The federal government has expanded its Home Affordable Refinance program to include more Americans who originally were ineligible because they were too far upside down in their homes.

The first incarnation of the program only applied to those who were 105% upside down. But now that limit has been raised to 125% of a home's current value.

The government is doing this to give an incentive to hang in there to struggling homeowners. Mortgage rates have dropped recently to about 5.35% on 30-year loans and 4.85% on 15-year loans. (Editor's note: Rates accurate as of June 30, 2009.)

Speaking of 15-year loans, there's a special new incentive from the feds. Under the new rules, the government will cover much of your closing costs if you shorten the length of your loan and go for a 15-year note.

Clark says this is a real triple threat -- in the good sense. First, you have the expanded opportunity to refinance. Second, you have the incentive to go into a 15-year loan, which automatically has a lower rate. Third, you have the feds absorbing some of your closing costs on a 15-year refi.

It's win, win, win.

Why would the feds work extra hard to get you to shorten the length of your loan? You start hitting more of your principal from the start on a 15-year mortgage, which ultimately lowers the risk to taxpayers.

Yet there's a lot of resentment from people who have been able to pay their mortgages. They wonder why we are paying to subsidize those who are drowning.

Clark's response? You're missing the bigger picture. Stopping foreclosures helps preserve everyone's property values -- including yours.

One caveat: In order to take advantage of the new expanded mortgage bailout, your loan must be owned by either Fannie Mae or Freddie Mac. See instructions on how to determine if you qualify.

CLARKONOMICS: The newly released Confidence Index (as compiled by the Conference Board) shows that consumer confidence has taken a dive. People who had hoped their own situation was getting better aren't feeling so optimistic any longer.

It means that we're not seeing the "green shoots" popping up we were hearing about back in the spring. People are not feeling the love from the economy.

Is there a valid reason to be more pessimistic? That's a very personal question that Clark can't answer for you.

What he can tell you is that we're in a long haul deal. It will take years to work off the problems of too much house, too much debt, too much car and on and on.

It doesn't mean, however, that we'll always have high unemployment and no economic growth.

Meanwhile, Clark wants to alert you to a window of opportunity that's opening for cheap mortgages and cheap refinances. He expects that rates will drop a quarter-point to half a point over the next week in response to this newfound pessimism.

Mortgage rates are directly related to the 10-year Treasury. Several weeks ago, 10-year Treasury rates were in the 4s. Now the last rate Clark saw was 3.48%. (Editor's note: Rates accurate as of June 30, 2009.)

The opportunity is there, especially for 15-year refis; look to credit unions for 7-year fixed and 10-year fixed loans as an alternative.

Did you buy your house in 2000 or even more recently? The Washington Post now reports that you stand a chance of losing money if you were to sell today. In fact, more than 6 out of 10 people are selling for less than what they paid for their homes.

That means there's enormous opportunity for buyers.

Clark has been following our youngest producer Joel's quest to buy a home. In late winter, Joel put a bid on a short sale. He expected to get a response within a week; it took 3 months for the lender to even acknowledge his offer, and they countered with a price that was greater than the original listing price!

Meanwhile, those selling non-distress real estate are finding that it's hard to gain any traction in a market awash with foreclosures. And consider that the recent moratorium on foreclosures in the aftermath of the presidential election is set to run out soon. We'll soon be seeing a new wave of foreclosures as the ban lifts.

Joel is now looking to put a bid on a foreclosure. As a first-time homebuyer, he'll qualify for $8,000 in federal money, in addition to local money from his county. Even the Federal Home Loan banks have their own offers of "gimme" money. (Editor's note: You don't have to be a first-time homebuyer, actually. You only need to meet certain qualifications. Check with your lender for more details.)

And when will the housing market finally recover? Clark doesn't have a specific timeline to share, but he is noticing that the latest thinking suggests in-town and close-to-town markets will recover faster than suburban and exurban markets.

Whenever Clark makes a public appearance, he's constantly bombarded by questions from people who are in over their heads with their mortgages and want to know what to do.

Conventional wisdom holds that your monthly housing expenses should only be slightly more than 30% of your take-home pay. However, many people are paying more than 50% of what they bring home. In extreme cases, some even owe more than 100% of their income!

The consumer champ had previously spoken about the Making Home Affordable (MHA) initiative and the opportunities it presented for refinancing. But many people were frustrated in their efforts to make any headway with MHA.

Now there's a new free website from the Fair Isaac people that should help homeowners who've been waylaid in their past efforts to get some kind of mortgage workout.

MortgageReliefOnline.com poses a battery of questions and then instantly tells you if you're eligible for assistance under the MHA plan.

Mortgage modification has long been a controversial practice, particularly among Clark's listeners.

The idea that you should be rewarded for having fallen behind on your loan -- while someone who is current would not get any break -- has been a very bitter pill for people to swallow.

Now The Wall Street Journal has taken a close look at the numbers behind mortgage modifications. And the results actually surprised the consumer champ.

If the modification is a matter of a lender rearranging your payments or rolling missed payments into a new loan with a higher balance, well, it won't work and the borrower tends to slip back into default. No surprise there.

On the other hand, when lenders actually reduce your monthly payment, roughly 80% of people who were falling behind are able to get current and stay current on their modified loan. That's a stunning finding, according to Clark.

After all, he has a longtime bias against offering a deal to someone who's not paying. But as a practical matter, if you can get 80% of people current by offering a better deal, well, ultimately that's better for neighborhoods, homeowners and lenders alike.

CLARKONOMICS: The federal government wants to get the economy moving, right? Well, now they're essentially poised to print $1 trillion to buy up debt that they issued in the form of treasuries!

$750 billion will be going into the mortgage market. The intention is, in part, to drive interest rates down on mortgages.

So here's an extreme prediction from Clark: By May 1, we'll see people locking in on mortgages with rates that start with a 3 for 15-year loans. Specifically, he's making a prediction that he'll hear from a caller who refinanced for 3.875% on a 15-year loan. In addition, he also thinks 30-year loans will be around 4.25% by May Day. As always, you would need top credit to land deals like these.

Will Clark get pie on his face if his predictions prove false? You'll just have to tune in on May 1 and find out!

Meanwhile, there's always the fear that trying to push down interest rates by printing money could cause runaway inflation like they have in Zimbabwe. However, economists theorize that our depressed level of factory utilization creates just enough slack in the economy to help us avoid that dangerous scenario.

Years ago when Clark had his first home, the mortgage was sold off by the lender, and the result was a dispute about the balance. Clark contended he owed around $3,000 less than the new servicer of his mortgage claimed.

The penny-pincher had to prove his point by finding all his canceled checks. He also had to buy a book with an amortization table that allowed him to crunch the numbers himself. Obviously, this was in the pre-Internet days.

Now that we're in the era of computers, we assume the balances that lenders are tracking will be accurate. But they're not. With all the mortgage mess, this is not a time to blindly trust your lender when they report a mortgage balance.

Errors can easily be made when loans are sold, or banks are absorbed by other banks and there's a migration of records. The balance can be all fouled up -- and almost always the error is not in your favor.

Thankfully, it's very simple to ensure you're tracked correctly. Print out an amortization schedule for free at DinkyTown.net or HSH.com.

Finally, it is imperative that you keep proof of all mortgage payments throughout the entire life of your loan. That avoids the danger of your payments being misapplied to another loan.

Banking -- much like life -- is not completely accurate. In this case, it's not that the banks are trying to cheat you; it's just that their record-keeping is incompetent.

Mortgage rates are the lowest they've been since records first started being kept in 1971. The average rate we're seeing right now is a touch over 5%. For those with good credit, you could be looking at rates in the 4% range.

What kind of credit are we talking about? Usually 720 or above on the FICO scoring model. Clark suggests either buying your FICO score at MyFICO.com or trying TrueCredit.com for an approximation of the best rate you could get. The latter costs $10.

In addition to having a good credit score, you'll also need to be sure your house "appraises out" -- essentially, that you have enough equity in your home to go through with a refinance.

What can you do if you're $10,000 or $20,000 shy on your equity? The consumer champ reluctantly recommends that you consider borrowing against your 401(k) to make up the difference. This is one of the only scenarios where borrowing against your 401(k) could actually be a good thing. (Editor's note: Whew! Clark thought he might be struck by lightning as this advice left his lips!)

One final thought: Clark often talks about cramdowns -- a tactic used in commercial real estate where the lender will reduce the outstanding balance, interest rate, etc.

There is no residential equivalent for home mortgages at the moment. But it looks likely that in the next 4-6 weeks there may be a new statute that will permit cramdowns in the residential market. Clark will be able to provide more particulars as the legislation takes shapes.

We're currently in the midst of the greatest mortgage refinancing frenzy of the past 5 or 6 years. Rates are now the lowest they've been since mid to late 2003, which had been the best time since the golden era of mortgages in the '60s.

This time, however, there are some special wrinkles that Clark wants you to know about. It's more confusing to shop for a mortgage today than it's ever been. First, you don't know if your house will appraise out permitting you to refi. Second, you don't know if your credit score will qualify you. Third, you don't know who to trust! Finally, it can be difficult figuring out the math if you have 2 loans like many Americans.

Executive producer Christa is completely mortgage obsessed and spends at least a half-hour each day researching mortgages. She's currently locked in at 5.375% on a 15-year loan and is looking to refinance. Christa's been noticing some real oddball options in the marketplace including 7. 10 and 20 year refis -- and we're not talking about ARMs here.

Her obsession flies in the face of Clark's typical advice that housing debt shouldn't necessarily be a front-burner issue. After all, it is widely considered the least worst type of debt. But she's in a unique scenario where she and her husband have too much housing debt and they're already saving plenty for retirement, which is one of Clark's top issues. So her single-minded focus is actually a good thing in her case.

But most people won't do the level of research that Christa does. That's why Clark recommends TrueCredit.com. For a fee of $10, this service tells you the best rate you should qualify for.

When you're shopping quotes from lenders, beware of points that they'll try to impose on your refi. Each point is a fee of 1% on the amount you borrow. You shouldn't pay any origination fees or discount points. Finally, pay attention to the closing costs.

Another route to go is the no closing cost or stated closing cost option. These options may have an interest rate that's up to half a point higher to cover the lender's lost closing costs.

Looking for more info? Clark recommends checking HSH.com and MTGProfessor.com.

In his latest book Clark Smart Real Estate, Clark dedicated page after page to explaining the difficult process of figuring out if you have the best possible rate when you go for a mortgage or refinance.

The industry has made it particularly hard to comparison shop in this arena. But TransUnion's new website, TrueCredit.com, aims to level the playing field with a tool called the Mortgage Simulator.

For $10, you can buy a month of service that allows you to get a true indication of the rate you should get on a traditional 15 or 30-year fixed mortgage or refinance. TransUnion takes info such as the location of the house; the purchase price; the amount of your down-payment; your income; and your credit score into account.

Clark acknowledges that it's historically been tough to get the best deal. He's had lenders try to cheat him every which way in his real estate dealings.

Finally, mortgage rates are very favorable right now. You have real opportunity if you have a good credit score and want to refinance.

CLARKONOMICS: The federal government over Thanksgiving put up more money for the bailout. According to Bloomberg, funding for the federal bailout in total now stands at $8.5 trillion. That's 8,500 billion dollars!

Meanwhile, mortgage rates are down and may even go lower. There's a real possibility we'll see rates in the range of 4% for a 15-year fixed and around 5.25% for a 30-rate fixed. If you're in the mid 6% range or above, now may be the time to refinance. Of course, you'll need to have a decent credit score and some equity to do so.

The feds also hope to loosen up the student loan market, the car loan market and borrowing for small businesses. In related news, Clark isn't happy that the feds are trying to figure out a way to loosen up money in the credit card market. They're trying to get us out shopping with borrowed money. Just say no!

Last week, Clark explained how the banks were petitioning the government to be allowed to write-off a big chunk of consumer credit card debt. He was certain this measure would be adopted, at least on an experimental level at first. However, the banks' request has been denied by the government.

That means if you are facing impossible debt, your options remain the same: default or bankruptcy. Many people are doing both as delinquency rates rise and bankruptcy looks set to hit an all-time high in 2009.

Moving on to something positive, the government has belatedly rolled out its plain English disclosure statement for when you're shopping a mortgage or refinance.

Lenders have fought such a proposal for years; there's simply too much money to be made when people are ignorant about their loan terms. Of course, there is a lot of shared responsibility here. Many people didn't want to hear about what a lousy loan they were getting into.

But going forward, HUD is making its good faith estimate form available, along with a settlement statement. (Editor's note: Both links are pdf files.)

Clark loves disclosure in capitalism. After all, how can you make good choices if the info is not made available to you in a simple way? One caveat here, though: The banks have a year before they're required to start using this disclosure form. That gives them plenty of time to try to get it killed! Stay tuned…

There's been a lot fuss about the advice Clark gives out to callers who are upside down in their mortgages. For those in an owner-occupied property, Clark suggests a workout -- as is often done in commercial real estate. The reality is that lenders would rather renegotiate the terms of your mortgage than have to foreclose and play property manager.

Now even the FDIC is getting involved in the workout game. After the failure of IndyMac, the FDIC voluntarily contacted the bank's mortgage customers who were upside down with offers of a workout. Why? The federal taxpayer benefits more this way than if the feds have to foreclose, mismanage a property and finally unload it as a distress sale.

So far, the FDIC has lowered monthly mortgage payments for IndyMac customers by $430; they're adhering to a flat 38% of the homeowner's income. Meanwhile, other workouts are being orchestrated by Bank of America for their Countrywide division. For more on that, see Clark's discussion of the topic earlier this month. Simply put, workouts are a smart business move. It's cheaper to cut a deal with a borrower than to put them out on the street.

On the other side of this issue, you have the question of fairness. Is it fair that you pay your mortgage as agreed and get no help? No, it's not fair. Workouts do protect the value of your neighborhood by preventing too many foreclosures. But if you drill down to you as an individual borrower, it's obviously not fair. The world is grey sometimes -- even though we'd prefer it to be black and white.

Mortgage rates have been flying up and down like a yo-yo. Clark's brother in law just got a 30-year fixed loan at 5.75%. Our producer Kim, meanwhile, is in the process of refinancing her condo at 5.125% on a 5/1 ARM fixed for 60 months. Clark's credit union, meanwhile, offers an oddball 7-year refinance at 4.375% right now. Still others in the marketplace are getting loans at 7% or higher.

Obviously, there's some real distortion in the home market and there's real opportunity to refinance. There are so many crosscurrents in the market that your rate could be all over the map. So now more than ever, you need to shop around when you're looking for a mortgage or a refinance.

If you are in a home and want to refinance, 2 things are absolutely key. First, you must have meaningful equity in your home. Second, you must have a good credit score.

If you are a homebuyer, try accessing first-time homebuyer programs through HUD. The FHA loan program -- after several years of being almost non-existent -- is once again important. Clark also recommends trying non-traditional lenders like ING Direct for a loan or a refinance.

New stats from Economy.com show that 1 in 6 homeowners owe more on their house than it's worth. On the positive side, those who are hurting are upside down in relatively small amounts. But that still leaves 7% or 8% who are frightfully upside down. Many of those will capitulate and send in the keys (aka jingle mail).

During last night's presidential debate, McCain made an unusual proclamation about a direct federal lending program with markdowns on loans to people who are upside down and a full payoff for the lender. Clark doesn't like this idea. The lenders should take a haircut. The whole concept of federal government taking over home debt on a loan-by-loan basis is a leap of faith into market intervention.

Clark is still struggling with how to best help individual homeowners and when we should help them. Those who bought in the last few years account for a big share of those who are upside down.

So maybe the best candidates for help instead would be those who have been in a house a near-lifetime -- those who got taken in a bad refinance deal after most of their home was paid off. But paying off a bank at 100 cents on the dollar, Clark can't hang with that. Why should the bank get off scot-free for having zero lending standards?

If you're a regular listener, you know that Clark is no fan of Bank of America. But right now he's got to give them credit. As the owners of Countrywide, BoA has reached a settlement in 11 states where they'll offer workouts to 400,000 homeowners who were victims of predatory lending.

Mortgagees were put into loans they couldn't afford by Countrywide. Of course, you could argue, "Well, they were adults and signed on the dotted line. Why should they get a workout?" But who among really understands all the mortgage mumbo-jumbo you sign when you buy a home?

This collective workout will cost BoA between $8-9 billion. It will allow mortgagees to re-calculate their monthly payment to one-third their income. The 11 states affected include Arizona, California, Connecticut, Florida, Illinois, Iowa, Michigan, North Carolina, Ohio, Texas and Washington.

Meanwhile, there's another ongoing action where Countrywide allegedly cheated people by putting false fees on loans to create additional profits. That still has to go through the courts, so there's no telling when it will be resolved.

CLARKONOMICS: The federal takeover of Fannie Mae and Freddie Mac is the kind of thing that makes most people's eyes glaze over. But it does have some direct consequences for your wallet.

In short, mortgage rates are going down, down, down. If you are in the market to buy a home and you have a good credit standing, you can take out mortgage in the 5% range. If you are in an existing mortgage somewhere in the 6% range and you have some good equity, you should be able to refinance in the 5s.

The nationalization of Fannie and Freddie has both positive and negative aspects. On the plus side, it brings some relief and stability to the housing market (even though there's still too much oversupply). But on the other hand, we taxpayers are on the hook for literally trillions of dollars.

CLARKONOMICS: Clark is not a man who's afraid of the condo market. He knows the value of a condo typically fluctuates like an EKG -- up and down in rapid cycles. Single-family homes, by contrast, tend to rise slowly but steadily over time, barring a bubble market. The problem is that people usually buy condos the wrong way. They own them for short periods of time and then can't get the value they paid when they resell.

Because of general market malaise, lenders are increasingly getting spooked about making loans for condos. New rules and requirements are being established that reflect the fear. It's getting tougher to refinance a condo loan or get one in the first place. Some lenders have even begun redlining -- that's where they take whole zip codes and refuse to make loans in them regardless of credit score.

Other lenders won't make loans in condo communities where there are more than 25% rentals. Some owners have become unwitting landlords so they can meet their monthly payments. Yet if a condo association allows a high percent of rentals, the condo community won't be exempt from future financing.

Compounding the problem are new Fannie Mae and Freddie Mac guidelines. Lenders are being required to make a decision about whether or not a condo association has solid books before making a loan. The practice hurts lenders who may want to sell out their loans out of portfolio, and Clark says it will have a further chilling effect on condo lending.

The pendulum swung too far with irresponsible lending; now it's swinging too far the other way. It all creates a hardship for those condo owners who want to sell. The good news is that there's great opportunity right now to buy a condo for cash or if you're able to get a loan. Condos go through phases of incredible pessimism followed by ill advised optimism. Right now we're in a pessimistic cycle, so look for the deals and pounce. Do you smell what Clark is cooking?

The Mortgage Lender Implode-O-Meter is a popular website developed by former Emory University research Aaron Krowne. This unique portal monitors the overall health of lenders so that you know if they're safe to do business with.

Clark particularly loves the site's slogan -- "Tracking the housing finance breakdown: a saga of corruption, hypocrisy, and government complicity" -- because he believes those words ring very true.

We're still in the early innings of the corruption shakedown. More banks will likely fail; there will be continued credit problems for several years; and more bailouts of institutions deemed "Too Big To Fail" will come courtesy of taxpayers.

This last point really rankles Clark. When we bailed out Bear Stearns with $30 billion in guarantees, we taxpayers should have become owners of the company -- but that's not what happened.

Meanwhile, we indirectly feel the effects of the mortgage crisis whenever we fuel up at the pump. Over the last several months, Clark has explained how the Federal Reserve devalued the dollar to help out Wall Street bigs and their idiotic lending practices in the housing sector. Because of that devaluation, the price of a barrel of oil is nearly double and the price of gas is some 60% higher.

More lenders and banks likely will fail. So now is the time to heed FDIC limits (or NCUA limits, if you're with a credit union) and not exceed $100,000 in the bank. Clark would prefer that you stick closer to $90,000. That way you won't lose one penny of interest in the event of a collapse.

If you are over the $100,000 limit, reduce your exposure by having multiple accounts at different banks. You can also use the CDARS.com program to do it for you.

Another day, another wrinkle in the mortgage crisis and its impact on other sectors of the economy!

First off, we had the second-largest bank failure in U.S. history with IndyMac on Friday. Just a day later, Clark got a call from a relative who wanted him to talk to a family friend. Clark had to difficult task of explaining what happens when you have money that's not FDIC-insured in a failing bank.

The latest stats show that 37% of people have money above FDIC limits --$100,000 in a bank account and $250,000 for retirement accounts. If this train wreck has already happened to you, here's the scoop: If there are assets left over after all depositors have been reimbursed up to $100,000, then you'll get a portion of your unprotected money back.

Hopefully, you're not in this situation. Heed Clark's advice now and reduce your accounts to $90,000 so you don't forfeit a penny of interest in the event of a collapse.

Second, let's address the mortgage crisis involving Fannie Mae and Freddie Mac. These are both private corporations that created money for mortgages with a wink and nod and the understanding that taxpayers would back them up in the event of any difficulty.

Well, now the difficulty has arrived and Pres. Bush, Treasury Secretary Paulson and the folks at the Federal Reserve have agreed to bailout private stockholders with taxpayer money. This is unacceptable. The only reason it's happening is because Fannie Mae and Freddie Mac are politically connected.

Third, the Federal Reserve has issued new rules for banks making mortgage loans. The first rule states that they can't make a loan if you can't pay it back. Duh! That took a federal regulation?! Under the new rules, they have to make sure you can pay at the highest rate that your monthly payment could adjust for 7 years. In addition, there will be no more pre-payment penalties (in most instances) and escrow accounts will be required for property taxes and insurance.

Some of the largest banks in our nation made aggressive marketing moves to get people locked into what Clark calls "the dumbest mortgage products ever." We're talking about option payment loans, also called negative amortization loans or Pick-a-Payment loans.

Thankfully, Washington Mutual and Wachovia are both moving away from these loans. Clark recalls negative amortization loans were popular in the mid-1980s and led to a wave of bank collapses and foreclosures during that decade.

With a negative amortization loan, your balance actually goes up over time. That's because you're given the option to pay whatever you want. The unpaid balance each month simply gets added on to the tail end of the loan. When home values drop, you're suddenly quite upside down in your home.

Clark recalls the first time he took a call about a negative amortization loan in 2000 or 2001. A woman called up to ask about an offer she received for a 30-year mortgage at 1 and seventh-eighths percent. But that's only what the monthly payments were based on; her loan balance would continue going up month after month. Ultimately, this is poison for your pocketbook.

There's a simple rule of thumb Clark tells people to follow when shopping for a mortgage: See what you qualify for when it comes to a traditional 30-year fixed rate loan. Then back off and go house shopping at only 90% of what you'd be approved for. So if you qualify for a $200K mortgage, don't look at houses above $180K. This will give you some financial wiggle room over the years.

People have mistakenly thought that stretching to buy a home creates wealth. But it's like more like a rubber-band -- stretch it too far and it will break.

Mortgage disclosure statements are so complex that even the educated don't know what they're signing. The American Enterprise Institute has drawn up a mortgage cheat sheet (and definition of terms) that you can use as a plain-English disclosure when getting a loan. (Editor's note: The first link is a pdf file.)

The real estate market's greatest losses -- in terms of both dollars and percentages -- have come in tony neighborhoods. That's because jumbo loans have not been available, or were only available at very high interest rates. Jumbo loans typically begin at $417K.

Months ago, a law was passed that allowed you to take out a jumbo loan in expensive housing markets at conventional loan rates. But the loans never really appeared in the market. People thought they'd be able to refinance or move up to a larger house, yet it was essentially vaporware.

Now these modified conventional loans, which are about a quarter of a point higher, finally are showing up. So if you were trying to sell and would-be buyers couldn't get financing, take heart. Or if you wanted to refi a high-cost loan in a high-cost neighborhood, you may be able to get that loan now. The politicians hope this will get the high-end market moving again.

What areas will benefit most from the new influx of jumbo loans at near-conventional rates? Check out the complete list. (Editor's note: This is a PDF file.)

New figures show that option payment loans are defaulting at higher rates than sub-prime loans. Clark has often spoken out against these kinds of loans, where your balance actually rises over time. Option payment loans sometimes go under the name "Pick a Pay" or "Pick a Payment." Countrywide is in the midst of a criminal investigation for allegedly pushing through falsified applications for these loans.

Meanwhile, The Los Angeles Times recently reported a new wrinkle on the old practice of owner financing in the loan market. Clark has done owner financing several times over the years. That's where he's actually served as the bank for a borrower.

During that time, he's received letters from investors wanting to buy his loans. They typically offer him an immediate payout at a discounted rate. So if he holds a $120K note, for example, the investors may offer him $100K upfront. Obviously, he's never taken them up on their offer.

Now here's the latest twist: Investors are pooling money, going to banks and buying "non-performing" loans for between 30-70 cents on the dollar. Then they go to the homeowner and offer to reduce the interest rate and the balance on the loan. People immediately suspect that they're being scammed, but this is actually a new business in the marketplace.

The next question that comes to mind: Why wouldn't the banks themselves just do this for the borrowers? Clark thinks they're too bureaucratic to make it work efficiently.

If you're behind on your loan, how would you know if you're facing a legitimate mortgage reduction offer from an investor who recently bought your note? This may sound crazy, but Clark actually suggests that you spend some money, hire a lawyer and have them vet the paperwork. Lower-income homebuyers may be able to get this legal advice for free.

Have you heard of anyone who wanted to refinance their mortgage and couldn't do so because the appraisal came in too low? This is the natural result of the pendulum swinging back after a spike in inflated real estate appraisals.

Months ago, Clark told you that 90% of appraisers say they've been pressured by mortgage lenders to artificially raise the value of a house. About 5 years ago, that number was just a little over 50%. Standards and ethics became much looser as everybody tried to make the deals happen.

Now we're in a time when many mortgage lenders are questioning appraisals because of the rapid decline of home values in many markets. Plus, they're scared of increased scrutiny of their lending practices.

Here's what's been going on behind the scenes: New York State Attorney General Andrew Cuomo has been pressuring the industry to change how appraisals are done. He wants to ensure that loan officers can't influence appraisers and would actually be separated from the decision of which appraiser is hired.

The Mortgage Bankers Association is fighting hard to overturn the new rules so they'll still be able to get "liar's appraisals." That's just shameful, according to Clark. We've had enough harm done already to families who got into homes they couldn't afford and are now being put out on the street.

Meanwhile, Countrywide has been under a cloud for cheating people on their loans by coming up with false paperwork saying they owe additional money. Clark already relayed the report about Countrywide fabricating documents when they got caught cheating a homeowner with inflated loan fees. But after being caught, the company reached an agreement with the homeowner to keep the documents secret. Thankfully a federal judge intervened and said these documents need to come out -- especially in light of similar allegations against the company all over the country.

Countrywide is going to disappear as a company; either Bank of America will go through with a purchase, or it will fail. It's a shame that a once-respected brand has been sullied. Yet a lot was built on false pretenses and foolish lending. Clark was surprised to learn that the company had internal procedures in place to cheat people, especially those in bankruptcy.

As always, Clark would love to have a Countrywide representative come on the show and explain their position.

Are you a Countrywide borrower who fell delinquent? Are you worried that they may have cooked the books about how much you owe? A federal judge has ruled that an investigation of Countrywide on this allegation can continue. Florida, Georgia, Ohio and Pennsylvania are among the states probing the nation's largest independent mortgage lender. There's a lot of smoke surrounding Countrywide on this one, so Clark thinks there's got to also be some fire. But really this is just a sideshow with what's gone on in the mortgage marketplace.

A recent Wachovia internal memo leaked to the media claimed the bank would discontinue its option-payment loans program. Such loans -- also called negative amortization loans -- were being pushed under the Pick-A-Payment tag. But the internal announcement now seems to have been premature. You should avoid the Pick-A-Payment choice at all costs because the balance on the loan actually rises over time. Here's how it works: If you borrow $100K at 6%, the bank only calculates the interest as if it were at 1%. The other 5% goes straight to your balance every month. Wachovia has been pushing the Pick-A-Payment plan, but that hasn't been a smart business move; negative amortization loans only increase the likelihood of default. This really highlights the lack of common sense in the housing market.

Clark is amazed that the federal government has not pushed for meaningful disclosure in mortgage lending. There were proposed rules about 3 years ago to demand full, plain English disclosure when you sign a mortgage. But the banks and brokers went berserk and showered Capitol Hill with money to get the proposal stifled. Don't hold your breath waiting for a change in policy -- instead check out a disclosure form developed by the American Enterprise Institute. We got into mess because so many people did the wrong thing. What we need is somebody to stand up and make sure we do the right thing going forward.

CLARKONOMICS: People's eyes often glass over when Federal Reserve Chairman Ben Bernanke starts talking about macro and micro economics, M1 and M2 and other gibberish. The real question he should be answering before Congress is are we or are we not in a recession? Bernanke really hedged his bets on that one during his latest Congressional appearance. He instead talked about a market facing risk from housing, credit card and job sector woes.

Let's take a look at the housing sector and see how it's been impacted by the Federal Reserve. A few weeks ago, a listener called in looking to refinance a mortgage. He wanted to know if he should wait for the Fed's cuts to get a lower rate on the refinance. But the Fed's interest rate cuts actually drove mortgage rates up by almost a full point. Here's why: Say you're an investor. The Fed is pumping money into the economy, and that makes you fret about inflation. You then have to calculate into a mortgage how afraid you are that the rate of inflation over 30 years will kill your rate of return. So that automatically slightly bumps up the mortgage rate.

However, there is some good news about where we're headed as a country. If we are moving toward an economic spill, we have a great point of entry. The rate of unemployment is hovering in the 4s; historically, economists did not even think it was possible to get this low. So that's a good thing. As unemployment rises from here, remember that we've seen far worse before. And no, you don't have to look back to the Great Depression -- just look back to the early '80s.

The reality is that we're in a "hangover" phase. We borrowed too much, bought too much and didn't pay enough. Dancing to the music of cheap money is over. There are a couple of long-term things we need to do to establish sound financial ground. First, we as individuals need to spend only the money we have. Not a penny more. Second, our government needs to spend only the money it has. Trying to borrow from tomorrow to pay for today is a problem. That's why the Fed flooding the market with money and lowering rates is not having the desired effect.

RIP-OFF ALERT: Clark gets very steamed whenever he hears about children or seniors getting ripped off. Here's a scenario that affects the latter group: Clark has been getting a lot of reverse mortgage questions. Reverse mortgages offer a way for retired folks who are running out of cash to be able to remain in their home and get a check each month by borrowing against the value of the property. This can be a good option if you don't want a family member to inherit the house, but historically the fees on reverse mortgages have been too high. Now Kiplinger's reports that insurance salesmen and women are convincing seniors to do reverse mortgages, cash out the value of their homes and…you guessed it…buy variable annuities. AARP finds that 1 in 10 people doing reverse mortgages were conned into doing so with the promise of such pseudo-investments.

This is unconscionable. Clark doesn't know what goes on in the minds of the banks, brokerage houses and insurance companies who push these modified reverse mortgages. The variable annuity shtick is bad enough, but it's really infuriating that they're pouring salt into a wound by stripping the equity from a home. Clark believes it's not enough to fine people who push this stuff; the only way to stop this is to send them to prison. The fines that can be levied are never enough and just reinforce the idea that crime pays. So you must be the cop on the beat for your elderly relatives. Be nosy and find out what's going in their lives. Hopefully they were there for you as a young person, so try returning the favor by being there for them in a time of need.

CLARKONOMICS: There's been so much buzz about 6 of the largest banks offering foreclosure relief to millions of homeowners. The relief will be temporary, but it could lead to changes in loan terms and payments. Participating lenders include Bank of America, Citigroup, Countrywide, JP Morgan Chase, Washington Mutual and Wells Fargo. The bottom line is that they are not prepared to deal with millions of people going into foreclosure. They simply don't have the staff to manage REO (real estate owned) properties in their portfolio. Each foreclosure costs upwards of $70K in clerical expenses. So this move was really designed to prop up the big banks, more than it was intended to help out homeowners. Clark's advice is to contact your lender if you're behind on your loan and you've been avoiding them. Remember that yesterday's "no" may be a "yes" today or tomorrow. Just keep in mind that this is not charity -- the lenders just don't want the expense of foreclosed homes!

What these lenders have agreed to do is call a time-out and look at the financial situation of borrowers facing foreclosure. They may reduce your interest, your balance or both to keep you in your home. Those who are current in their mortgages will not get similar rate reductions. If that's you, file this one under the "life's not fair" category because there's nothing you can really do about it. To get some historical perspective on this new development, you need to look to commercial real estate lending. Commercial borrowers who get into trouble can lose their properties, but more often than not lenders will do modified loan agreements to avoid having to take on the properties. The closest parallel in residential real estate is probably the short sale. However, the fallout from Japan's '80s real estate bubble proves there's danger in putting off the day of reckoning too long.

So much has happened on the economic front while Clark was away in Hawaii. In the latest installment of Clarkonomics, Clark discussed the Federal Reserve's big cut in interest rates and the news about the economic stimulus package/rebates that will be coming this summer.

Did the Fed make the rate cut just to protect big-money interests in banking or did they have the long-term strength of the country in mind? The answer won't be clear for a few years. But you can feel the impact of the move right now: This is a great time to refinance your mortgage. Consider this option if you have good credit, some equity in your home and a current interest rate in the high 5 percent range. The greatest benefit will be for those who want 15-year loans, which may start at 4 percent. 30-year mortgages will probably see the low 5 percent range. If you have a home equity line of credit, these rates should be back in the 5 percent range after peaking in the 8s. Come March or April, you may want to look at converting from a floating rate to a fixed rate home equity line of credit. One of the ironies of the Fed's move is that being a borrower looks more favorable than being a saver right now. Most banks and credit unions are slashing their rates. So you may want to use this opportunity to put more of your dollar toward your floating rate debt and knock it out faster.

The economic stimulus package, meanwhile, makes use of the idea of negative income tax. That means people who are lower on the economic ladder are given more incentive to work by getting rebates and not having to pay income tax. But let's not lose sight of one thing: The purpose of this rebate money -- $100 billion approximately -- is so that politicians can get re-elected. It's not about stimulating the economy. Sure, people will be excited about the rebate, but the reality is it won't address the real problem. In the long run, we're better off with lower tax rates and a simpler system than having the government send out candy to people. One promising part of the stimulus package is that there will be specific tax breaks for entrepreneurs. Now that's a great way to create long-term rewards for the economy!

The exit polling from New Hampshire told us that the economy was a big issue for people. The slowdown affects us in a lot of ways. For example, hourly employees may find their hours diminishing. There are always winners and losers in any economic scenario. Right now is a great time if you're in the market for a refinance on your mortgage. The loan originators practically have no customers. But it's not uncommon for people to hear the headlines, watch the news and still miss the opportunity. Try refinancing if you're current in your mortgage and have an interest rate that's 6 percent or above. Also try refinancing if you have a floating rate.

Meanwhile, Clark recently upset some people with his comments about Countrywide. The company is in serious trouble and there are reports that they may file for bankruptcy. But there are still a lot of question marks surrounding the whole situation. So here's what Clark wants to reiterate: If you are an existing Countrywide customer, nothing changes for you whether they go bust or not. You'll still owe on your loan. One caveat: Be sure to track your loan balance. See that each month's payments are being applied properly and the balance is dropping correctly. Don't trust your lender to do the math.

There's an old saying that tells us, "If everybody's unhappy when a leader takes a stand on an issue, then they probably did the right thing." Clark thinks that's the situation President Bush finds himself in after announcing his voluntary plan to handle the mortgage meltdown. As you may recall, Bush is allowing lenders to voluntary freeze the interest rate on bad loans for 5 years -- if the homeowner had been current with all their payments. A lot of critics, including Clark's friend Bill Brennan of the Legal Aid Society, have emerged saying that Bush's plan is just mere window dressing. People of a libertarian mindset are upset on account of the free-market interference.

The truth is there's no tidy way to clean up this mess -- even though candidates from both sides are making promises. Things could remain messy in some high-spec areas until 2015. The speculative-buying fever of the early 2000s fed a rash of bad loans like 80/20s, no docs and more to falsely inflate housing values. The real tragedy is the human one when children and families are put out on the street. Clark's late father had that happen twice as a young child and it really shaped him for the rest of his life. Now a lot of new homeowners may not be able to stay in their homes if they can't make the payments. The equity the average American has in his or her home is down to 49 percent. The flipside of this whole discussion is that there will be great opportunity in 2008 or 2009 for those willing to take a risk on distressed property. But we're not there quite yet.

Don't attempt to adjust your radio if you hear some ambient noise this hour. That's just Clark broadcasting on location as part of Christmas Kids 2007! Interested in helping out a needy child this holiday season? Clark will be personally accepting donations at stores throughout the Atlanta area until Dec. 15. If you're not able to make it out, why not donate online? By working with the Salvation Army, your gifts can be distributed to children right in your own state or area!

Switching gears for a moment, Clark wants to discuss President Bush's announcement about a voluntary plan for people in mortgage meltdown to receive assistance from their lender. Those who took out blow-up mortgages like 2/28 loans in the last few years and have been current on their payments are most likely to benefit. 2/28 loans are typically offered to first-time homebuyers or people with damaged credit. The homebuyers were conned into 2-year loans at a decent rate that becomes outrageous after 24 months. Sometimes the blow-up rate will put the annual payments near or equal to the homeowners' annual income.

Under Bush's plan, lenders can voluntarily freeze the interest rate for 5 years if it's a homeowner's primary residence and they've made timely payments for the first 2 years. This will not help speculative buyers who got into 2/28 loans. Ironically, there are protections under bankruptcy law for spec buyers that don't apply to owner-occupied property. Clark thinks it's reasonable that there shouldn't be any coercion on lenders to freeze the rate. If the government were to try to impose its will, it would have a negative effect on the confidence of investors making loans. After all, why should an investor take on the risk if the government will just come in and decide how much money they'll be able to earn back? Some lenders would be wise to freeze the interest rate; it's a much cheaper option than having to pay to foreclose on tons of properties. Nobody wins in those situations.

Several proposals about how to handle the mortgage meltdown are floating around on Capitol Hill. But politicians are not interested in helping people because they have big hearts. The talk of bailouts is to prop up the banks and lenders -- who are big political contributors -- yet it's being done under the good-natured guise of rescuing the borrowers. Does this sound cynical? Just follow the money and you'll see what Clark means. Remember that economics is often called "the dismal science." That's because the reality is that our country will suffer if we do exotic things to keep people in homes they can't afford. Look at Japan. The government over there decided to bail out the commercial speculative real estate industry and went into a recession for 2 decades as a result. Japan is still struggling 20 years later to come out of it. That example teaches us that there must be an actual business reason to do a bailout with someone.

Clark recently spoke to a man who was just days away from foreclosure and wanted advice. But he could not give the man false hope; some people have never even been able to make their initial teaser payments. The typical homeowner who is in over his or her spends between 45 and 55 percent of their pre-tax pay on their mortgage. Clark knows of woman who has a payment that's higher than her income. What is a bank doing making that kind of loan? Either the paperwork was forged or she didn't have to disclose her finances to get the loan. The mortgage broker, meanwhile, probably made a huge commission on that deal. These ugly abuses are the reasons why the feds should not save an industry that partied too hard during the good times and now wants a helping hand. The fact that it's being done under the guise of helping homeowners is tragic. It's really about helping cronies in the mortgage and banking worlds.

Clark recently received an offer in his mailbox to get a mortgage on his house for 1.5 percent interest! It's like 2004 all over again when the weirdo loans were rampant. It turns out this is a new trend among mortgage companies. Lenders have seen the volume of business fall so much that they're getting increasingly desperate -- hence a slew of mailings trying to get you to treat your house like an ATM. Clark received a mailing from Countrywide offering $511,000 for a refinance. Meanwhile, The Los Angeles Times reports that lenders are also sending out mailings about option payment loans again. These are the kind where the balance rises over time instead of declining. What is going on here? When Clark looked closely at the first offer, he saw it was a teaser rate that's only good for 90 days. So beware that these mailbox offers can financially blow up in your face. Remember there is no free lunch. Clark wants you to learn in his school, rather than the school of hard knocks.

Clark was recently heartened that the U.S. House voted to enact truth-in-lending laws in the mortgage business. This was a bipartisan effort to avoid a federal bailout of those who are in foreclosure. But now some banks are fighting to get a veto from Pres. Bush or stop this bill in the Senate. Certain unethical lenders are opposed to fiduciary responsibility, which means that the broker would have to do what's in your best interest -- not what will put huge kickbacks into his or her pocket. Banks are also opposed to letting people income qualify based on the maximum monthly payment amount. They'd rather qualify you on the teaser rate. But we have a real problem when 1 in 5 homeowners are delinquent on their loans.

Prospective homeowners need more information to make educated choices. The American Enterprise Institute has drawn up a mortgage cheat sheet (and definition of terms) that you can use as a plain-English disclosure when getting a loan. No surprise that the mortage industry also opposes this kind of disclosure! But Clark is also disappointed that Bush is opposed to such disclosures. Clark wants to see legislation that bans brokers from putting you into bad loans for kickbacks; adopts a clear language form like the one from the AEI; ban lenders from putting people into loans based on teaser payments alone; and eliminates all pre-payment penalties.

In the latest installment of Clarkonomics, Clark examined Countrywide's decision to modify the loan terms affecting tens of thousands of homeowners facing foreclosure. The mortgage lender was one of the prime exponents of weirdo exotic loans across the country. Now 80,000 homeowners will be offered a refinance option so they can go into fixed loans and keep their payments affordable. Countrywide is not doing this out of charity. It's pure capitalism at work; lenders lose money when they foreclose. Meanwhile, sales of homes are declining. A new study shows that used homes sales have dropped to their lowest pace since recordkeeping began. There's a glut of houses on the market and the average one will now sit for 11 months before being sold. Keep in mind that much of what Clark is talking about does not affect most Americans because they're not planning to move or sell anytime soon. There's so much focus on the losers in the housing market. But the winners include buyers, particularly first-time homebuyers, and those who are very careful when buying distressed property. This latter group does not include the "Dare To Be Great" set, but rather those who stick to the fundamentals. You must buy below fair market value, know the neighborhood and have the property inspected. Be sure to know exactly how much you want to pay and not exceed it. Don't get caught in the heat of the moment if you're at an auction of distressed property. You want to buy with ice water in your veins!

The rate of delinquencies on mortgage loans is on the rise now that people who got adjustable-rate mortgages in the mid-1990s are being hit hard by interest-rate resets. This is a cyclical problem and it will probably continue through mid-2008 until it settles down again. Money magazine reports that calls to foreclosure counselors are up 1730 percent as people face massive increases in their monthly payments. Clark has advised people to call their lenders early and often if they're having trouble with their payments. Many folks have been complaining that the lenders don't want to hear it. Yet the mortgage lenders one by one are coming around and developing some workouts. A workout means that the lender will modify the terms and conditions of your loan to make payments possible for you moving forward. The lender gives up a lot of money on paper, but you win because you avoid foreclosure and can protect your credit rating throughout the process.

The Los Angeles Times reports that people who make the best candidates for mortgage workouts are those who made every payment on time before their interest-rate reset blew them out of the water. Lenders won't be inclined to help those who haven't been able to make payments from the very beginning of their loan. The second situation when you may be able to get a workout from a lender is if you've made timely payments and suddenly lose your job. Lenders will usually help you out for three months, but it's difficult to work things out any longer than that. Keep in mind that not every lender is willing to do a workout. But the smart ones will embrace workouts so they don't wind up paying to foreclose on a house they don't really want. HSBC, which was one of the big lenders of weirdo exotic loans, has been trying workouts. HSBC's model involves reset your interest rate based on a calculation of your basic expenses and how much other income is left to pay the mortgage. So Clark's advice stands. Call your lender persistently if you're in trouble. You do not, under any circumstances, want to just bury your head in the sand!

The troubles in the mortgage market are having an unexpected side-effect on renters. It all starts when people who own homes and condos that they can't sell become involuntary landlords. Those folks rent out their places while waiting for the market to recover so they can sell down the road for a profit. But what happens when an investor who buys multiple properties on spec gets into this situation? Even if those investors have tenants in their properties, they usually can't recoup all their costs when multiple mortgages come due every month. So they sometimes stop paying the mortgage on one of their properties while continuing to make payments on their others. You're going to find an eviction notice on your door if you're unlucky enough to rent at a property that's facing foreclosure. Tenants in this situation have fewer rights than if they didn't pay their rent for months.

Clark was in this situation at age 22 when he rented a condo with an option to purchase from a divorcing couple. One day he came home after playing tennis and found a notice on his door ordering him to vacate in just seven days. His landlords were taking his rent every month and not paying their mortgage. So Clark called the mortgage company's lawyer and asked for more time than seven days to vacate. He was denied extra time, but wound up working out a deal to purchase the townhouse for $36,000 with a five percent down-payment. He also got great loan terms because the bank didn't want to deal with a foreclosure. His mortgage payment actually wound up being lower than what he'd paid in rent! So out of adversity there can be opportunity. Clark still owns this property, which has been long since paid off. He's been renting it out for 25 years and it's been a cash cow for him.

Did you know that about two-thirds of all loans are not done by the lenders themselves? They're done instead by mortgage brokers. Mortgage brokers don't have the cash, but they're like the retailer who sells you a loan. Meanwhile, there's a new report out that says about half of all sub-prime mortgage holders could have qualified for good loans at good rates. So what happened? Some mortgage broker conned them into it a sub-prime loan. Washington Mutual has issued a new policy that requires brokers to tell people the truth about whether their interest rates will change, if they'll face a prepayment penalty and if the broker will receive kickbacks (aka bribes) from the deal. Whenever Clark talks to people who are in weirdo exotic mortgages, he always asks them if they knew beforehand that they'd have a prepayment penalty. You have to be sure that this is disclosed to you before the closing. WaMu is also going to call each borrower before the closing and verify that they aren't being ripped off by the broker.

The best way to protect yourself is to shop around for a mortgage. This is a huge field where many people are ethical, but there are some who engage in criminal behavior. Clark thinks two steps should be taken to help out: First, prepayment penalties should be banned. If you find out before closing that you'll be subjected to one, walk away from the negotiating table. That's what Clark did once when he was almost about to be hit with such a penalty. Second, the Department of Housing and Urban Development needs to develop a clear disclosure form to explain in plain English the details of a mortgage. Until they do it, there's a disclosure form that Clark really likes developed by The American Enterprise Institute.

Many years ago, Clark saw a bumper sticker that read, "He who has the gold makes the rules." There's a real truth to that phrase. For example, sometimes companies are so large that they get federally bailed out. That's what happened to Chrysler in 1979 when Lee Iacocca grabbed the company's reins and used taxpayer money to get things back in shape. Taxpayers (and Chrysler!) eventually benefited from this move, but Clark is never happy when a federal bailout is needed to help out a capitalist enterprise. But that's the core of the unwritten "too big to fail" rule: If a company is so big that going under would have negative repercussions on an international level, then that company must be kept afloat.

Today we have a modern variant of the "too big to fail" rule in the housing market. Call it the "strength in numbers" phenomenon. Wells Fargo -- the second largest mortgage lender -- is looking to arrange workouts with homeowners who can't make their mortgage payments. Why? Because there are overwhelming number of homeowners with mortgages in default. All the delinquencies are forcing Wells Fargo to find alternate plans. Homeowners who make the best candidates for these workouts are those who fell behind on their mortgage but now are in a position to make payments again. But beware if your loan was sold off by your mortgage lender. The rules of the sale may have stipulated that no adjustments can be made to the loan terms. You may need to get a waiver from the current loan holder -- if you're able to track them down -- to get the benefits of the Wells Fargo workouts.

Talk about kicking people when they’re down. Credit card companies are now targeting those in danger of losing their homes because of sub-prime mortgages. Imagine being a homeowner who is in trouble and getting offers for new credit cards in the mail. While you might think you’re getting a lifeline, you’re actually being thrown a cinder block. The Boston Globe reports that the credit card industry has doubled its solicitations to households in sub-prime status. The Consumer Federation of America is angry at the banks for targeting these people. So if you are in trouble and get these solicitations, look at them as a burden -- not a gift. The banks are trying to score money on your hard times. Compounding debt on top of more debt is not a path to wealth -- it’s more like rearranging the deck chairs on the Titanic. So which banks are the worst offenders? HSBC is tops, with its solicitations to sub-prime mortgage holders doubling year over year. Following closely behind is Capital One, with its solicitations up 20 percent; and Washington Mutual, which is up 35 percent.

The question of who's going to rescue the two or three million families who are facing foreclosure is the hot potato that everyone's tossing around right now. Going into foreclosure affects more than just the people who are thrown out on the street; the average home value in a neighborhood that has foreclosures drops one to 1.5 percent. President Bush has been talking about a proposal to help out. The Federal Reserve is putting pressure on the banks to come up with workouts such as changing loan terms and stretching out payment plans. All of this will help some, but many families will still be in over their heads. That's because a lot of loans may have been securitized, or bundled together into a collateralized debt obligation (CDO) and sold off by a mortgage company. The rules of the CDOs usually state that the loan terms can't be modified.

The best solution would be to help people avoid getting into loans they can't handle. To that end, the state of Illinois has come up with a plan that Clark really likes. The Chicago area is facing major foreclosure problems, so the state is now requiring candidates seeking loans with pre-payment penalties and adjustable rates to go to independent counseling and learn about the dangers of their choices. The mortgage lenders, meanwhile, are going berserk over this new rule, and they're trying to have it thrown out because many of them want to continue ripping people off with exotic loans. Clark gets worried when he hears presidential candidates talking about federal bailouts to solve the foreclosure problem. Wouldn't it be better if people were educated not to make the wrong loan choices from the start?

There are great rates on savings popping up all over the place. While the mega-banks are reducing their interest rates on CDs and savings, a lot of newfangled banks continue to offer good rates. Now there's a new player in the game: Mortgage lenders, which through their bank subsidiaries, are now offering CD rates as high as 5.5 percent. Yet with these new opportunities come hazards. Clark advises people not to sink more than $90,000 into a CD through a mortgage lender. Sure the CDs are FDIC insured up to $100,000 and your principal is always protected. But if you put in the full amount and the mortgage lender goes bust you'll lose your interest. By only putting in $90,000 you'll have your principal and interest safeguarded if the lender fails. You can find the various mortgage lenders' great CD rates through newspaper ads or online. Visit BankRate.com for more information. Clark also thinks people should ladder their CDs, which means having several CDs of different lengths going at the same time -- six months, one year, two years and five years, for example. This allows you to have access to your money every six months to a year, plus not have to guess where interest rates are headed. When your six-month CD matures, just put that money into one of your other CDs that has a good rate. That way you'll spread your money out and reduce your risk.

Have you been approached by a representative from a company called either Metro Dream Homes, POS Dream Homes or Metropolitan Grapevine promising to help you pay off your mortgage in about seven years? This offer is yet another scam that's come to Clark's attention. All you have to do is pay $5,000 and agree to give up 15 percent of your home equity! Metro then says they'll invest your money in credit card machines, ATMs and other "revenue-generating devices" and use the profits to pay off your mortgage in five to seven years. Once the mortgage is paid, you then have to give Metro half of the new equity in the home. The state of Virginia recently crunched the numbers and found that they are mathematically impossible. Meanwhile, The Washington Post reports that Virginia and Maryland are seeking temporary injunctions and cease-and-desist orders against Metro. Don't buy into the pipedream being pushed by the company.

There's a big push and shove going on right now to determine who should help out people who are in over their heads with mortgages. The Federal Reserve had issued some weak guidelines, known as workouts, to try to lend a hand. That's OK, so long as it doesn't become a federal bailout. Clark is opposed to a plan that's been floating around Congress to use federal money to keep people in their homes. This whole problem came about because lenders were greedy and/or foolish in the loans they wrote, while borrowers were also foolish for believing they could handle loans that they really couldn't. There needs to be a change in how mortgage brokers are overseen -- they can't be the Wild West part of the market anymore. Lenders and mortgage brokers should be liable, along with defaulted borrowers, if they wrote unsuitable loans just to pad their pockets. Then they'll be forced to police their own industry. Taxpayers should not be on the hook to bail things out. When more than 90 percent of homeowners conscientiously meet their mortgage obligations, why should they subsidize the others who don't?

Clark owns a mortgage that he collects payments on much like a bank would. Recently he's noticed that he is getting mail and phone calls from note buyers. These are people who are involved in the latest dare to be rich scheme. They've heard a pitch in a hotel ballroom somewhere about how you can score quick cash by approaching someone who owns a mortgage and offering to buy their note right now. They typically ask the note holder to sell his or her interest for anywhere between 70-90 cents on the dollar. Clark admits there is a very, very small legitimate business opportunity here. But most of these note-buying schemes are rip-offs.

On a related note, the median home price in the United States -- the level at which half of all homes are more expensive and half are less -- has declined this year for the first time since the feds started keeping records in 1950. Home prices are expected to get lower still in 2008 and even lower in 2009. There are some markets like Portland, Seattle and Charlotte, N.C., that are still increasing. But bubble markets such as Phoenix, Las Vegas, lots of California, lots of Florida, the Washington D.C. metro area and Boston are hurting. The only bubble market that hasn't burst yet is the New York metro area. Expect the average price of a home to decline about 1-2 percent per year for the foreseeable future. Just remember that you have nothing to fear if you're in a home and have no intention to move or sell. That being said, two million families will still be put out on the street this year alone. The only silver lining here is that the bulk of the foreclosures are not owner-occupied. They instead belong to speculative owners who may never have seen the properties they're losing. This housing "correction" is actually healthy because it will allow the country to get back to a place where home prices are more affordable to the average person. Finally, Clark denies that the media has caused the housing slump. The market is slumping because it was built on irrational loans that stretched people too far and too many houses going up on spec.

Clark's Consumer Action Center has been receiving a lot of questions about accelerated mortgage offers. People are wondering if these offers are a new kind of scam. Clark thinks "scam" is too strong of a word, but he does think this is a serious rip-off -- and he wants to show you how to avoid it! First, let's take a look at the offer. It arrives as a friendly letter inviting you to pay off your mortgage years quicker than you normally would. The deal is that you have to pay your bank or an appointed marketing company $200-$400 to set you up on a bi-weekly payment plan. It also stipulates that you'll be billed another couple bucks each time you make a payment, or alternately that you'll pay nothing up front but every bi-weekly payment will be assessed a fee. This plan will have you paying half your monthly mortgage payment every two weeks. That's equivalent to 26 half-payments in a year. At the end of year, the marketing company on behalf of your bank makes one additional payment toward your mortgage. So the end result is that you pay 13 months in a 12-month period. But because you probably paid an initial fee to set this up, the bank held some of your money all year long and got rich off the interest.

Here's what you should do instead. Clark wants you to keep making monthly mortgage payments and add one-twelfth extra in the additional principal box on your monthly coupon. So if your monthly payment is $1,200, pay $1,300 instead. That way you'll do for free what your bank wants to charge you for -- and you'll bring your principal down quicker. There's one more possible bank rip-off related to your mortgage that you should avoid. They're going to try to sell you "croak and choke" insurance -- otherwise known as mortgage life and disability insurance. It states that if you buy their policy and die, they'll pay your mortgage. But Clark sees two problems here. First, you're paying an insurance premium to protect the bank. At the time of your death, there may be better uses of your money for your heirs. So you're better off with a standard term life insurance policy. Second, the bank charges a premium that's about 10 times as much as your plain old life insurance policy. Sometimes Clark wonders where the ethics in banking have gone!

With the financial and housing markets in turmoil, people always wonder about the likelihood of a recession. While a lot of reputable sources are saying that it won't come to that, Clark has noticed that the interest you earn on a CD or treasury is actually higher for shorter-term investments. Historically, recession has followed when short-term investments like a 90-day treasury pay better returns than a 30-year treasury. In addition, the stock market may be ready for what's termed "correction" -- when it drops by 10 percent. On the real estate front, we've been binging on the housing punch bowl for years and it's starting to dry up. Normally, a home's value goes up by the rate of inflation plus a smidge more for the fact that there's a limited amount of land. So in the past a house would appreciate about three percent per year. But more recently it hasn't been uncommon for a home to appreciate three percent per month.

For example, Clark's oldest brother lives in a Phoenix suburb. He and his wife bought new construction and during the nine months it took to build their home, the value went up $100,000. Then the next year the value went up $150,000. But when Clark recently visited his brother, there were a ton of houses for sale in his neighborhood with no willing buyers. If the housing market gets ahead of itself and people can't afford anything, it has to correct. Think of the market as a ladder, where people enter on the first rung with a starter home, condo or townhouse. But when you can't even reach the first rung, the builders have a tough time selling. So the builders themselves have gotten into the mortgage business and lowered the lending standards so that people can qualify for homes that may be out of their price range. The problem is that homeowners now can't sell for close to what they owe on a loan and they can't refinance. As many as five million people across the country are in a similar situation and could face foreclosure. So where's the silver lining? Well, the long-term benefit is that when we're done with this "correction" period, homes will become affordable again for the typical family. The question is how long will this process take? Meanwhile, Clark doesn't profess to be an economist, but he does think the odds of a recession are better than 50/50.

It's no secret that the nation's housing market is in bad shape. Foreclosures in California are at an all-time high, and the market is equally hurt in Nevada, Arizona and Washington D.C. How did we get in this mess? Well, after 9/11 people became nesters and saw their homes as safe harbors. The tech bubble in the stock market had just burst and people psychologically started clinging to "real" estate in the tangible form of their homes. The home improvement industry enjoyed a surge in popularity as a result. But in the middle of it all, the standards for home lending fell apart. People with bad credit who had no money got horrible loans with low teaser payments that were like ticking time bombs. After two years, there was a huge increase in the mortgage payment and they could no longer afford it. Foreclosures started to become more common. There was a false demand for houses, and speculators bid up the prices. Also, all speculative buyers used to have 30 percent down. But that requirement was relaxed during this time, too. Clark says he knew we were in trouble when he started hearing about people buying houses they'd never seen and property in states they've never visited.

Thankfully, the teller window is now closed for people with bad credit and no money down; those who can't document their income; and those who want to buy on spec with no money down. Clark thinks this a good thing. He's just amazed that now the feds are starting to make noise about wanting to ban these kinds of lending so late in the game. Capitol Hill wants to make it so that when you take out a loan, you have to get an explanation of all the details in plain and simple language. But the funny thing is that the feds aren't considering making hard-and-fast rules -- just some proposed guidelines. Well, the American Enterprise Institute beat them to the punch by drawing up a mortgage cheat sheet (and definition of terms) that tell you exactly the right questions to ask of your lender. Clark really likes the AEI's version because it helps homebuyers avoid getting ripped off. He also thinks it's so much easier to understand than the feds' guidelines.

It's no secret that right now it's a tough time in the housing market for sellers and a confusing one for buyers. If you're selling and you have a lot of foreclosures in your neighborhood, you've probably noticed the value of your home declining. And if you're buying, you're facing a variety of exotic weirdo loans with adjustable interest rates, option payments and more. But relief may be around the corner in a market phase called capitulation. Look at markets like Denver, Salt Lake City, Houston and Southern California. These are all places that suffered through a bad real estate depression, but recovered and thrived. How did they make a comeback? Well, the ultimate measure of whether or not a real estate market will thrive is job growth.

It's also important to remember that the mortgage market is not a monolith and some segments are already in good shape. For those with decent credit seeking a conventional 15, 20 or 30 year loan, the rates are now lower than they were just a few weeks ago. What it comes down to is that a lot of speculative markets had bubble growth and it will take time for them to unwind. So if you're considering buying a home before the year is out, you may want to just wait a little bit longer until 2008. Likewise if you're in a cold climate, once winter comes there will be more opportunity, according to Clark. Think of the push toward capitulation like a baseball game; right now we're in the third inning of a nine-inning game, Clark says.

There are now new rules about mortgages in place after all the problems with the "fake-a-bake" loans that poisoned the marketplace. "Liar's loans" (also called Alt-A loans) will now be stopped. "Liar's loans" got their name because you didn't have to prove anything about your financial situation to the lender. You paid a little higher interest rate and the lender just gave you a wink and a nod to whatever you said about your bottom line. Meanwhile, there are new laws for sub-prime loans now in place. In the past, lenders had fake opening rates so that people could qualify initially, but then they would reset at a higher rate forcing homeowners into foreclose. In fact, one in five loans made to people with damaged credit is now in delinquent status. So now, thankfully, the banks have to actually qualify people based on what the rate will become after the low introductory period.

Clark would like to have seen the regulators do even better by saying that people would have to qualify based on what the highest possible rate could be -- but the banks would have balked at that model. The result of the new regulations is that people will be qualifying for smaller, less expensive homes now. This is a good thing; people are not helping themselves by being forced into foreclosure and being put out on the street. Lenders now have to make sure that the loan makes sense for the customer. Another alternative is the one presented by Bruce Marks and the Neighborhood Assistance Corporation of America. The NACA makes loans to people only after they've saved money for a year to demonstrate that they can handle their mortgage. It's almost like being on probation. Say for example your rent is $800 and the home you want to buy will have a monthly payment of $1,200. You've then got to save $400 every month to prove yourself ready for a loan from Marks' organization. NACA rates are often three-quarters of a percent below the standard rate.

Many Americans are behind on home mortgages and millions are now facing foreclosure in the next year or so. That situation creates the opportunity for a scam called "equity stripping." Have you ever seen those signs on the side of the road that say something along these lines: "In trouble with your home? Avoid foreclosure! Call now!!!" With equity stripping, you essentially sell your house to a company or individual who then pays the mortgage. They'll often let you stay in your house until you can get back in financial shape. You also sign a contract stating that you'll later be allowed to buy back your home for a nominal fee -- sometimes as low as $5,000. Here's where the real scam begins. The person or company who was "rescuing" you from foreclosure turns around and borrows up to the full amount of hard-earned equity that you put into your home. Then they disappear with the cash in their pocket and an eviction notice goes up on your door.

So if you are behind on your mortgage payments, you can't rely on anyone other than yourself. Keeping an open line of communication with your lender and wisely juggling your financial commitments are the keys to avoiding foreclosure. Go back to your lender and work out a payment plan that allows you to keep your home. If you've already approached your lender once and been turned down, get in touch with them again. Stay in constant contact. Finally, you have to re-prioritize your bills. Your mortgage should be at the top of your list for paying every month -- even if that means putting other commitments like your credit card on hold until later.

The real estate market around the country is in the doldrums. The number of homes for sale increased in May, which is unusual, since most people prefer to move in the summer. If no other homes went on market, it would take 9 months to sell all the homes currently out there! Plus, the cost of a mortgage is more expensive than it was, with interest rates rising. In reality, it's not that homes aren't selling - 6 million a year change hands - it's just not a good time to be a seller. If you're a buyer, there will be some real deals as people slash prices. Home prices are down about 2% from a year ago. To balance this, builders are reducing the number of homes they're building, and people are choosing not to put their homes on the market right now. If you simply have to sell, one thought is to do what lots of people are doing, and rent the place out while you wait for the market to stabilize. This isn't an option for many condo owners, as some have rental restrictions, and the rent you would get generally doesn't cover the cash outlay per month. So now is the time to buy condos, since the market has fallen out under them. In general, the real deals on single family homes will be coming this fall and into 2008, as we move out of the prime summer selling period. This winter will be especially friendly for buyers...but not for sellers.

When you get a mortgage loan, you sign a lot documents--good-faith estimates, a truth-in-lending statements, settlement statements, and more. You'll sign other documents to protect the lender against future claims that you didn't fully understand the terms and conditions of the loan. And worse, you'll be asked to sign a power of attorney authorizing the lender (or the title company) to make corrections should errors be found later. One of the reasons people get so rooked on mortgage loans is because the paperwork is so fouled up. The mortgage industry has fought efforts to have clear disclosure to you when you're taking out a loan so you'd know exactly what the terms were. Why? Because the industry makes a lot of money by cheating you by having the paperwork as confusing as possible. So the American Enterprise Institute came up with a form that they'd like mortgage lenders to use, but instead, YOU use it. There are a series of simple fill in the blank questions that you should require the lender to provide to you, then you'll know exactly what your loan is. And it's very easy for anyone to follow, even for first time home buyers. You can download and print the form here. And if you're not familiar with mortgage terminology, here's a clear definitions of terms, stating the essentials of the loan in simple English.

When you are shopping around for a home loan, watch out because you can be ripped off for thousands if you’re not careful. In some instances brokers write in exorbitant fees that come out of your pocket. Sometimes the lender pays a kickback to the mortgage broker if he writes a higher than necessary interest rate for you too. If you do not shop the mortgage market you stand the chance of getting ripped off. You should comparison shop multiple lenders. You want to pay 0 points as well. These are hidden fees that you shouldn’t have to pay. If your points are 0, then look at the interest rate and the closing costs. One other thing to check out is that there is no prepayment penalty. You have to play tough though so you don’t get confused by the mumbo jumbo and sign something you shouldn’t.

If you’ve fallen behind on your mortgage, as many people have, you could fall pray to people who want to take advantage of you. Quite often, companies who claim they can “rescue” you are actually out for your money and could put you in more harm. These are the companies whose workers say they will take over your payments to help you out. But what ends up happening is they either put a tenant in your place or live in your home themselves, and they never make a payment. Don’t get into this bind. Talk to your mortgage lender. They want to hear from you and work something out. They don’t want to foreclose on your property. Then, they have to take on the payments, the maintenance of the home and the insurance. Some lenders are calling homeowners who aren’t paying to try and negotiate how you can stay in your home. So, if that call comes in, take it. You and your mortgage company have the same interest, so level with them. And remember to pay your mortgage. Don’t worry about paying your credit card companies until you’re back on your feet. Consider your basic needs first – food, shelter, and clothing.

Mortgage lenders are laying off thousands of employees because of the slump in the housing market. Mortgage lenders are still looking for customers, though. They’re pulling out all the stops to lure you in and that includes lowering your interest rate and getting rid of points. Clark never wants you to pay points, so always check on that. The other accelerating trend is the growth of “guaranteed closing costs.” This concept started off as a whisper, but it’s growing much louder. Soon, you’ll see signs that say, “closing costs not to exceed $500.” And offers like that soon will be common in the lending business. Just be sure to always pay attention to the rate, the points and the closing costs. There is one con job of which you want to be aware. Crooked lenders will tell you there are no closing costs, but they’ll jack up the balance on the loan instead. The balance going into the refi should be the same after the refi. With a refi, you always have three days to rescind the offer, so look at these details carefully.

For the past few years, Clark has been pulling his hair out over the number of people taking out “option payment loans.” Unfortunately, they are one of the most popular loans out there because people don’t know enough about them. They just hear about the ultra low monthly payment they’ll have. Lenders convince people to take one out because of that low payment. But what they don’t tell you is that your balance will go up over time instead of going down. That’s because no money is going toward the principal of the loan. In addition, the rates on option payment loans skyrocket over time. Banks and lenders love these products because they make so much money off of them. But it’s poison for your wallet. Federal regulators have been freaking out over these loans because so many people are at risk of foreclosing on their homes because of them. New federal rules require that lenders disclose all of the terms of the loan to you, not just what the monthly payment is. In addition, the bank must make sure that you can pay the loan. Stick with regular, vanilla loans that are legitimate. Clark is referring to 30-year, and 15-year fixed loans or 5-1 and 7-1 ARMS. Make sure you know what you’re getting into before you sign the paperwork.

Clark is stunned by new data out about mortgage loans that have been popular over the past few years. These are the “interest only” and “option-payment” loans you see ads for on late night television. With option payment loans, you can only pay the minimum or you can pay more. But most people just pay the minimum, which doesn’t help cover the cost of your loan. So, each year the loan amount goes up instead of down. More than half of loans out there today are option payment loans, according to syndicated financial writer Kenneth Harney. Your only hope is that the home value will go up, but that is not safe or smart. People kid themselves by taking out these loans. They want a bigger home so they tell themselves that they will pay more or that the value is bound to go up. The safe loans out there are 30-year fixed and ARMS that fit with your schedule. Yes, these are boring loans, but they are safe. If you can’t afford the payment for a home using one of these loans, you need to buy a smaller home.

Foreclosures in Boston are up 30 percent in the past 90 days and have doubled in the past two years, according to The Boston Globe. Part of the reason is that people are taking out risky loans. One of them is the 40-year mortgage, which now accounts for one in 20 home loans in the country. What’s worse? There is now a 50-year mortgage out there. Why are these bad news? A higher interest rate because the risk is higher and massive amounts of additional interest in return for a tiny drop in payment. The truth of homeownership is cold. If you can’t afford the payment on a 30-year fixed rate loan, you should buy less house. Be smart.

Clark has two nuggets of news to share with you on your mortgage. The first is that foreclosures are skyrocketing. Secondly, there are all kinds of wacky loans out there that can get you into serious financial trouble. One of the worst is a 45-year loan. That’s crazy! But there are good options out there. The hottest one right now is from ING Direct. It’s only around for a few days, but it’s a 5/1 ARM with no closing costs. It’s 5.75 percent and it’s fixed for 60 months. It’s not a good choice for people who plan to stay in a home for a long time. But if you’re only going to be in a place a few years, it’s perfect for you. And it’s a way to ditch what Clark calls “fruit loop loans.” Those include LIBOR loans, interest only loans, 11th District cost of funds loans and others. So get out!

Clark’s blood boils every time he hears about people getting ripped off on mortgages and closing costs. It happens a lot because there are a very small group of honest workers in a large pond of scum. A wave of reform is emerging in the business though. Companies are playing fair and square with their customers and are even helping coach people through the process. You’ll know these companies because they guarantee the closing cost amount in writing. That is your first step when trying to find one of these companies. ABN-AMRO, eTrade, eloan, DiTech, and Priceline are just a few of the organizations that are offering customers a fair deal. Secondly, you must compare interest rate, points and closing costs from lender to lender. It’s not just about the interest rate. Clark prefers that you not pay a point, but that is up to you. You must also decide what kind of loan you want – fixed, variable or other. The best loan in Clark’s opinion is a fixed rate for 15 or 30 years. But if you’re not staying in the home that long take out an ARM for the amount of time you think you’ll be there – 3, 5 or 7 years. Figure out what you want and then no one can play games with you. For help, check out mtgprofessor.com

Clark has worried about his TV producer Laura because of the fact that she has an interest only loan that fluctuates a lot. Laura has been okay with it because it has not risen very much and it’s allowed her to put more money toward the principal in the home. Most people who have these kinds of loans aren’t able to do that. They’re barely able to make the payments and are sitting in a very bad position because rates are going up. The good news is that interest rates on fixed rate mortgages have dropped some. Both 30-year and 15-year fixed loans are below 6 percent if you have good credit. If you’re in a “Laura loan” right now, you have the opportunity to get out and lock in a great rate with no future worries. On another positive note, several federal agencies have established new rules that require banks to qualify you on worst case scenarios only. Lenders foolishly lend money to people who are foolish enough to take out the money in the first place. If banks fail as a result, law abiding taxpayers are on the hook for the losses. That’s why the federal agencies have issued these guidelines to lenders, and Clark thinks it’s great.

The mortgage business is so confusing these days that people wind up in risky or inappropriate mortgages just because someone told them to. Freddie Mac learned that roughly one in five people who ended up in high-cost loans had no business being there. They would have been perfectly suitable for prime mortgages, meaning mortgages that are at market rate. They either didn’t comparison shop at all or they were swindled by someone telling them they didn’t qualify for one. Don’t take one person’s quote on a loan. Get at least three. Another problem is that people sign up for mortgages with pre-payment penalties. Lenders slip these in at the last minute when you’re at the closing table. But you have the right to see your closing documents – also known as the HUD1 statement - the day before closing. So, be sure to ask for it 24 hours in advance so you know what’s going on. If everything doesn’t look right to you, walk away.

The American people have been taking on a huge level of mortgage debt in recent years. The amount of debt has gone up by about 70 percent in the past five years, yet home values haven’t gone up nearly that much. It means we’ve been taking on large amounts of debt, and it’s the wrong type of debt. Two out of three dollars is floating rate debt instead of fixed rate, according to the Mortgage Bankers Association of America. Part of the problem is that people are taking out risky, interest only loans and creating risk for themselves. The only time it makes sense to take out these exotic loans is if you plan to be in a house for a very long time. And, even then, you may have to pay a pre-payment penalty. It’s simple to borrow for a home in ways that make sense. There are 5/1 ARMS and 7/1 ARMS, which give you a fixed rate for 5 or 7 years. These are the only safe product for a short-term residence. And, don't sign up for 40-year loans, which are all over the market today.

Clark’s next book, Clark Smart Real Estate, is slated to come out next year, and the section on financing has grown by leaps and bounds. That’s because financing a house is such a difficult and risky task these days. The Department of Housing and Urban Development proposed regulations that would require mortgage companies to tell you the truth about every fee and charge on your bill. But banking lobbyists worked the halls of Congress and got them to turn HUD away. You need to cut through the clutter when you’re getting a mortgage because companies will try to rip you off. That is especially true for black borrowers. Recent investigations show that lenders rip off black homebuyers more often and other groups. It’s disgraceful and wrong. If you are black, you need to know about this and be prepared. Lenders are telling you that your credit is not sufficient enough to get a loan and you have to take on a high-risk loan with higher rates. So, before you buy a home get copies of all three of your credit reports and your credit score, so you are prepared. You can do that for free now at annualcreditreport.com.

There has been an unexpected change in mortgage rates over the past few weeks, and people in interest only loans and other variable rate loans need to pay attention. If you’re going to be in your house for any period of time, this is very important. Because of some surprise movements in marketplace interest rates such as the 10-year Treasury, interest rates have gone down. If you’re buying a home, for instance, interest rates are great. If your credit score is solid, you can get rates between 5.12 and 5.5 percent. On a 15-year loan, you’ll find 4.75 to 5.12 percent loans. A 5/1 ARM is also a consideration. Rates on those loans are usually 5.25 percent. So, it’s possible to get great rates on refinances right now.

More and more mortgage loans have prepayment penalties hidden in them these days. When should you open a loan with a pre-payment penalty? How about never! Mortgage brokers get a kickback if they slip a pre-payment penalty clause into the loan for the lender, and you have no idea. The most underhanded and lucrative for brokers are called “hard-penalty clauses.” That means that no matter what happens, you have to pay the huge pre-payment penalty. If you sell your house or lose your job, for example, you have to pay the penalty. Brokers get a smaller kick back if they sneak in a “soft pre-payment penalty.” That means if a better deal comes along and you refinance, you must pay. Clark went through some pre-payment penalty in 2001, when he bought some property. He told the lender that he would not do a pre-payment penalty loan, and the day before the closing he requested the settlement statement. After several attempts, he got the statement and, sure enough, there was a pre-payment clause in the contract. So, he refused to close. Be extra wary and extra aware, and be sure you read the fine print. Look beyond the rate and terms listed, and tell a lender you don’t want a loan with pre-payment penalty.

People take many risks in the real estate industry these days, including taking out something called “payment option mortgages.” These mortgages allow you to pay your loan as if you’re paying a 1 percent interest rate, even though the real rate is much higher. So, you’re not paying anything off and you end up owing substantially more money on a house than its worth. Standard & Poors (S&P), a rating industry, agrees that these loans are risky. These loans are often sold as investments, and people who get involved consider them investments. Really it’s just speculating and it could blow up in their faces. If you have one of these loans, you have the option to make a real payment – and you should! Taking out a loan that grows instead of shrinks each month is dangerous! And you need to correct what you’ve done.

When you close on a home, you may have noticed that the closing is completely confusing. There is more paperwork than you could have ever expected, and it’s very cryptic on top of that. The Department of Housing and Urban Development tried to make it mandatory for lenders to tell consumers exactly what they would charge them and why. The idea was to help consumers choose lenders that are above board. So, is it working? According to bankrate.com, some lenders are very upfront about how much it will cost each customer while others “bait and switch” people all the time. The lending industry, of course, is opposed to having uniformity. So, HUD still has to fight to get this law to work. Just remember that, for now, it’s up to you make sure you’re with a legitimate lender. You do that by watching a lender’s actions and how often the lender does what he or she says. ING Direct, for example, posts closing cost information on its Web site and there is no wavering from there. Several people on the staff have had mortgages with ING and they have paid exactly what the company told them. So, why can’t other companies seem to give a definitive quote? It seems only fair.

People are taking out all kinds of adjustable rate mortgages these days, and it’s hard to keep them all straight. As interest rates move up, consumers must remember to be careful with these loans because the rate can suddenly shoot up. It’s also important to remember that if you’re refinancing, many of these loans have pre-payment penalties. About 60 percent of home equity lines or and 40 percent of home equity loans now carry pre-payment penalties. So, if you pay off the loan, you get stuck paying a fee. These penalties are often in mice-type hidden somewhere in the paperwork. So be sure to ask your lender and do your homework before you open one of these loans. Also consider whether it’s a good idea to buy an adjustable loan. Rates are moving up, and fixed-rate, long-term loans are much safer and smarter in the long run.

You may have seen the ads from Ameriquest in Sunday’s Superbowl. Many of them were ranked the funniest ads of the game. Well, they may have funny ads, but what the company is doing with customers’ mortgages is not humorous at all, according to the L.A. Times. There are now lawsuits in 21 states alleging Ameriquest was involved in bait and switch schemes, forging documents and the allegations. The company declined to comment for the story, according to the paper. Whether it’s true or not, there is a lesson here. Never take your home mortgage lightly. It is the most important decision you’ll make, and you want everything from your lender in writing. Other companies have been accused of the same shenanigans, so you must be careful. The industry is open to abuses, and it’s up to customers to protect themselves.

The Federal Reserve has raised interest rates again, which means that the prime rate is going up and credit card rates will most likely go up. Home equity loans will also go from 4.5 to 5.5. percent, and that rate will slowly increase. At the same time, something strange is happening. Typically when the Feds raise interest rates, other rates go up too. Mortgage rates, for example, typically go up with interest rates go up. But that has not happened this time. Home mortgages have gone down, not up. So, a 30-year fixed rate mortgage will now be about 5.25 percent. A 5-1 ARM will be about 4.75 percent at the most. So it’s a good idea to “go long” as they say. You fix your costs at a lower rate than you can float your costs. So, those with floating rate credit cards should do what they can to pay down their debts. And, if you’re in an ARM, think about getting out and shifting to a fixed loan.

When Clark gets a call from a listener about buying a home, he always asks how long the person plans to own the home. It’s even more important to ask that question about condominiums because most people buy them as transitional or short-term thing. The truth is that in order to make it a smart decision, you should look at the purchase of a home as a five-year deal. That’s because the transaction costs for buying and selling the home are so high that you want enough appreciation in the home to make it worth it. But a detailed analysis in the Wall Street Journal shows that the five-year rule is not valid in certain markets around the country. It’s in areas where housing values have gone up so much that they have outstripped peoples’ incomes. In those markets, the study shows that people need to own their home a minimum of seven years, if not a decade. The states include Washington D.C., California, Rhode Island, Massachusetts, New Jersey and New Hampshire. History has shown that in areas where real estate values shoot up, they typically fall hard after that period is over. The higher they go, the harder they fall, as the saying goes. So, if you’re in a growth market, consider owning a home for at least a decade. The cities to focus on are Boston, Denver, Seattle, L.A., New York, San Diego and San Francisco. Over time, the longer you’re in real estate, the safer you’ll be.

In the refinancing craze of last summer, Clark had to ration the number of calls he took on air about refinancing because there were so many. Many of the calls were from people who thought they were being taken advantage of by lenders. Others had been told they would have “no closing cost” refinances and then ended up getting charged closing costs at the closing table. It's a fact that the loan industry has been allowed to operate in a “wild west” atmosphere for a while, and consumers have been powerless to do anything about it. The good news is that the Department of Housing and Urban Development has been working on regulations that will require banks to be honest with you going forward. Banks have been using every political contribution to try and kill off proposed regulations that would protect you when doing a mortgage refinance. But in the midst of this full court press by the big banks and lenders, several above board lenders have been offering legitimate "zero closing cost" loans and “stated fee costs.” What it means is that lenders tell you they will charge you $500 to put together your loan, and that is what they charge. ABN-AMRO, eTrade, eloan, DiTech, and Priceline are just a few of the organizations that are offering customers a fair deal. They are going to take more marketshare by doing this, and it’s a great opportunity. On the issue of doing a “no closing cost” loan, it does exist. Lenders charge you a little higher rate to make up for not charging closing costs. But they do exist. Kevin, of our crew, just confirmed a “zero closing cost” loan with his lender after trying several lenders.

Interest rates on mortgages have taken a huge dip, creating a second chance for people who would still like to refinance their mortgages. About a third of the refinances that were done last summer and fall were “no-cost refis.” This means you accept a higher interest rate in exchange for paying no closing costs. And, right now you can get a 15-year no-cost refinance for about 5 percent. That’s if you have a good credit score. If you have to do a 30-year loan, the rates aren’t as great but they’re still good at about 5.625 or 5.75 percent. So, if you have a mortgage rate of 6 percent or above, you have the opportunity to put additional money in your pocket without a risk. And, if you plan to be in your house for 3, 4 or 5 years, you might want to consider doing a 5-1 ARM. That’s when the rate is fixed for five years. And right now, 5-1 ARMs are between 3.875 and 4.25 percent. That’s a great deal. These are also great opportunities if you’ve been skating on thin ice with a LIBOR loan. Although it's a pain to pull together all of the paperwork and do this again, it's definitely worth it. You will save several thousand dollars a year, after all.