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.

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.

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.