect their clients’ deposits. They also know that buyers should work with reputable lenders that adhere to dates and issue clean commitments.

Appraisal discrepancies… That’s broker-speak for “the house is not worth what the buyer wants to borrow on it. The investor will not cover that mortgage.” Jenifer McKim reported on this for The Boston Globe this week.

Usually, appraisal discrepancies happen when a market is going up. Let me explain:

Let’s use something fairly perfect: condos in the same building that are the same size. They should be worth about the same, unless one has over-improved the interior with some over-the-top kitchen or flooring. There will be slight variations for view and balconies, but let’s pretend that none of the views are much and everyone has the same balcony. Also, let’s say we are in 1999.

Condo one sells for $279,000 in January and closes in February. Condo two sells in February for $282,000; closes in March. Then the spring market hits. Everything in the town goes up 10 percent. February 15th, condo number three comes on the market at $299,000; March 1st, condo four comes on at $309,000. March 15th, condo five comes on for $319,000.

Some buyers start condo shopping in March. They see $299,000 as a bargain, compared to $309,000 and $319,000. Even if they looked at the properties that recently sold, this was 1999; buyers were more resigned than I was about accepting the presumption of an annual price increase.

Sometimes the first condo after the increase didn’t appraise. Rarely, the second one wouldn’t. The third one had no problem. That was the reality when the market was kicking up.

Appraisers have gotten so conservative they are getting blamed by unhappy borrowers who can’t get loans and folks in the mortgage business for killing sales inflicting more pain in a miserable market.

The Wall Street Journal takes a look at the issue, featuring a California couple who shelled out $635,000 for a 3,100 square foot Victorian two years ago.

The new appraisal – a stunning $250,000. Needless to say, it’s goodbye to their hopes of refinancing their mortgage and saving $400 a month

A fellow broker met me at a property all stressed-out because a last minute closing snag. The buyer and the seller were ready to buy and sell, respectively. It was the lender that was the fly in the ointment. She bought up a perspective that I had not thought of before. Does the way the staff members are paid influence the service at a lending institution?
She ranted:

Never, ever work with ____________! Their loan department are all on salary. They couldn’t give a darn whether the loan gets processed on time or not. It took six weeks to get the loan commitment. Now, the day before the closing, they have a list of papers they want from the buyer…

I don't see the commission system as more motivating than salary work, but then again, I have put up with the commission system for years. Could it be that salaried workers don't care as much about whether the job gets done?

Thanks to this blog, I have found something of great value! I have found a lender who really knows his way around FHA loans. Robert Summers does FHA 203K loans (those are the ones with repair funds built in) and he does them successfully. He commented when I wrote about FHA 203K a few weeks ago.

I asked him what the most important benefits of are for borrowers:

Thanks to Connecticut Attorney General Richard Blumenthal it looks like we are about to get a glimpse at the inner workings of the foreclosure business.

And if preliminary indications are anything, it is not likely to be a pleasant view.

Blumenthal’s office is investigating how the majority of foreclosures in the state are assigned to a small group of law firms and how some consumers did not receive the correct foreclosure notices.

Oops.

HUD Secretary, Shuan Donovan is at it again. On Friday, he told the National Association of Home Builders that FHA will be allowing borrowers to use their $8000 tax credit at closing toward down payment and closing costs.

Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate.

This time, it looks like it is for real.

Foreclosure, in this recession, has been a lose-lose scenario. Lien-holders make the re-purchase of short sales and foreclosed homes just not worth it to potential buyers. Buying a property as a foreclosure or a short sale* has been an exercise in patience, at best. It is most often an exercise in futility. You would think that lenders would streamline the process in order to get the properties off their hands…

In the step-in-the-right direction department, the Making Home Affordable Loan Modification Program has been modified to favor short sales for defaulting homeowners who can’t keep their places. If this actually works, then the lenders will take a hit (your tax money at work, finally), the defaulting homeowners will lose their homes, and someone can actually buy the properties and get them reoccupied.

Foreclosures are expensive; short sales are faster and yield higher return of equity to the lien-holder and possibly the defaulting homeowner.

Before starting foreclosure, servicers must determine if a short sale is appropriate.

There are incentives to avoid foreclosure option in favor of the short sale:
(1) $1,000 for servicers for successful completion of a short sale or deed-in-lieu of foreclosure;
(2) $1,500 for borrowers/homeowners to help with relocation expenses;
(3) Up to $1,000 toward the cost of paying junior lien holders to release their liens (one dollar from the government for every $2 paid by the investors to the second lien holders).
(4) No commission haggling between brokers and lien-holders.
(5) No fees to borrowers/homeowners for participating.

The problem with comparing mortgage rates before you have a property is that rates are a moving target. One day, Lender 1 will have the best program for you, and the next day it will be a different one. The lenders get hundreds of loan packages every day, and each one is a little different. They have to sort through them to find the best one for you. Most lenders pay most attention to the ones they usually use.

It is not in your interests to lock a rate until you have a signed P & S because there is a time-limit on the rate lock. It costs extra to extend it.

So how can you rate shop without stressing yourself out by picking a lender at the last minute?

Prices are starting to fall in some of the Boston area’s more expensive suburbs and resorts, from Weston to Nantucket.

But how much of this new trend can be traced to jumbo loan blues?

It’s a question raised in a new National Association of Realtors report, which finds that sales of homes above $750,000 have fallen by roughly half from 2007, Inman News reports.

Remember that promise that Shaun Donovan, HUD Secretary made at the Realtor mid-year meeting on Monday? The one about that the $8000 tax credit being made available for down payments? Well, the promise is broken.

I got this notice from NAEBA headquarters this afternoon:

According to contacts with both FHA and HUD, Mortgagee Letter 2009-15, which stated that first-time homebuyers would be allowed to use the tax credit for their downpayment, has been rescinded. On a phone call with FHA, Kim Kahl was told, "The mortgagee letter has been rescinded for the time being.” NAEBA President John Sullivan was told something similar when contacting HUD. Neither FHA nor HUD gave further details.

Soon, FHA's approved lenders will be permitted to "monetize" the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table. Shaun Donovan, HUD Secretary said yesterday,

We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a downpayment.

This is not really news, yet.

I got this email from S. He is going through loan processing heck:

… I was wondering what light you may be able to shed on the FHA 203k loan program. I was scheduled to close one of these loans on April 15th, but as of yet I haven't. The paper work needed is absolutely ridiculous. I am self-employed and have provided every necessary document needed. My recent fico score is 806 and I have stellar credit. What is MIP insurance and why does it cost over $5,000 up front? I feel the lender is taking advantage of me.

I have done numerous FHA loans, but no 203Ks; I haven’t had any clients who were willing to do what it takes to get one. I feel for S., because I have been frustrated, along with my buyers, by delays in FHA loan processing.

So, I asked my usual sources about them. All of the lenders agreed that they are not for the impatient borrower. For any loan, if you are applying at a busy time, like now, the lines are longer. (Think: Disney at school vacation week.)

FHA loans take even more time, the underwriting seems endless, and the paperwork could kill a forest. The consensus is this advice: if you are going to apply for a 203K loan, find a lender who does them on a regular basis. Like all FHA products, the process is different and it takes some experience to know where the traps are. If you barrel in without proper guidance, you will end up stuck for weeks, waiting for the next list of paperwork the underwriter asks for. Someone who works with FHA, and particularly FHA 203K, can anticipate the problems and help your prepare properly and avoid some of the delays.

Ask your loan originator for a time estimate. Ask how many of these loans he/she has completed.

Attorney General Martha Coakley has managed to wring $60 million out of Goldman Sachs for its role in subprime mortgage mess.

Ho hum.

I am sure it wasn’t easy, but don’t expect those Wall Street types to be running for cover.
Goldman, like other Wall Street firms, made a lot of money securitizing subprime loans and selling them to investors.

We all know how that worked out.

Anyway, while $60 million may be a lot to most normal people, it’s lunch money on Wall Street

The conventional thinking is that a major driver of the foreclosure crisis was gullible, or worse, home buyers.

Folks so desperate to attain a piece of the American Dream they stretched well beyond their financial means to become homeowners with the help of subprime loans.

Certainly there was a good amount of that going on. But my sense is that many of these loans were so crazy that, in more than a few cases, otherwise good home buyers were left holding a ticking mortgage time bomb.

A story in the Globe today illustrates a small but promising trend that gets to the heart of the issue.

Whenever I mention Private Mortgage Insurance (PMI), the insurance that covers the lender against your default, readers get confused. Where is the insurance that covers us, if we can’t pay our mortgage? There are such programs for auto loans. Does such a thing exist for mortgage loans? Yes, Virginia, it does exist.

I have been reading about Toll Brothers. They are offering mortgage payment insurance for buyers who lose their jobs or have medical emergencies. Other builders and large companies have similar programs. The insurance covers up to $2500 of your mortgage if you can’t pay it for legitimate reasons. How great is that?

Toll Brothers currently have projects in North Attleboro, Bolton, Hopkinton, and Methuen.

No, Virginia, there is no Santa Claus… Before your sign on to something that sounds too good to be true, please be cynical with me. There are conditions, as you would expect.

As Kenneth Harney put it in the San Francisco Chronicle:

From a consumer perspective, job-loss protection - insurance coverage worth up to $15,000 (six months times $2,500 maximum) of monthly mortgage debt - sounds like a no-brainer. But there are some things you need to know about up front: -- Though there's no direct cost to the buyer, that doesn't mean it hasn't been tacked on subtly somewhere in the deal - possibly in the price of the home. -- There are key exclusions and coverage limits. For instance, the Rainy Day program doesn't kick in for two months after closing. Self-employed persons, independent contractors and active military members are not eligible. There's a 30-day waiting period after you lose your job before the first insurance payment is made. -- The Toll Bros. plan is available only to buyers who use the company's affiliated lender, TBI Mortgage Co. Borrowers who know of a coming layoff or "any impending job loss" are ineligible. The program excludes loss of income through voluntary resignations, "willful misconduct" and seasonal shutdowns. Bottom line: Even when it's "free," read the fine print.

Subprime mortgage companies made a ton of money with deliberately confusing products that helped push many customers into foreclosure.

Amid the public disgust over the shady tactics of these subprime wheelers and dealers, is there a market for a mortgage operator who spells out all the costs up front, as clearly as possible?

In an interesting move, Bank of America appears ready to test this idea.

The banking giant acquired a potential powder keg of subprime problems when it bought troubled mortgage giant Countrywide last year.

Not surprisingly, Bank of America is ditching the Countrywide name as it promotes its Bank of America Home Loans mortgage unit.

Less typically in an industry that seems intent on confusing borrowers to their detriment, the bank is embracing a new campaign of cost transparency for mortgage customers.

I wrote about why your pre-approval letter should be clear, but not give away your personal finances.

BV mentioned a tactic that I used for years. That is: have a pre-approval letter tailored to the offer amount. But, BV ran into a problem with this:
BV writes:

In essence, we got preapproved for the offer price we wanted to make. The seller called the broker and asked it would be approved for more before rejecting our offer and asking for more.

Were I BV’s agent and I got a call from the listing agent about whether the pre-approval was their top financing level, this is what I would do:
I would have called BV. I would have passed the information that the seller is trying to make a counter-offer. Do you want to stick with your current offer, or do you want to give room for a counter-offer? The choice should be up to the client, not the agent. I honor that.

I used to recommend having the pre-approval letter match the offer price. However, the problem I saw was a variant on what BV experienced. A while back, some seller’s agents didn’t ask if the pre-approval was the top financing; instead, she rejected my client’s offer and counter-offered to another buyer. She thought, incorrectly, that my client could go no higher.

I wrote about why your pre-approval letter should be clear, but not give away your personal finances.

BV mentioned a tactic that I used for years. That is: have a pre-approval letter tailored to the offer amount. But, BV ran into a problem with this:
BV writes:

In essence, we got preapproved for the offer price we wanted to make. The seller called the broker and asked it would be approved for more before rejecting our offer and asking for more.

Were I BV’s agent and I got a call from the listing agent about whether the pre-approval was their top financing level, this is what I would do:
I would have called BV. I would have passed the information that the seller is trying to make a counter-offer. Do you want to stick with your current offer, or do you want to give room for a counter-offer? The choice should be up to the client, not the agent. I honor that.

I used to recommend having the pre-approval letter match the offer price. However, the problem I saw was a variant on what BV experienced. A while back, some seller’s agents didn’t ask if the pre-approval was the top financing; instead, she rejected my client’s offer and counter-offered to another buyer. She thought, incorrectly, that my client could go no higher.

I heard from my lender friend, Eric Heinrich from Mortgage Master that his company has a new PMI waiver.

Remember PMI? That’s Private Mortgage Insurance. That’s the fee you pay every month to protect your lender in the event that you default. Humm… Why would anyone want to pay PMI?? Well, if you and the property don’t qualify for PMI, you don’t get a loan with less than 20 percent to put down.

This PMI waiver is not a waiver of the fees; it is a change in guidelines. In plain English, this means that people can still get a regular loan at a regular rate with 5 percent or 10 percent down. This avoids the additional point in rate that has been tacked on for borrowers lately. For some, this change is a ticket back into the market. If you have less than 20 percent to put down, but you have enough income to qualify for a conforming loan, you are no longer locked out. A conforming loan requires no more than 45 percent for total debt (that’s mortgage debt and all your ongoing installment and revolving credit debt.) This is good news for people with solid income that do not want to put all their savings into a house. In short, PMI guidelines are now getting back in sync with conforming loan lending requirements. Borrowers must meet all regular underwriting guidelines in regards to acceptable credit, credit scores, number and length of active tradelines on the report, job history, income assets and acceptable source etc. So, this is not a ticket back into the market for people who can’t pay their mortgage. If you do not meet the 45 percent total debt ratio, you cannot wiggle into a low equity loan.

Sam Schneiderman, Broker-owner of Greater Boston Home Team continues his Monday series:

As I learned more about real estate and investing, I learned that sometimes a seller will participate in financing the sale of a property if they have sufficient equity. Some will finance the entire sale after the buyer pays an acceptable deposit. Some will give the buyer a second mortgage with favorable terms. When sellers offer financing, a savvy seller or listing broker can use seller financing as a negotiating tool to get a higher price.
Seller financing is most commonly used with investment property and in sales between family members. It can be used in any transaction, provided that it is disclosed to the lender up front. Some banks will provide financing on a short sale or a foreclosed property that they are selling, while others refuse to finance that property ever again.

In a low interest rate environment, some sellers find it attractive to collect a higher rate of interest on a second mortgage than they could collect with a CD or bank account. In a high interest rate environment, some sellers offer low rate financing to make their properties more competitive and attract more buyers. When financing can be tough to get or a property needs significant work before it can be occupied or rented, long or short-term seller financing can keep a deal together.

Personally, I have used seller financing to purchase investment properties with little or no down payment. Since most lenders require PMI (Private Mortgage Insurance) for financing above 80% of the purchase price, I negotiated seller financing to make up the difference between my down payment and the amount needed to avoid PMI or meet loan program requirements. I favor seller financing with deferred payments that don’t start for a year or more.

It was absolutely ludicrous how easy it was for even third-rate scam artists to make money during the real estate boom.

Buy a couple run-down triple deckers in Dorchester, do a quick paint job and then recruit a few dopes to act as straw buyers. With a little help from a crooked mortgage broker, make up some jobs and income, find a more than willing sucker among the herd of subprime mortgage companies eager to keep loans flowing, and “sell’’ all three units, say, for $350,000 each.

Walk away with more than $1 million in your pocket, minus maybe a couple hundred grand for buying the property.

Now, with mortgage fraud cases popping all over the country, you have to ask where are all the high-profile Bay State cases?

On the credit card commercial, the saying is “what’s in your wallet?” I ask, “what’s in your pre-approval letter?” Does it say too much or too little?

Pre-approval letters are standard equipment for any buyer making an offer. Any seller will ask for proof that you can get your loan. I get a lot of questions about pre-approval and pre-qualification. The problem is that those terms have lost their meaning. A pre-approval, in my book, involves a review of all your financial information and its verification. If possible, I also like the mortgage originator to talk to an underwriter about anything that is not typical. That way, no surprises.

Next, your letter should say as little about your finances as possible, but say boldly, that your personal finances are in order.
Here’s an example:

“Based on the information you provided, you are “pre-approved” for your purchase of up to $_____ with a $____ mortgage amount. This is based on your current level of income, credit and assets, as well as prevailing interest rates.”

Is that good enough? It says that the lender knows your current income, credit and assets. This does not say that they have been verified. It does say what your expected loan amount will be. I’d give it a B-.

Here’s another:

“I am pleased to tell you that based on the information that you have provided, you have been pre-approved for a purchase price of $_____. We have verified and approved your credit, income and assets. A final commitment is subject to a fully executed purchase and sales agreement, a satisfactory, certified appraisal and underwriter review. “

This one is a B+/A-. There is no loan amount or percentage of down payment expected. It does clearly state that you financial information is already verified.

Here’s another reminder of how the housing market collapse has spread its ugly tentacles into just about every corner of our lives.

Parents of college age children, already worried about their job security amid the recession, are also finding that the traditional piggy bank often used to pay tuition bills is just about empty, a recent New York Times article points out.

Taking out a home equity line or second mortgage to help pay your kids college education is as American as apple pie.

Long before the current housing market boom my father was doing just that to help put three children through college.

But with home values having fallen off a cliff, many homeowners now find themselves underwater, with no equity at all to tap.

Like most of you, my ears perked up when I started hearing about rates below 5 percent. Are those low rates for me? “No,” says Mary Beth Rooney at Monument Mortgage.” It will cost too much and get me too little. Those 4.75% rates that are being bandied around are not as neat and simple as they sound.”

Is there a 4.75 percent “no-no” (no fees no points) out there? Simple answer is “No.”

Fees are $2200-$3000 before you get to sneeze. There are appraisals and recording fees on every loan. Then there are tons of add-ons that will hit many a borrower. Add-ons include fees of .125 to 0 .75 points or more (a point is 1 percent of your loan amount) if you:

The program called Making Home Affordable is out. I know there will be two very different reactions on this blog:

A. Great! Do I qualify?

B. Darn…a give-away to someone who doesn’t deserve it.

Before you hit the comment button, look at who can get these loans.

Interest rates are below 5 percent! Run, run, run to your nearest open house! Buy, buy, buy!
Not so fast.

Just like the $8000 tax credit, lower mortgage interest rates do not change a non-buyer into a would-be buyer. Both the tax break and the low rates may change a struggling would-be buyer into a hopeful would-be buyer. For most buyers, the tax credit and this rate decrease are not the make-or-break point in their decision to buy.

Here’s how the rate decrease helps:
Suppose you buy a $400,000 home this spring. If you are borrowing 90 percent on it, your principal and interest at 4.75 percent is $1878. Last winter, the rate was about 5.25 percent; you would have paid $1988. In the summer of 2007, at the beginning of the decline, the rate peaked around 6.75 percent; your bill then would have been $2335, plus tax and insurance. Yes, that $450 savings is significant to your budget, but…

The home sales market may be on life support, but apparently mortgage fraud is alive and kicking.

Or at least that’s what a new report by a mortgage fraud watchdog finds. I’m skeptical, but a little more on that later.

For what it’s worth, Rhode Island tops this year’s list of mortgage fraud hotspots put out by the Mortgage Asset Research Institute.

Mortgage fraud reports soared by 26 percent in Rhode Island over the past year, beating out such perennial heavyweights as Florida, Illinois, Maryland and Georgia.

Overall, reports of mortgage fraud in the Ocean State were three times the norm given the amount of mortgage lending taking place there.

This is the second time in a month that a loan commitment* came in early. I’ve been a buyer’s agent a long time. This is not normal. I count on my lenders to get the commitment in on time. In most cases, they come in within one day of the due date. Maybe two or three days before, max. This month, I had one come through about ten days early and another coming in about a week ahead. What’s going on?

Looks like the foreclosure epidemic is getting its second wind.

The first wave of foreclosures featured homeowners duped into buying homes they couldn’t afford with goofy, subprime loans. Not to mention a whole lot of small-time investors who bought units in hopes of flipping them for big profits, as well as a just outright fraudsters who used straw buyers to create artificial sales.

But much of that first wave of crazy subprime mortgages gone bad has already crashed into the housing market and economy. Now we are starting to see the second wave, regular homeowners who are losing their jobs and their homes due to the economic downturn, of course triggered in part by the subprime fiasco.

Anyway, that is the way some are reading the latest foreclosure stats, with the number of troubled mortgages rising to 7.8 percent of all home loans, the highest since 1972, Bloomberg reports. Loans actually in foreclosure now amount to 3.3 percent of all mortgages in the country, an all-time high.

I spoke to a lender friend, Loren Shapiro at Asset Mortgage Corporation.
He’s been giving out a lot of bad news lately to people who are thinking about buying a condo or multi-family home this spring.

If you are thinking about buying a condo or multi-family home, you need a huge down payment (25 percent, sometimes as much as 40 percent for condos). PMI companies are getting very strict. They are looking for credit scores of 740 or more.

If you are buying a condo in a new development, you may have trouble getting a loan at all. This includes little developments of 2- and 3-family homes as well as new buildings with lots of units for sale. (Your best bet for small condo associations or multi-family homes is local banks, not mortgage companies.)

Apparently some homeowners have lost all faith in the real estate market ever coming back.

How else to explain the growing phenomenon of disillusioned owners simply walking away from overpriced homes bought during the boom years, in despair that prices will ever again reach the levels they originally bought at?

Well, it’s not just some strange California trend anymore. Just consider the recent email I received by a distressed Marlborough homeowner who is now considering the walking away option herself.

For the purposes of this post, we shall just call her “Sarah.’’ So Sarah, a marketing executive, and her husband, who works in the high-tech industry, shelled out $370,000 for a three bed, two bath home in 2004 in a new subdivision, just as prices in the Boston area were starting to surge into the stratosphere.

But now Sarah and her husband are full of regrets about their decision to buy a house in Marlborough, where it turns out they are just not happy. The school system is only mediocre, in their view. Both are tired of long commutes to work in Boston, which chews up 40 hours a week of their collective time as a couple.

Many of my peers are excited about the $8000 tax credit for home which that is part of the stimulus package. Prospective buyers that I’m meeting are not. They just do not see this as the stimulus of their decision to buy. Makes sense to me. If you understand this credit, you know that this $8000 credit will go for improvements, furniture, or towards replenishing your reserves. Economic stimulation for contractors or retailers, maybe. It doesn't make or break the ability to buy a home.

Would-be buyers, here is an outline of the new program (thanks again to Eric Heinrich from Mortgage Master, Inc., who sent the first copy. Posted is the NAR page on it.)

Before leaping in, consider these things:
1. It is a grant, not a loan; that’s great. But, it’s a tax rebate, so it is tied to your annual tax refund. The funds are not available as part of your down payment or closing costs.
2. There are income limits. If you fall within the income limits for the rebate, you also fall within these limits for your loan.

Dear readers,

If you have strong opinions over the federal government's bailout of struggling homeowners, here's a chance to weigh in on the subject.

Do you pay your mortgage? Do you think it's unfair the government is
helping to reduce mortgage payments of people who aren't?

If so, direct your replies to rgavin@globe.com

Nothing about programs run by the government are ever simple. We know that. There is an $8000 credit for home buying couples with a Modified Adjusted Gross Income (MAGI) of $150,000 or less or home buying singles with a MAGI of $75,000 or less.

Would-be homeowners, use these rules when doing your taxes to establish your MAGI.

Shaun wrote me last week with a few questions. Two had quick answers, but the middle one, about foreclosures, is more complicated:

Good afternoon Rona, hope this finds you doing well…[I] was hoping to ask a few quick questions about the foreclosure process as I am a first time homebuyer.
1) Do you have any recommendations for a good attorney?
2) Do you have any primers on the foreclosure process?
3) Besides an inspector that comes with me to visit the property, whom else should I bring with me?

I have recommendations about attorneys. I also think any first-time home buyer should have their own agent.

I wrote on the basics of foreclosure purchasing in October. Here is “the primer” on foreclosure:

First a few definitions:
Mortgage holder or lender is the entity that is owned the amount of the mortgage.
Seller is the owner of the house.

A short sale means that the seller does not have enough money to pay off the existing loan on the property at the point of sale. (Example, the seller owes $350,000, but the sale will yield $320,000) This is sometimes called “upside down.” Most people are saying “under water.” The seller is short because the mortgage holder will get less than the mortgage amount when the property is sold. The seller is “short of cash” to cover the debt. In this case, the mortgage holder has a say in how much of a loss they are willing to take. If a seller can pay the entire mortgage amount, plus whatever closing costs are attached to the sale, then the seller is not short. The seller may have lost equity, but the lender does not have a say in the sale.

Foreclosure happens when the seller stops paying the mortgage holder. By right, lenders can take the house and sell it to get their money back.

Today and tomorrow, I am writing about divorce and housing. Tuesdays are mortgage days; Wednesdays are tenant/landlord issues day. Write me if you have questions on those subjects.

At one of my doctor's offices, there is a smart lady.Not only can she handle insurance companies effectively (I think that's magic!) She handles her personal life with the same no-nonsense attitude. She asked me for advice as she was making these changes, but I think she had it well in hand without my input.

When she divorced, she stayed in the family home with her children by refinancing her mortgage. She borrowed against equity to cover what she owed her ex-husband for his stake in the family finances. Most of the time, I scream “NO!” at the words “borrow against equity,” but in this case, I think she did the right thing.

That was over a year ago. Her divorce was final. She got on economic and emotional track. She had a 20-year mortgage with a payment she can handle.

I am getting mortgage questions almost every day. One that I haven’t answered yet is:

"I plan on selling my place soon, should I refinance to save money for the time I am still here?”

There are two snags in this plan. One we have already discussed, one is new.

The one we already talked about is whether you have sufficient equity. That depends on when you bought. If you bought in the years near peak, you may be behind in equity. The other factor is that 5 percent and 10 percent down refinance loans are few and far between now. Lenders are now looking for 15% equity, for the most part.

One thing that has amazed me is how the foreclosure crisis keeps going from bad to worse, even after the biggest subprime players have vanished.

It's the real estate equivalent of the energizer bunny.

The subprime lending industry began to implode more than two years ago. Many of the shady mortgage shops that were getting people into trouble are out of business or now part of larger financial institutions with tighter controls.

With the source of this atrocious lending drying up, you would think this would lead to a drop in bank auctions.

Now there are signs that at least the pace of bank auctions may finally be moderating.

Remember John Dough? You met him on November 6. He bought a bank-owned property with the intention of finishing the renovation and selling it for profit. You heard about his private financing on November 18th. Now, John has a loan, he has a deed, he has a budget. He's picking up his hammer and getting to work.Here’s John in his own words:

Getting to Closing in One Piece: It’s been awhile since I last commented on our progress so here is an update. After we secured our financing we had about three weeks until closing. It was pretty uneventful. Title was clear, taxes were owed, and the water/sewer bill had to be paid. The bank owning the unit agreed to pay the taxes, but would only pay a 1/3 of the water/sewer. So we had to pay the balance, which wasn’t much ($400 or so) and we also had to insure the property which meant that we’d be paying for the share of the other condos in the building that were bank owned. That cost was about $1200 for a half year master insurance policy. We plan to recoup 2/3 of that cost when the banks try to sell their units. With all that going on, we closed about a week later than expected but we weren’t subject to the usual fees that banks invoke when you don’t close on time. We now owned the condo.

Well, so much for that great surge in homeownership rates.

Remember all the bragging politicians on both sides of the aisle in Washington did during the late, great housing bubble about the nation’s ever rising homeownership rate?

Now, it is becoming clearer by the day that all those grand hopes of an ownership society were based on a subprime house of cards.

A new study by the Federal Reserve Bank of Boston finds the boom in subprime mortgage lending in failed to significantly increase minority homeownership rates in Massachusetts. Instead, the spike in foreclosures that followed these high cost, high-interest rate loans over the past few years has simply created churn in the marketplace.

Yesterday, I told N. that she needed an appraisal. Why didn’t I say she should get a Comparative Market Analysis from a real estate agent? Because N. will be working with a lender. The value figure she needs is the amount that a lender will accept for collateral.

An appraiser uses the standards that lenders require to establish the value of property used as collateral. They also valuate in legal matters such as divorce and estate sales. That’s their job.

Real estate agents establish fair market value in order to help their clients sell and buy homes. Potential listing agents do a Comparative Market Analysis as data to establish fair market value. This is only one piece of the marketing plan to establish the highest price that a buyer may pay for the property. Buyer’s agents work a lot like potential listing agents. Their goal is to establish a fair market value as part of a negotiation plan. That information is one part of the advice on how to make an offer that is the lowest possible one that a seller would accept.

N. sent me an email about her improvement plans:

Hi … I am going to be doing a renovation on my current home located in…. It’s a… I am adding 680 sft. which includes a family room downstairs off the kitchen… a deck and a master bedrooom upstairs with master bath and kids bath. As well as a new 1/2 bath downstairs. I checked zillow.com to see what we are appraised at currently____.

I am trying to get an estimate of the new value , so I can re-finance when its done as we currently have a adjustable mortgage. With the zillow estimate is estimates our house at $___ per sft, although we bought at the height of the market 6yrs ago. Is this a reasonable sft price to use to calculate the new value?

What about the new bathrooms(one is new not included in the original ___sft) how are these calculated. In addition I plan to install a new kitchen.

.. we cannot get a loan to do the project, because of the credit crunch so I have to pay cash. … so I am trying to see if my projected numbers are about right, to see if I can re-finance once w e have the equity and take some can out to finish the kitchen. I am the general contractor on the job…I can do the whole project for $100,000, so I would double my investment. Are my estimates correct for the new value?

There’s no quicker way these days to draw the online equivalent of an angry mob than to start chirping about good news in the real estate market.

But falling mortgage rates, even if they haven’t yet sparked a resurgence in home-buying, are having at least one salutatory effect.

As the Globe reported Saturday, thousands of Massachusetts homeowners with adjustable rate mortgages that were poised to reset this year can breathe easier.

Homeowners who want to stay homeowners will pay mortgage every month. Unless you are planning to sell, lose, or walk away from your home, this is a good time to look around to see if you can position yourself for a lower debt service on your property. I am fielding calls from my former clients asking if this is a good time for them to refinance. It will put them ahead in monthly payments. Yesterday, I wrote about the positives of refinancing.

What’s stopping you from refinancing? The changes in credit rules have been blocking homeowners facing foreclosure for a year and a half. Now, with the carrot of lower rates in front of middle-class homeowners, some are finding that they cannot refinance, either. The so-called credit crunch has made it hard to find loans for borrowers with less than 10 percent equity.

When I wrote about the hidden cost of the additional years of mortgage payments, several people wrote in with very good reasons to refinance anyway. Today, let’s discuss those:

Cash flow: Paying less on mortgage every month gives you more money in your pocket for other spending. There is a value to money in your pocket. It may be needed for basic needs; it may be helpful in times of unemployment or underemployment. You can invest it. You can save it for a rainy day.

You will pay a higher proportion of interest to principal in your refinanced loan, but you will have money now for your life. Is that worth it to you? Why?

You will sell before you get to the end of the mortgage: For younger buyers who expect a trade-up or relocation in the future, this is true.

Apparently some federal bureaucrat in Washington has decided that if your mortgage is $465,750, you must be living in a luxurious mansion fit for a jumbo loan.

While that might be true if you live in Oklahoma or some other low-cost heartland state, a mortgage that size won’t get you much in some Boston suburbs, not to mention in the city’s pricey downtown condo market.

While rates on conforming loans, at or below $417,000, have fallen to 5 percent, rates on jumbo mortgages are in the 7 percent range, the Globe notes in a story on how some local homeowners are dealing with this situation.

The New York Times ran a series called “The Debt Trap.” In it, Brad Stone explained something that will affect those that are considering refinancing.

Do those offers to refinance or to take another credit card sound like they know just what you want? Well, that’s because they do. The people who are sending you these offers know important bits of your financial history from your credit applications, product registration cards, your consumer spending records, and of course, your deed and mortgage information. Also for sale is a profile with information about your marital status, your children, your education, your cable company, and your new car purchases. If you apply for a mortgage, Experian, Equifax and TransUnion can sell that information to rival lenders. It’s called data mining; it’s legal. This marketing tool is putting carefully worded temptation in the path of American consumers.

Sheesh. No wonder the right offer seems to come to your door at the right time. Except when the wrong one shows up.

The mortgage interest rates have gone down again. Does that mean that refinancing is the best thing you can do?

It’s a dirty little secret that most of the homeowners who are under water got there through refinancing, not by borrowing for their initial purchase. It was tempting to buy new kitchens, cars, vacations, college educations and just junk by using cash-out refinancing products. These products were given out like candy. (Let’s not even bother trashing home equity loans; that’s just too easy.)

While housing prices were going up, the “value” in equity was burning a hole in a lot of people’s pockets. You felt rich. If you paid $250,000 for a house that’s worth $500,000 five years later, you are $250,000 ahead, right? Wrong. It seemed perfectly reasonable to borrow only $50,000 or $100,000 of the profits. Right? Even more wrong.

At a time when real wages were not going up for Americans, borrowing on home equity became the way to feel prosperous. It was just a feeling. You still had to pay it back with your income, which was not going up in relation to inflation.

Not so long ago getting foreclosed on was seen as a mark of shame, maybe what bankruptcy was a few decades ago before it lost its sting.

But now the decision on whether to hang onto your home or let go and stop paying your mortgage is being reduced to a simple financial calculus.

In fact, there’s even an on-line financial calculator designed to help struggling homeowners decide whether they should stay or go.

The first question any seller wants answered by an Offer to Purchase is “how much?” The second is either “when?” or “are they good for the money?”

Increasingly, the question has been “when will I know that the buyers are good for the money?” In a purchase in Massachusetts, the offer is structured so that the deadline for the securing of the mortgage loan is part of the negotiation. (Called the loan commitment deadline.) Increasingly, buyers who are well-qualified and know how long it will take to secure their loan commitment are at an advantage in the marketplace.

Here’s the rub. Business for lenders was way down in the fourth quarter of this year. When things are this slow, mortgage companies lay off their processing staff, who works on salary. (Originators, or loan officers, are commission-based sales people. They will stick with the job as long as they can.) At the end of the quarter, the interest rates dropped. Refinance business started pouring in. The support staff were absent. The result: slow loan processing.

Is it too late for the mortgage industry to clean up the foreclosure mess it helped create?

Maybe, maybe not, but it is sure getting awfully late in the day.

With President-elect Barack Obama warming up on the sidelines, a group of lenders formed by the Bush Administration to tackle the foreclosure crisis is setting some lofty goals for 2009.

The Hope Now Alliance says it plans to modify 2 million mortgages next year, double what it did in 2008, Bloomberg reports.

Now here’s the holiday spirit.

Employees ING Direct, an on-line bank, gave up their annual Christmas party.

Instead they will be donating the cash to a worthy cause – helping some of their struggling customers make their mortgage payments.

All told, the firm, a subsidiary of the Dutch financial services giant ING, will cover the monthly mortgage payments of 500 of its customers.

The bank forgave more $860,000, on average $1,700 per homeowner, though how much actually came from the cancelled holiday party is not clear.

When I was a business reporter at the Herald, a popular game not so long ago was reporting on the latest gas price shocker.

It was a game that usually involved calling local gas stations to check on their prices. There was always some guy on Nantucket who was the market leader, at one point pushing $4 a gallon.

Gas prices, for now anyway, have retreated out of the news. But here come falling mortgage rates to fill the void.

The discussion about low down-payments reminded me of a problem that comes up occasionally for my buyers.

Some people think buying a home is a life event worthy of a cash gift. Just as when you marry, graduate from college, or give the birth of a child, you may find relatives being surprisingly generous. If you have relatives wealthy enough and generous enough to help you with your down payment, you are lucky, lucky people.

Before you transfer any funds from someone else’s account into yours, choose a lender and check with the lender about documentation.

Here are some situations I have seen over the years:

Landlords, where do you stand on choosing a tenant in these difficult financial times?
How do you separate the dead-beats from the struggling workers? Where do you draw the line on who is too much of a financial risk? Would you rent to a new college graduate who has no work experience and a new job? How about someone who is deep in credit card debt? How about someone who was bankrupt? Foreclosed upon? Out of work for six months last year? These are troubled times; how much of their problems are you willing to take on? Do you ask for first and last month’s rent, plus security to protect yourself?

Many landlords advertize in public sources like on-line lists, newspapers, and network sites. Most of the time, the would-be tenant is a stranger. If you don’t know the person how do you choose? Because of fair housing standards, it is important to treat everyone the same. So, no matter who comes through the door, good landlords ask the same questions, get the same background checks and ask for the same deposits. Once you make a rule, you need to stick to it or risk being accused of discrimination.

I saw the Boston Globe article on Tuesday about how many people were behind again after having reworked their mortgages earlier this year. I was reluctant to write about it. I didn’t want another round of same-old-same-old. You know, you’ve read it here before:
The prices were too high; the market needs to free-fall… The borrowers were stupid or greedy; responsible people didn’t buy, so the people over their heads deserve what they get…

Can we talk about solutions for homeowners in trouble?

The analysis from Credit Suisse shows that reworking loans out of adjustable rates has the lowest default rate. Is that the best route to keeping people in their homes?

PMI means “private mortgage insurance,” which is for non-FHA loans with down payments less than 20%. For FHA loans, there is a .55% “MIP,” (monthly insurance premium.) That fee is paid by the borrower. That rate, because it is fixed, is better at lower down payment levels. MIP is PMI and PMI is MIP, by another name.

Mortgage rates are dropping like a rock.

Now the question is whether the allure of dirt-cheap mortgages will be enough to restart the stalled housing market.

Clearly one side benefit to the global financial crisis and economic downturn has been falling mortgage rates.

Rates tumbled last week after the Federal Reserve announced plans to snap up $600 billion in mortgages and mortgage related securities from Fannie Mae and Freddie Mac, among others. And they are poised to go again after the Fed followed up this week with plans to purchase Treasuries and target long-term interest rates, Bloomberg reports.

Why should I care about owner occupancy? I have a big down payment.
Even if you have a large down payment (and don’t need PMI), you should think about owner occupancy of the condo association you are thinking of buying in. The actuaries that work for the PMI companies spend all day trying to identify a bad risk. Maybe they know something...

Generally, lenders and PMI companies like to see a high percentage of owner occupancy in a condo association. 50 percent has been the norm. They also want to see that the other 50 percent is not owned by one entity, like the developer. Why does this matter?

When I wrote about the freeze on foreclosures, I got this question:

Rona - as a new homebuyer with a few defaults on my credit report can I go to the bank and get a new "something I can pay for" for 40 years?

As a new homebuyer? I wondered, how new?

A little recent history:

Subprime mortgages were restricted about the time I started on this blog, summer 2007.

It was (and is) still possible to hang yourselves without being in a subprime mortgage. FNMA would allow 50% for mortgage debt in October 2007. Now, it’s hard to borrow with small down payments or above the jumbo limit. But debt is there for the accepting if you have the money to put down with your real estate purchase.

Today (!) no doc loans are still being advertised.

In a recent conversation with a fellow exclusive buyer broker, I found that we had different ideas about what is best for our buyer-clients. We both have been working only with buyers for more than ten years. We both learned our trade from another exclusive buyer broker. We disagreed entirely.

The subject was whether it is worth it for a buyer should hire a separate attorney to write their Purchase and Sales Agreement and to review their mortgage paperwork (especially the HUD-1 Settlement Statement) before closing. A buyer can have one attorney do both the P & S and conduct the closing for the lender. Because this is a legal question, we had an opinion only about the practical aspects of this decision. We always send our buyers off to discuss the pros and cons with an attorney or two. (For the record, I work with attorneys whose opinions vary on this topic. Not just attorneys who agree with me.)

Here are the options:

It’s a tough time to be in real estate, especially the business of selling homes.

But here’s one thing real estate folks can give thanks for. While the housing market is a mess, the Joe the Plumbers of the world are blaming the bankers, not their local real estate agents.

Bankers now find themselves one of the public’s favorite targets after the meltdown on Wall Street, according to a new Gallup poll. Nor can I imagine the sudden clampdown on credit – and the mountain of rejection letters sent out to would-be borrowers of car and home loans - is helping the industry’s popularity either.

Low down-payment lending and Private Mortgage Insurance (PMI) are important to anyone trying to buy without with less than 20 percent down payment. If you are not thinking about doing that, you may find this irrelevant. Instead of staying on it as the only topic for days on end, I will publish something on PMI or lending on a budget every Tuesday until I run out of new information or questions.

What Private Mortgage Insurance is not?

PMI does not insure you for anything. It is not the insurance you can buy that will pay off your mortgage in the event that you die before the end of the term.

What is PMI?
It is insurance the lenders require so the lender will get paid in the event that you cannot pay off your loan. Get it? If you lose your house to foreclosure, your lender is paid by their insurance company. You pay the insurance company every month. That’s the cost of borrowing without 20 percent down. PMI is expensive. And as you expected, it’s getting more expensive. The old rule of thumb for a 90% owner-occupied purchase loan was .52% of the loan amount, now it’s .62%; a 95% used to typically be .78% - now .84%. Here’s a chart calculating the rates.

In real dollars, that's Principle times the Rate, divided by 12, equals your monthly payment.

Fannie Mae and Freddie Mac have agreed to hold off on foreclosures from November 26, 2008 to January 9, 2009. The move is to help keep owners in the single family homes they live in. This does not help investors or multi-family homeowners. This program is linked to a loan modification program that is scheduled to launch on December 15, 2008. (Thank you, Eric for the link to information about this.)

Those who are already in foreclosure are still in foreclosure. Those who fall into foreclosure after the deadline are still going to see foreclosure. Those who did not buy because they turned down unsafe loans are still renting.

Before you say, “this is not fair,” consider what you mean by fair.

Here is an encore of an entry I published last December:

There are some new rules for Fannie Mae loans coming down the Pike, effective April 1, 2009. I do not see these as radical changes. Do you?

One: The first one requires that the appraiser review the sales contract. That seems pretty simple on the face of it: the appraiser needs to know the terms of the sale. Why would this be a big deal to a lender? The answer: concessions. If a buyer is getting money back toward repairs or closing costs, this should be known to the lender. Home mortgage lending is not supposed to pay for the Mercedes in the garage along with the house. If the contract is changed after the appraisal, the lender needs to know that, too. The lender, and their investors, should be informed about what they are lending on.

Maybe it’s just me, but I suspect not. But how is it that every other day we have some federal agency or state governor announcing a new foreclosure plan, and the number of people losing their homes just keeps soaring?

What gives?

For those of you who have never applied for a mortgage, the Good Faith Estimate is the form your lender gives you so that you can estimate your eventual closing fees and escrow account set-ups. This form is important because many new buyers get blind-sided by the money they need to have on hand to close. The Good Faith Estimate was designed to help buyers, but many found them too confusing to make comparison shopping possible.

Inman News pointed out that there is a new Good Faith Estimate on the way. Take a look:

Now, a little about closing costs:

These are not fees, they are prepayments:

At closing, you begin an escrow account for the lender. The lender starts this account at closing with a lump sum. Then, every mortgage payment includes funds to keep that account full enough to pay your tax and insurance bills when they are due. From that escrow fund, lender “pays” your tax and insurance bills.

Depending on where you are in the tax cycle, you may pay as much as six months of taxes into that account at closing.

You also buy a year of homeowner’s insurance starting the day of closing. Then, at the closing, your lender will start collecting for the next year. Usually the lender wants another three months of insurance so that there is enough when the bill comes due next year.

For those of you who have never applied for a mortgage, the Good Faith Estimate is the form your lender gives you so that you can estimate your eventual closing fees and escrow account set-ups. This form is important because many new buyers get blind-sided by the money they need to have on hand to close. The Good Faith Estimate was designed to help buyers, but many found them too confusing to make comparison shopping possible.

Inman News pointed out that there is a new Good Faith Estimate on the way. Take a look:

Now, a little about closing costs:

These are not fees, they are prepayments:

At closing, you begin an escrow account for the lender. The lender starts this account at closing with a lump sum. Then, every mortgage payment includes funds to keep that account full enough to pay your tax and insurance bills when they are due. From that escrow fund, lender “pays” your tax and insurance bills.

Depending on where you are in the tax cycle, you may pay as much as six months of taxes into that account at closing.

You also buy a year of homeowner’s insurance starting the day of closing. Then, at the closing, your lender will start collecting for the next year. Usually the lender wants another three months of insurance so that there is enough when the bill comes due next year.

T. wrote to me:

Hi Rona, ... I have a general question about mortgage approvals in these tight economic times... 1. How does pregnancy effect a family's pre-approval, and later when buyer how does it affect the mortgage? 2. Can a bank discriminate against pregnancy? It seems as though this is a very unfair business practice. How can a buyer address these issues?

... I am pregnant and currently am the head bread-winner in our family. I am due this winter and my husband and I have been trying to buy a home for over a year and half with little to no luck. We are hopeful that we might have some luck with the slower winter market, but we have been told by a mortgage broker that my being pregnant will negatively effect our pre-approval and we might get denied a mortgage as well. This doesn't seem fair, or legal. Can you provide some insight? [emphasis mine]

My first thought was discrimination! My second was about income. Lenders look for steady employment. If she has been steadily employed and will be through closing, the lender should look favorably on the loan.

JPMorgan Chase & Co. has jumped on the mortgage modification bandwagon.

Late last week, the bank said it is launching a new program to stem the number of foreclosures it undertakes, according to the Associated Press. The bank will not put any homes into foreclosure for the next 90 days while it implements the program, which is expected to help as many as 400,000 customers with about $70 billion in loans.

The modification program will also be offered to customers of Washington Mutual, which JPMorgan Chase recently acquired, and EMC, which was a mortgage unit of Bear Stearns Cos. and bought by JPMorgan in February, according to the AP. The program is apparently designed to help rework multiple mortgages, instead of going through time-consuming case-by-case reviews.

Last week, I mentioned the increased scrutiny that appraisals are now getting. Today, an attorney-colleague told me there is also a trend for underwriters to not accept unrecorded condo document drafts; they want to review only final, recorded documents. I am wondering whether the underwriters care whether the rules make sense to owners, or if they will just be checking that they are recorded.

I have seen some questionable condo rules in my day. I have heard of even more. I have seen rules that require:

The outward facing side of all curtains had to be white or off-white.

No flags, furniture or satellite dishes on balconies.

No dogs and cats. However, this was a change. The existing animals were grandfathered-in. (I showed a condo where the owner had to sell because his dog died and he got a new one -same breed- but was found out and fined.)

One of my clients was a trustee in a big condo association before he came to me in search of his single family home. He told me, I paraphrase:

A lot of readers don't understand what short sales and foreclosures are. I am getting comments and emails. This is foreclosure and short sale 101. Skip it if you know this stuff and have no advice fot those who don't.

Tim responded to Monday’s post. He is in a situation that has become more common since the sub-prime meltdown in the summer of 2007:

One of the problems we are facing is, when we tried to sell it, we asked if we could just pay off the difference to our mortgage holder, that was unsuccessful as they tried to push us into a short sale, which I didn't understand because we're current on our mortgage. We tried to take out a personal loan, however the amount was too much and exceeded personal loan limits. We've tried to refinance to make the mortgage lower - so we would actually want to keep it and maybe break even or make money off of the house (with the rental), but we cant refinance since the value has dropped so much we'd have to finance more than 100%, and banks just dont do that now-a-days. What does a person do!?

Tim

I promised to report on my current clients' adventures in the financial chaos. The persistent rumors that no one is getting mortgage loans are just that, rumors. The lenders I work with are still writing loans and buyers are still buying. My buyers are facing competition for houses, so I am not the only broker with buyers who can borrow for a home.

These are the financing issues I am seeing:

1. Weird rate trends.
2. Appraisal scrutiny.

1. Thursday, the daily rate sheet that I get from a lender had “N/A” marked on the adjustable-rate chart. What does that mean?

Adjustable-rate mortgages have occasionally been nearly equal to fixed-rate products in the past. That made them useless. But this week, they are higher than fixed-rates, which make them worse than useless. Therefore, good lenders did not advertise them. The new Fannie and Freddie rules have driven up adjustable-rate loans. There are a few portfolio lenders who have adjustable-rate products that are lower, but there are only a few.

Federal officials have started 151 criminal mortgage fraud cases since last October, according to a
New York Times story.

That number comes from a review by researchers at the Transactional Records Access Clearinghouse at Syracuse University, who looked at data from the Justice Department. The Justice Department only recently began tracking mortgage fraud, so the Syracuse researchers had no previous data to compare the current caseload with. So there’s no way to tell if the 151 criminal cases represents a big increase from previous years.

Half the cases are being run by the FBI, while the FDIC has undertaken about 25 percent of them.

Most of the federal cases are concentrated in certain areas of the country, including Florida, which accounts for a large chunk of the cases, California, New York, Ohio, Pennsylvania, and Vermont. Apparently the Pittsburgh area has produced the second highest amount of federal prosecutions, with 24 cases. Southern Florida has the most, with 69 federal prosecutions.

FBI investigators are also helping out with 1,400 other probes on the state and local level, which the FBI said is nearly double the number of cases they assisted with in 2005.

What do you think of federal investigators' efforts so far? Do you think federal officials should be doing the brunt of the investigating on mortgage fraud cases, or do you think local authorities should be handling prosecutions?

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The average interest rate for a 30-year, fixed-rate mortgage dropped below 6 percent this week, according to a weekly survey by Bankrate.com. At 5.8 percent, it’s not the lowest rate we’ve seen in recent memory, but it’s still decent.

Interest rates are expected to remain low as a result of the ongoing economic turmoil.

With rates apparently declining again, the Mortgage Bankers Association reported that home loan applications were up 2.2 percent last week.

“From the standpoint of a home buyer, interest rates aren’t in any way a barrier,” Bankrate.com financial analyst Greg McBride told the Associated Press. He said a bigger problem for prospective buyers might be the higher down payments many lenders are requiring.

This leads me to my question of the day: Are any prospective buyers out there encountering problems getting a mortgage? If so, what issues are you dealing with? Or are you finding it easier than you expected to get a loan in the current environoment? Why do you think that is?

Correction: Sorry folks, in my rush to post a comment before my deadline this morning, I made a couple of errors. My point of reference was a Bloomberg News story from Thursday about mortgages and the possibility we could see a trend of mortgage rates declining. (Click here to read the story.) The story indicates that 30-year, fixed-rate mortgages were 5.8 percent earlier this week. However, on Thursday Bankrate.com said the national average for 30-year mortgages fell to 6.20 percent this week from 6.41 percent the week before. Again that's a national average.

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Looks like the appropriate parties may be starting to pay for the subprime mortgage mess.

Eleven states, including those hardest hit by foreclosures, have struck an agreement with Countrywide Financial that will offer assistance to distressed homeowners, according to the
New York Times. To settle lawsuits accusing it of predatory lending practices, Countrywide will provide $8.4 billion in direct loan relief to borrowers in those states who were placed in the riskiest loans. Countrywide has also agreed to waive some late fees and prepayment penalties, and will offer help to homeowners who are already in foreclosure, which may include help moving to a rental unit.

The states involved are California, Arizona, Florida, Connecticut, Iowa, Illinois, Michigan, North Carolina, Ohio, Texas, and Washington.

Though Countrywide and other lenders have promised officials around the country that they would consider re-working loans for borrowers who became trapped in loans they couldn’t afford, lenders haven’t always followed through on those promises. In this new settlement, the loan workout program is mandatory and will be monitored by state officials.

Countrywide, the nation’s largest lender and loan servicer, was bought by Bank of America earlier this year. A BOA spokesman told the Times the company had anticipated the cost of such a program before buying the troubled lender.

Countrywide settled without admitting any wrongdoing, the Times reported.

It seems fitting that one of the companies that helped create the subprime lending/foreclosure mess has to help clean it up. What do you think of this deal? Is it appropriate? Do you think Countrywide should have acknowledged “wrongdoing” in settling this case?

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It seems that homeowners over the age of 50 are not immune from the foreclosure crisis.

A
study released yesterday by the AARP, an organization that lobbies for people in that demographic, found homeowners age 50 and over represented about 28 percent of all delinquencies and foreclosures in the last half of 2007. There were 684,000 homeowners over 50 who were in trouble with their mortgage, and of that figure about 50,000 had already lost their home or were in the foreclosure process.

The study also found that older Americans who had subprime loans were about 17 times more likely to be in foreclosure.

Apparently it was thought folks in this demographic would not be as likely to fall behind on payments or lose their homes because they would have enough equity at this stage of life to protect them. However, that was before the market started to turn and home values began to sink.

I got an email from a reader who signed a Purchase and Sales Agreement on a short sale. He was unhappy when his agent called to say there would be a two-week delay in closing. He was paying cash. He had no lawyer. What should he do?

First thing, if you don’t hire a lawyer you should read your Purchase and Sales Agreement. Most people don’t. They almost all have an automatic thirty day extension to perfect title (get liens and encumbrances off the title.)

Four members of the Senate Banking Committee have asked the federal agency now running the show at Freddie Mac and Fannie Mae to freeze foreclosures for 90 days on mortgages the companies own, and to ease the companies’ policies on modifying mortgages.

The senators, including New York Democrat Charles Schumer, contend “this action would provide immediate relief to many homeowners” and would let the mortgage giants “turn these nonperforming loans into performing assets to minimize losses.” A “time-out” would buy the new CEOs of Fannie and Freddie time to come up with a plan, as well as give struggling borrowers some time to straighten out their own financial messes, according to the New York Times.

A spokeswoman for the Federal Housing Finance Agency said they are reviewing the proposal.

My brother worked in the World Trade Center and was there the first time that a bomb went off, in 1993. He was not there on that fateful day in 2001. I dedicate this blog entry to those who banded together to help one another on that day, and to all those who lost their lives.

In real estate, the closest I got to a personal 9-11 story was regarding a buyer of mine who was selling her home. Her agent was told to expect an offer when the husband of an interested couple returns from a business trip to California. He never got to California that day. In the losses experienced by that widow, not buying the house was way down on the list, I'm sure.

Real estate is important to me, but at times it is important to realize that life is fragile. We are all just renting here on earth.

**

Since I am talking about lenders this week, this is my advice on 9-11 is about insurance:

I keep a list of reliable lenders for my clients’ use. There are lots and lots of good loan originators out there. I know twice as many as I have on my list.
These are the things I expect from my lender-contacts:

1. No over-promising. If you can’t get a conventional loan for these buyers, don’t say you can.
2. Be available. Answer questions.
3. Provide a pre-approval letter that does not disclose more personal information than is necessary.
4. Get the loan commitment in on time. (The loan commitment is the promise that your file is 100 percent approved and the funds are allocated for your mortgage.)
5. Offer a range of loan options, with full explanations.
6. The “Good Faith Estimate” and the actual closing costs should be about the same.

I get asked regularly about how deep the discount for short sale and foreclosure homes are in my area. My answer is “barely deep enough to be worth it.” When I work with buyers of this kind of property, I prepare them for a long wait, more aggravation, more risk...and some financial reward.

Only undertake a short sale if you have time, flexibility, and risk tolerance. Some things that I regularly see:

1. Slow communication with the investor’s office, which must approve all contracts.
2. Generally poorer condition of the property.

In one of the many stories that I read yesterday about the Freddie Mac and Fannie Mae takeover I came upon one comment that really stuck with me.

The story, by Associated Press reporter Tom Raum, delves into some of the risks the takeover poses to taxpayers. At the end of the story, he quotes Peter Morici, an economist and University of Maryland business professor, who sees the potential for “political chaos” if the folks in Washington can’t compromise on how Freddie and Fannie should be organized in the future.

“They have to go back to what they were before -- but adequately capitalized -- and politically independent,” Morici said of the two mortgage giants. “And Americans are going to have to be introduced to a ‘new’ concept: saving for your down payment as opposed to borrowing for it.”

In honor of the adoption of Fannie and Freddie by our government and its taxpayers, I am dedicating this week to a future of intelligent lending practices. May borrowers smarten up and may lenders be fair!

Borrowing 101

What’s a mortgage broker and how is that job different from a loan officer?
A mortgage broker represents many different lenders (banks, mortgage companies, private investors) similar to the way an independent property casualty insurance agent has the ability to price car or home insurance with different insurers. A mortgage broker arranges loan with mortgage lenders. Lenders provide the actual funds. A loan officer or loan originator is just a title for someone who works for a mortgage broker or a lender/bank.

How does a loan officer get paid?
He/she is a commission-based sales person. There is a commission built into your loan, which your loan officer gets at closing.

What is his/her job?
He/she is paid to find qualified borrowers and to prepare documentation to show that the lender is taking an acceptable risk.

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!

The Fed reduced the benchmark interest rate, a move to side-step a possible recession. Reducing the rate allows more money back into circulation by encouraging borrowing. The reason to not reduce this rate is that reducing this rate encourages stock market speculators.

Alas, this may help stock market speculators, but real estate speculators are still up that famous creek without their paddle. Mortgage loans are long-term products. If you are mired in an adjustable-rate or interest-only product, you are still mired in it. If you are developing a property for resale, that timeline is still long and those buyers are still skittish. Nothing has changed there.

Now the TV part: As soon as a window is open for speculation, offers on how to borrow to speculate pop up on TV. This afternoon, while at the gym, I spotted a commercial offering to invest your home equity into the stock market. Uggh! In June, I remarked how daytime TV offered quick-fix remedies to your financial woes. These ads are seductive, but if you listen to those ads, you risk a visit from “the repo man.” Well, here we go again.

Plus ça change, plus c'est la même chose
The more things change, the more they stay the same.

More confirmation about a bright corner of the mortgage market: Freddie Mac, one of the largest purchasers of US mortgages, said that interest rates for 30-year, fixed-rate mortgages dropped to 6.31 percent today, down from 6.45 a week ago.

The rate hasn't been in that range since May.

And homeowners and buyers appear to be responding to the lower rates. Earlier this week, the Mortgage Bankers Association said that its index for applications for mortgages has increased by 5.5 percent since last week. (In its own survey released Wed., the MBA reported slightly lower mortgages rates than Freddie, with the overall trend very positive.)

Inman News has a pretty interesting clip about a new survey of mortgage deals. One of the more startling facts: one-third of buyers had their home-purchase deals fall through in August, often for mortgage related issues such as failing to qualify under tougher scrutiny or because the lender didn't honor the offer, withdrew from the business or even went bankrupt.

Of borrowers of subprime mortgages, the survey said that more than half who had already signed a purchase and sale agreement had their home purchase deals fall through in that period.

Moreover, Inman reports the survey found that nearly 60 percent of borrowers who have an existing adjustable mortgage that is due to reset, no doubt to a higher rate, were unable to refinance their loans. That suggests another huge wave of foreclosures is coming, as tens of billions of dollars worth of mortgages are facing interest rate adjustments in the coming weeks.

The Federal Trade Commission today issued letters to more than 200 mortgage brokers, lenders and media outlets warning them the ads they are running are "potentially deceptive" or may violate federal law such as the Truth in Lending Act.

The agency said some of the ads failed to disclose important terms and conditions that could make the loan far more expensive than the costs touted in the advertisements. These include not adequately disclosing how short introductory teaser payments would be, potential payment increases and other matters, such as the annual percentage rate, which is used to help consumers shop around.

As August winds down, I took a quick look at the number of foreclosure deeds and orders of notice recorded here at the Middlesex North Registry of Deeds in Lowell. The official statewide foreclosure statistics for August usually aren't released until mid to late September, so our stats provide an early glimpse into what's in store for the rest of the Commonwealth. The foreclosure situation is not getting any better. Last August, we recorded 22 foreclosure deeds and 51 orders of notice here in Lowell. This August, we recorded 54 foreclosure deeds and 84 orders of notice.

When chatting with the attorneys who come here to record documents, two themes have emerged this month.

The first involves the availability of mortgages, particularly for home purchases. If you have stellar credit and you're looking for $300,000 or less, you have a good shot at getting your loan approved. If you're seeking a larger loan (and who isn't, with the still-high prices of real estate?), your odds of locking in a loan are greatly diminished.

The second observation is that current homeowners who are in adjustable rate mortgages are growing increasingly concerned that the next upward adjustment will be devastating to their home finances, placing many into unsustainable positions. Because of much tighter credit (see point one above) and because the value of the home in many cases has slid below the outstanding balance of the mortgage, these folks must try to ride out the increase by tightening the family financial belt in other areas.

The mortgage crisis, which has made it extremely difficult to refinance delinquent mortgages or sell a home to exit a bad mortgage, won't help the worrisome foreclosure trend.

The number of foreclosure auctions advertised in Massachusetts newspapers in July exceeded 1,000 for a fifth month in a row, according to The Warren Group's report today on foreclosure activity in the state.

"July held more of the same for Massachusetts homeowners," Timothy Warren, Warren Group's chief executive, said.

"More people who get into trouble are having a hard time getting out. They are finding it more difficult to refinance or to sell, so more foreclosures are making it to the auction process," he said.

There were 1,128 scheduled auctions in July -- up 130 percent from last year. That is below April's peak of 1,647. During that time, state regulators began assisting some delinquent borrowers in renegotiating their mortgages or halting foreclosures to give the homeowners a reprieve.

But it seems too early to gauge whether foreclosure auctions are truly in decline.

That's because lenders who initial filed notices of potential foreclosure in Massachusetts Land Court continued to increase: 2,185 in July, up 66 percent from a year ago. July marked the 10th month in a row in which filings exceeded 2,000 statewide.

If I were house-hunting right now, I would be scared about getting my loan. The lending rules are changing daily – sometimes a couple of times a day – in reaction to the credit crisis. I can’t really blame those giving out the money; these are hard times for mortgage lenders.

I am self-employed, so I don’t fit into the “standard” categories for great borrowers. If the rules change in regard to how my self-employment income is counted, I might fail to qualify. My options for getting a loan based on my stated (but undocumented) income have all-but disappeared. If I need a second mortgage to avoid PMI, I may be out of luck. The pre-approval I got last month may no longer be accurate. I am a good borrower, but not a great one.

What makes a great borrower?

1. Good credit score.

2. Steady employment (on payroll is better than self-employment – that’s my weak spot.)

3. Good income to debt ratios: One measures how much you will owe for the house compared to your income. The second measures how much you owe on all your debt compared to your income.

What can you do if you are not a great borrower?

The obvious thing is to check with your lender. Also, check again before you make an offer to purchase. If the lending rules continue to shift like sand under your feet, you may need to borrow less, or improve you credit score, employment or ratios before you can buy.

What's remarkable about the results of the Federal Reserve Bank's new survey of lenders is not that some indeed are tightening standards for residential real estate loans; it's how many report they are not!

The Fed survey found 14 percent of respondents tightening lending standards on prime loans, those to customers with good credit. Around 40 percent said they tightened standards for non-traditional loans, and 56 percent for subprime loans. That leaves a healthy percentage of lenders who did not change lending practices in July despite the extreme blowups in the mortgage and credit markets.

Events of the past few weeks confirm that our real estate woes are not limited to the subprime market. The latest casualty seems to be mortgages in excess of $417,000, the so-called “jumbo mortgages.” I say “so-called” because with the high price of housing, a loan of $400,000 doesn’t exactly buy a mansion in most communities in the northeast. Loans of this size either are not being made or they are being offered with extremely high interest rates. The consequences are widespread. Buyers cannot get funding to consummate purchases. Sellers are left hanging when deals fall through because of no financing, and existing homeowners with soon to reset adjustable rate mortgages are trapped in their existing loans. While the current credit crunch has implications beyond the housing market, it is still the housing market that suffers the most.

President Bush today said a tad more about his position on the current turmoil in the housing and credit markets, reiterating his position that he does not support a government-financed "bail-out" of homeowners facing foreclosure.

Every mortgage broker I interviewed for today's article had the same message: Frustration.

This is the worst credit market they've seen in 20 years -- or ever.

The mortgage mess is a now a presidential campaign issue. Democratic Senator Hillary Clinton today in New Hampshire sketched a plan to crack down on unscrupulous lending and offer assistance to troubled homeowners facing foreclosure.

Subprime mortgages, are you sick of hearing about them yet? They are bad news, yes? Does everyone know what a subprime mortgage is and why they cost you so much more?

Let me explain:

Prime Lending Rate is set nationally. It is the base rate of all loans. Residential mortgages rates are higher than that prime lending rate. The subprime residential mortgage rate will be even higher than conforming residential mortgage rate.

The opposite of “subprime mortgage” is not “prime mortgage”; it’s a “conforming” mortgage. To get a conforming (or conventional) loan, borrowers must conform to rigid standards developed by mortgage lenders. These standards are not exact; there is some judgment involved. An applicant is judged on these factors: income to support the requested mortgage plus all other debt the borrowers has outstanding, credit history, job stability, and assets. So, someone with an unsteady job may still get a loan if he/she has a good credit history, a good income, and a hefty down payment. Likewise, someone with no down payment may get a prime mortgage if his or her job is stable and credit is excellent. Someone with a lot of debt, but good credit and income could get one.

Subprime mortgages have higher interest rates. They are frequently Adjustable Rate Mortgages that will go up in 2 or 3 years. They often have high up-front costs added into the debt. They are a significantly more expensive way to borrow money.

If you do not qualify for a conforming loan, it should be a warning sign. If the lender’s actuaries think you are a risky borrower, you may be. Check with another lender. If multiple lenders are tell you that you should not borrowing money, maybe you shouldn’t.

The trouble began when subprime lenders made it possible for almost anyone could borrow anything, for a price. It is a good thing that those days are over.

Massachusetts has opened a new hotline for low-income residents who are struggling with their subprime mortgages and need help.

Attorney General Martha Coakley said her office recruited more than 100 attorneys and law students, who have agreed to provide free legal assistance to borrowers having trouble paying their mortgages, facing foreclosure or trying to negotiate a payment plan.

If you read my story today about the Martinelli's of Lawrence and their efforts to renegotiate their loan and save their home from foreclosure, you might get an understanding of how complex mortgage financing is today. I certainly did.

Rob Gavin’s front-page story in today’s paper personalizes the foreclosure statistics so many of us write about.

He documents the plight of a family whose medical crisis morphed into a credit crisis, leaving them unable to refinance away from their adjustable rate mortgage. The most recent “adjustment” to that ARM brought their monthly payments from $2,100 to more than $3,000.

The smart folks at Economy.com, the economics firm owned by Moody's, issued an analysis today that said the housing market and, in particular, the mortgage sector are really going to be awful over the coming months.

How bad? The foreclosure rate for subprime adjustable rate mortgages is now 4 percent. By midyear, 2008, it will be 10 percent. Those loans made in the fourth quarter of 2006? Try a foreclosure rate of almost 20 percent. In 2011!

Patrick administration officials held preliminary discussions Wednesday with mortgage lenders on proposals that include making lenders pay relocation costs of those who lose homes to foreclosures.

Lenders didn't dismiss the proposals, some of which still need to be fleshed out, and agreed to meet again, according to an executive briefed on the meeting. Kofi Jones, spokeswoman for the Executive Office of Housing and Economic Development, said the talks made progress and another meeting will be scheduled in early fall.

It was the second meeting with lenders as the Patrick administration seeks ways to ease skyrocketing foreclosures. In addition to the proposal on relocation costs, the administration is considering a foreclosure prevention initiative that calls on lenders to delay foreclosure proceedings in some cases; reduce loan amounts and waive prepayment penalties in others; and work to transfer vacant, foreclosed properties to first-time home buyers or nonprofit agencies. (Robert Gavin)

With an explosion in foreclosures driven by the huge numbers of high-cost subprime loans, the Federal Trade Commission is investigating mortgage lenders for possible violations of fair lending practices.

“The current fair lending investigations are part of a broad and aggressive law enforcement and consumer education program to protect consumers from deceptive, unfair, and otherwise illegal credit practices, particularly in the subprime mortgage market,” said Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection, in a statement today at a Congressional hearing. Read more.

Countrywide Financial, the giant mortgage lender, spooked financial markets yesterday when it reported that loan delinquencies were spreading into the so-called "prime" market--that is, borrowers with good credit histories, and predicted housing prices won't rebound until 2009. The situation here in Massachusetts could be different.

The bill for subprime mortgage lending frenzy is coming due--to the lenders. Countrywide Financial, one of the nation's largest mortgage lenders and subprime issuers, today reported simple awful earnings numbers that included $417 million in impairment charges, much of which is related to rising defaults and delinquencies.

Among the not-so-comforting news from the company: the housing situation is going to get worse in 2007, or in the vernacular of earnings reports, "increasingly challenging for the industry and for Countrywide."

Don't look to cheap money to bail out the slumping housing market. The latest survey of mortgage rates from lending market specialist HSH Associates shows 30-year-loans hitting a 52-week high last week, with an 6.88 percent average rate. Rates in Massachusetts are a couple of ticks higher, averaging 6.90 percent last week.

The viewing public isn't buying the ads of the lending industry. so says the results of a new Harris Interactive poll.
Two-thirds of those surveyed said they do not view the advertising and marketing of mortgage products as "credible." Ouch.

As noted earlier, Federal Reserve Chairman Ben Bernanke said his agency will likely issue new rules under the Truth in Lending Act to mortgage firms about the type of promises they make in advertising.

The Federal Reserve said it will be using tougher measures to deal with problems in the subprime mortgage industry. Previously the Fed had issued guidelines and suggestions to the lending industry to ensure they do not stick borrowers with loans they cannot afford.

But in testimony before Congress today and yesterday, Fed Chairman Ben Bernanke said the central bank is reviewing new measures to protect borrowers and consumers from abusive practices.

One big target: those easy money ads mortgage companies and brokers endlessly flash. Bernanke said the Fed would be issuing new rules under the Truth In Lending Act "to address concerns about mortgage loan advertisements and solicitations that may be incomplete or misleading and to require lenders to provide mortgage disclosures more quickly so that consumers can get the information they need when it is most useful to them."

Bernanke told lawmakers the Fed has already required lenders to better disclose the terms of adjustable rate mortgages, including such risks as "payment shock and rising loan balances."

Are there legitimate uses of subprime mortgages? Of course there are. However, these loans have higher rates to offset the higher risk of delinquency or default for the investor. The overwhelming majority of subprime mortgages are also adjustable within a two to three-year time period. No one should choose one if he/she can get a prime rate mortgage.

Sometimes people find they just can't qualify for a conforming mortgage, but don’t want to wait. Imagine the computer consultant who has been going from start-up to start up with periods of unemployment, the professional who was bankrupt but is back on her feet, the young professional with monstrous student loans and a good income.

I'm holding a perky, orange piece of junk mail from my online bank asking this very question. The "get-richer" pitch? A mortgage with super-low closing costs (Good!) a low rate with no points (Good!)...and a 5/1 Adjustable Rate (Now, wait just a minute....)

Three federal agencies, led by the Federal Reserve, are teaming up with state regulators to keep a closer watch on lenders with large subprime mortgage operations. Subprime loans are made to borrowers with less than impeccable credit, and predatory and sometimes fraudulent practices in this market have contributed to the surge in foreclosures. The federal and state agencies will select a sample of subprime lenders each regulates and assess credit standards and compliance with federal and state consumer protection laws. They will take enforcement actions if necessary. In addition to the Fed, other partners are Office of Thrift Supervision, Federal Trade Commission, Conference of State Bank Supervisors, and American Association of Residential Mortgage Regulators.

The heat is now on lenders as foreclosures rise and questions arise even faster. Friday’s “Borrowers Sue Subprime Lender, allege race bias” reports a suit against Countrywide. But the real news to me is the data behind the suit.

James Campen, a mortgage analyst, has very damning data about the loan industry. Based on 2005 lending data, he concludes that:

“70 percent of African-Americans and Latino borrowers with incomes between $92,000 and $152,000 bought homes with subprime mortgages in Greater Boston, compared with just 16 percent of whites.”

Holy Cow! This is so unlike the example of the couple described on July 12th, who earned $32,000 yet borrowed $529,000. Mr. Campen’s info says nearly three-quarters of all African-Americans or Latinos in a very good income bracket were considered bad risks for a loan. These are middle-class people, probably a lot like my buyers. Yet an astounding number of them have been put into sub-prime loans, where they pay more to borrow money.

My heart has resisted believing that the foreclosure problem was created by masses of people getting greedy and stupid on the same day. I have also resisted the idea that lenders are followers of Voldemort. However, I think I just saw a Dark Mark somewhere over a nearby lender...

Greater Boston is one of nine US regions targeted for a new foreclosure prevention program by a partnership of the Federal Deposit Insurance Corp. and Neighborworks America, national nonprofit that encourages home ownership. The goal: Find and help struggling homeowners before they end up in foreclosure. "The worst thing for them to do is put their heads in the sand and think its going to go away,'' said Douglas Robinson, spokesman for Neighborworks.

I am generally cynical about government efforts to correct problems in the real estate industry. A while back, Massachusetts officials considered creating a disclosure about non-fixed mortgages; my reaction was “big deal.” Now, Kim Blanton reports that a fund is being established to financially help those harmed by the recent wave of sub-prime lending. See article. The State promises to “play hard ball” to get lenders to carry some of the costs. And, lo and behold! Martha Coakley has already gotten a response from one of the big lenders. See article.

On the face of it, this seems like the perfect balance; it places the financial onus on both the borrowers who failed to protect themselves and the lenders who offered magic solutions instead of real financial help.

Still, the example in the July 12th article is a borrowers who had a $32,000 annual income who signed on for a $529,000 mortgage. I wonder how that borrower failed to ask “how much are the payments?” before getting to the closing table. Does that lender have salesmanship skills far beyond anything I can do? Or was there an out-and-out lie about how much this would cost when the question was asked earlier on in the loan process? The devil will be in the details here. I wish our Attorney General and her staff good luck in the huge task she has taken on.

Statistics from the 54 cities and towns of Middlesex County corroborate the news that the rate of foreclosures eased slightly in June. In May, 243 foreclosure notices were filed in Middlesex County (in both the Northern and Southern Registries combined) while in June, only 214 were filed, a decrease of 12%. The trend was reversed for actual foreclosure deeds (107 in May vs. 118 in June), but those numbers are less of an indicator of any trend since foreclosure deeds flow proportionally from the foreclosure notices filed several months earlier.

Foreclosure activity across the U.S declined 7 percent in June, from May, according to data provider RealtyTrac. Massachusetts, however, had an even larger drop in such filings--nearly 28 percent.

California-based Fremont Investment & Loan agreed to postpone foreclosure proceedings against 2,200 Massachusetts homeowners after state officials determined the lender gave subprime mortgages to borrowers who could not afford the loan payments.

Attorney General Martha Coakley secured the 90-day moratorium from Fremont, once the state’s second-largest issuer of subprime loans, after she threatened in May to sue the California company over lending practices she alleged violate the state’s consumer-protection laws, such as making mortgages without fully disclosing the terms.

The moratorium ‘‘got the clock stopped so the people facing foreclosure get a little bit of breathing room,’’ she said.

Fremont, which has now exited the subprime lending business, declined to comment.

Coakley said her office will review the company’s internal documents on its Massachusetts mortgages to determine whether the loans were made inappropriately or whether a foreclosure is warranted. The state would use that information to determine whether some Fremont customers deserve financial relief, she said.

Financial regulators and housing activists have accused Fremont of routinely failing to detail to customers the full implications of their loans, of not properly documenting information such as borrowers’ income, and of making loans that borrowers could not afford.

Losing one’s home to foreclosure must be one of life’s most distressing occurrences, so the state’s effort to aid subprime borrowers in distress is commendable, but it’s far from a bailout of either lenders or borrowers.

The program is only available to those who are less than 60 days in arrears, so few will be eligible because most don’t even realize they are in trouble until they are already deeper in the hole.

Another nudge upward in home loans. The Mortgage Bankers Association reported today in its weekly survey that average interest rates on 30-year fixed loans rose to 6.65 percent, from 6.50 percent, and to 6.31 percent from 6.20 percent for 15-year fixed mortgages. Average rates on adjustable mortgages also went up, to 5.60 percent from 5.49 percent.

Lots of strong reaction to my story about Gov. Patrick's state-sponsored bailout of deliquent borrowers of subprime mortgages.

"What a joke," one reader wrote me in an email. "Here's Massachusetts rushing in once again to bail out a bunch of people who should have known better."

On the heels of our story that Gov. Deval Patrick and the MassHousing agency have developed a $250 million fund to help refinance trouble homeowners, Attorney General Martha Coakley announced another major development this morning.

Coakley said she had gotten large subprime lender Fremont Investment & Loan to agree to hold off making more foreclosures against its delinquent customers in Massachusetts for 90 days. During that period, Coakley will review Fremont's pending foreclosure cases and "may object to any foreclosure that it determines may be tainted by unfair or deceptive lending practices," her office said in a statement.

Fremont will halt foreclosure actions on more than 2,000 loans during this period. Coakley's office had previously warned Fremont it was potentially facing an enforcement action over concerns its lending practices violated state consumer protection laws.

I like this prayer: “Dear Lord, some days I am greedy and some days I am stupid. Please keep me from being greedy and stupid on the same day.”

This brings my attention to Kris Frieswick’s piece about foreclosure. She says, don’t blame the institutions who have been offering to loan us enough cash to hang ourselves. Instead blame the greedy fools who take the loans.

Rob Gavin’s Wednesday article on the rate of foreclosures in May made the important point that not all foreclosure filings result in actual foreclosure sales.

But what’s not widely known is that the ratio between those two events fluctuates significantly depending on the relative health of the housing market.

In the last few weeks, mortgage rates jumped about three-quarters of a point, to about 6.75 percent. This increases a mortgage by an extra $50 per month for every $100,000 borrowed. For most buyers out there, that is $200-300 per month for the next 30 years.

OK, breathe...Mortgage rates are up from 6 percent to 6.75 percent. What does this mean to someone who is thinking about buying a home?

Mortgage rates have risen nearly 1/2 a percent in a little over a month, and some analysts are saying homebuyers will now hurry up and buy, for fear rates will climb even higher. My response? Not so fast.

There's a glimmer of good news in June's mid-month foreclosure statistics. Up here in Lowell, in our deeds courthouse, orders of notice - the document that commences the foreclosure process - have been recorded at a rate of 96 per month so far in 2007. During the first two weeks of June, only 39 were recorded which projects to 78 for the entire month. If the early June pace persists, it will represent a significant slow down in the rate of new foreclosure filings.