A lot of Americans are afraid to buy homes right now. It's no wonder that people are skittish about jumping from renter to owner when you think about the constant barrage of "housing crisis" headlines. Clark wants to offer some "tools of trade" so you have a better feel for when you should venture into the marketplace.

First off, the foreclosure rate (through March 2008) is up about 60% over a year ago. The numbers got ugly during August of last year and peaked in March. 700,000 people were put out on the street during that month alone.

Right now people are even frightened to touch foreclosures -- along with "people problem" houses. But that's a mistake. If you can buy well below fair market value, that will protect you on the downside.

Looking for a sign for some guidance? Wait until the rate of foreclosures declines for 4 consecutive months. It's going to be like waiting out a fever that has peaks and valleys. You want to see that fever has broken substantially before you buy. Clark will let you know on the air when that happens.

They say all real estate local, but there are some unprecedented national trends that helped foster the housing slump. First, there was the idiotic lending that created more of a demand for housing than is natural. Second, the Federal Reserve had artificially low interest rates that created further demand. (Yes, Alan Greenspan is a human being, not a god!) Finally, there were bubble markets in the spec states of Florida, California, Arizona and Nevada.

The bottom line is that even though the cycle is still playing out, there's already opportunity out there for you.

One final note: Loan underwriters Fannie Mae and Freddie Mac have set up penalty systems for those who mail back the keys and walk away from a foreclosure. Fannie Mae will penalize you for 5 years, Freddie Mac for 7 years. With Fannie, however, you may get out of the penalty box after 36 months if you have certain extenuating circumstances.

So just because you go into foreclosure, it does not mean you'll never be able to buy a house again.

Clark recently read an article that took a unique angle on the foreclosure epidemic. The Wall Street Journal reports that animal shelters are being overrun with pets that are abandoned when families face foreclosure and have to leave their homes.

Meanwhile, Maryland has passed some tough legislation aimed at correcting the mortgage crisis. First, they've moved to eliminate pre-payment penalties. The federal government will say you can't do that, but Clark is in the support of the state on this issue. He hates pre-payment penalties, which are often attached to sub-prime loans. Second, Maryland has criminalized the kind of lender behavior when they write loans that they know you can't pay. Of course, this won't help out the millions who are already in a rough spot. Finally, they've also criminalized mortgage rescue fraud. That's where elders are conned into sub-prime loans on houses that may already be paid in full. Seniors sign over a house in return for a promise that they'll be allowed to live there until they die. Then they get an eviction notice several weeks later.

Clark is pleased with Maryland's actions, but where are the feds on these issues? Where's Eliot Ness? The sad fact is that the president himself appointed Roland Arnall -- a guy who made a killing on sub-prime loans with his company Ameriquest -- as an ambassador! Meanwhile, Christa recently read a Boston Globe story about a mortgage broker who was apprehended after hiding out in a hotel. This particular broker fabricated tax returns and falsified bank statements to help people get jumbo mortgages. Oh, how the mighty have fallen!

401(k) plans are in reverse right now. No, Clark's not talking about that massive decline in your quarterly statement. That's simply the give and take of stock investments. Hopefully you're continuing to contribute to your plan. That will soften the blow by allowing you to buy more shares at a lower price.

The reversal Clark's talking about has to do with people trying to put out fires by turning to their 401(k) accounts as piggybanks. Merrill Lynch reports a 23% increase in 401(k) withdrawals year over year. Great-West Retirement Services, meanwhile, has seen a 20% rise in hardship withdrawals when people are facing foreclosure.

People often ask Clark if it's wise to avert foreclosure by dipping into their retirement savings. He usually recommends against this action. As strange as it sounds, sometimes the best option is foreclosure. Think about it: If you wipe out your 401(k) to avert foreclosure and then 6 months later you face it again, well, you haven't really solved the problem. You've just made things worse. You've cleaned out your retirement savings and you'll owe massive taxes and penalties of about 40% when you do next year's taxes. And you may not be able to avoid foreclosure a second time. So then you'll have no home, no retirement savings and you'll owe a great deal of taxes.

Clark's advice is slightly different if you're just getting back on your feet after a layoff or a medical issue. A 401(k) loan may make the most sense if you'll again be able to service the mortgage comfortably in the near future. But if you're barely keeping your head above water, a hardship withdrawal makes no sense. So if you're trying to catch up on an adjustable-rate mortgage; if you face a ballooning balance because of an option payment loan; or if you bought at market peak, you might be better off letting the home go. Finally, don't ever let a medical bill collector intimidate you into doing a hardship withdrawal. A 401(k) is not a piggybank to be raided; it's there to fund your retirement.

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: The Senate has reached a bipartisan deal for a mortgage bailout of those facing foreclosure. The vote was 94-to-1, with Jim Bunning (R-KY) being the only person to vote no. We're being told this new measure will help ailing homeowners, but it's really another bailout of the banks. We are the ones who will be paying through tax dollars to subsidize lenders that wrote bad loans.

The mortgage industry asked to be allowed to correct itself, and Bush was very happy to launch the Hope Now initiative with that in mind. The Commander-in-Chief was told that calls to this helpline were being answered in about 30 seconds, but a New York Times reporter experienced wait time of an hour before giving up. The kind of help Hope Now is promising should instead be coming from the private sector, Clark believes.

The penny-pinching guru applauds a Maryland plan to require that homebuyers go through independent counseling before taking on a high-risk loan. Such a plan would reduce the number of people getting into trouble with sub-prime loans. As often happens in capitalism, the pendulum swung too far toward idiotic lending. Buyers and lenders were both at fault. Clark just worries that the 85-90% of us who do pay our mortgages every month will have to subsidize everybody else. He can't support that.

It's important to realize things correct themselves with time. USA Today recently reported on entire neighborhoods in Denver going dark because of foreclosures. In the short term, that's a disaster. But look back to Houston in the late '80s. Several neighborhoods hit hard by foreclosures became ghost towns. Eventually Houston recovered and those neighborhoods are now alive and well. The same will happen in Denver. Time heals excess.

Here's a caveat, though: In the Midwest, Ohio and Michigan, the foreclosure problem is compounded by labor market problems. These neighborhoods may not come back because of lack of future job growth. One Ohio community is even bulldozing boarded-up houses and building parks.

CLARKONOMICS: Treasury Secretary Paulson is still trying to recover credibility after the Bear Stearns debacle. Now he's launched a campaign to reorganize who's regulated by the government and how they're regulated. Bear Stearns and others were using borrowed money to make bets that brought in huge profits during prior years. Then when the bets failed, they whimpered like hurt animals and went running to Uncle Sam. After all, there were the costs of yacht rentals, vacation home mortgages and country club memberships to pay…boo hoo!

The problem is that Bear Stearns was bailed out with taxpayer money. Meanwhile, the Federal Reserve has been lowering interest rates unconscionably, which destroys the value of our dollar and our financial status in the world. We'll be paying for years to come for the excesses of the banks, brokerage house, et al. Next up, look for the push and shove on Capitol Hill as our elected officials tackle the issue of moral equivalency in deciding whether or not to offer bailouts to ordinary homeowners.

But where there's distress, there's also opportunity. Have you heard about the foreclosure tourists in Southeastern Florida? These are mostly European investors who are flying over here and hopping on buses to go around looking at foreclosures. If they see something they like, they use their strong Euro currency to get a steal of a deal. This is also going on in the Washington, D.C., market. Clark does not believe we should use taxpayer money to bailout those who are facing foreclosure. Meanwhile, this trend of foreclosure tourism underscores the fact that there's real opportunity in the second home market. The National Association of Realtors corroborates with news that vacation home sales are down by a third.

CLARKONOMICS: Think the economic news in the housing sector is abysmal? There just might be a money-making opportunity in it for you. By now you've probably heard that the average price of a house is down 11.5% over last year. Of course, some areas like Charlotte, N.C., actually saw an increase! But the majority of places are seeing values on the wane. Miami and Las Vegas are among the hardest-hit areas. Then there's the news about foreclosures. The rate that properties are being foreclosed upon is not keeping pace with the rate that buyers are snatching them up. There's more supply and less demand. So there may be opportunity here for investors. Banks are over-run with REO properties and the Dare To Be Great believers who got burned are out on the sidelines. The worst-case scenario is that you might buy now and prices could drop even more. But who cares if you're in it for the long haul? Remember Clark's rule of thumb: Buy 20% below fair market value for homes and 30% below fair market value for condos. Just be wary of buying investment property in areas like Michigan and parts of Ohio where economic growth is not happening because of declining population, decreasing job availability, high taxes or strong unions.

CLARKONOMICS: A new report analyzing markets that were most affected by foreclosure in 2007 finds that the Detroit metro area is at the top of the list. The top 100 markets saw a 78% increase in foreclosures in a year. While Detroit is up 68% by comparison, Motor City has a whopping 5% of homes in foreclosure right now. At No. 2, we have Stockton, CA, with just under 5% of homes in foreclosure. Rounding out the top 10 is Las Vegas; Riverside, CA; Sacramento, CA; Cleveland, Ohio; Bakersfield, CA; Miami; Denver and Ft. Lauderdale, FL. Rounding out the top 20 we have Atlanta; Akron, Ohio; Memphis, TN; Fresno, CA; Dayton, Ohio; Oakland, CA; Warren, MI; Indianapolis, IN; Toledo, Ohio; and Orlando, FL.

Many of these markets like Detroit, Akron, Dayton and Toledo were never part of the housing bubble. But now they're a part of the bust -- thanks to poor job markets. Atlanta didn't bubble either, but it was front and center in the sub-prime mortgage mess. Most of the other cities listed above were bubble markets. It could be 10 years before equilibrium comes and housing stabilizes. Those who bought in a bubble market during the last 36 months will really feel the crunch the most.

You have to look back to the dot.bomb era to get some perspective on the housing slump. The tech craze pushed the NASDAQ over $5K some 8 years ago. Right now it's $2.3K -- still worth less than it was at its peak all these years later. That's because the peak was artificial, but the decline was real. The housing crunch will not be this dire because the run-ups were not as steep as with the tech stocks. Think about it: The tech loss was $7 trillion, while the housing decline could be $2 trillion -- less than 1/3 of the tech bust. So the overall housing picture is not as bad as it was with the tech bubble.

Meanwhile, The Wall Street Journal reports that the banks are working the White House to get a federal bailout for themselves, at the expense of taxpayers. It is not our job to bail out banks and brokerage houses that made idiotic sub-prime loans. Clark vows to be all over this story to help protect your wallet.

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.

We track the calls that come into our show and the Consumer Action Center. There's been a shift during the last 30 days from calls about debt and credit questions to calls about the housing market. About 35 percent of your questions now deal with this latter topic.

In some of the most speculative markets in the country, a much larger percentage of homes than previously thought were owned by speculators who never intended to live in them. This is referred to as occupancy fraud. What happens when these homes go into foreclosure? Usually, an increase in foreclosures equals an increase in demand for rentals. As people get displaced, they have to have to go somewhere. But in this case, the normal cycle of displaced demand is upset because the foreclosed houses were ghost residences. This end result is that housing recovery in spec-heavy markets will take longer to happen and the decline in values could be deeper than anticipated. The Wall Street Journal reports that Nevada, Arizona, Colorado and Florida will be hardest hit by this trend.

Meanwhile, homes in Michigan and Ohio are very inexpensive, but for good reason. Both states have declining job markets. Sure you can steal a deal, but where are the jobs? Some builders have responded by offering price protection. Always remember that housing is cyclical and will recover. What makes the occupancy fraud scenario different is the combination of spec building in oversupply and the dangerous lending that fueled it. So it's going to take longer to work off the excess in many places.

The media is full of heartbreaking stories about foreclosures and families getting thrown out on the street. As an undercurrent to that, the "Dare To Be Great" schemes promise to show you how to profit from the foreclosure trend. Clark has been buying foreclosures since 1978, along with "people problem" houses. Yesterday he closed on another one. As he walked through the property, it really struck him that this house was someone else's hope and dream; it was new construction that was lived in for just 6 months.

Clark bought this foreclosure much like he did the other 4 he's picked up over the years. He never buys on the courthouse steps, but rather only goes after REOs (real-estate owned properties). Basically, he waits until the lender takes the property back and then buys from their inventory. His rule of thumb for single-family homes is to always buy 20 percent below fair market value. When it comes to condos, the number bumps up to 30 percent below fair market value. Remember that you'll have to pay for multiple repairs to the distressed property. So all this "Dare To Be Great" stuff about buying for mere pennies on the dollar is malarkey.

Clark also wants to address some recent critiques about him being, as one man put it, too happy about dancing on people's graves. He has nothing to do with the fact that the previous owners couldn't pay their mortgage. It was the bank who put them out on the street. At that point, it's like buying any other investment. Remember the best money is made when everyone else is afraid. Zig when others zag. The best deals over the next 1-3 years will be in second-home communities including resorts, beach communities and mountain communities. When there's not enough money for all the bills, a second home is way down on the list of priorities behind a primary residence.

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 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.

Millions of people facing foreclosure are being tempted with ads about filing for bankruptcy as a way out of their problems. This may not affect you directly, but perhaps you know a friend, family member or co-worker who is going through this. So let's consider a couple of scenarios and see if the bankruptcy option holds water. If you bought your home in the last two or three years and almost immediately fell behind on payments, then the reality is that you may not be able to keep your home. But that doesn't automatically mean foreclosure. Try instead to arrange a short sale with your lender's permission. This may help the lender avoid the usual $70,000 cost of foreclosure, while it will help you avoid the stigma of foreclosure. Approach your lender several times if you don't initially get the answer you want. A second alternative to bankruptcy would be to arrange for something called a deed in lieu of foreclosure. This is like a voluntary turn-in of your property. This will probably appeal to lenders in states where they'd have to incur the expense of going to court to proceed with foreclosure. One thing to keep in mind about bankruptcy is that while it may help you today, it will not help you in the long run. Sometimes the best option is to allow foreclosure to proceed if it's unavoidable. It's like closing a bad chapter in your life and moving on. Let's consider one other kind of scenario. Say you're a longtime owner who has fallen on hard times now but has a good payment history. Then you might want to seek a loan modification, forbearance or a Chapter 13 bankruptcy filing as a last resort before you lose your home. With Chapter 13, you can remain in your home and develop a workout if you already have demonstrated a good payment history. Bear in mind that Clark's really over-generalizing here. He's laying out a road map, and you need to see where you fit on the road.

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.

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.

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?

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.

Clark is fond of saying, "All real estate is local." That means that home values are stable in some places around the country, while in other areas they're down the toilet. Speculative markets where people bought with no money down, had adjustable loans or option payment loans have really been hurt. The option payment loans -- which are big in California -- are loans where the balance rises over time. The only way not to get clobbered is if the home value rises quicker than the loan balance, which is usually not the case. So option payments lead to a lot of foreclosures -- unless you can arrange a short sale with the mortgage lender. In the case of a short sale, the lender agrees to accept less than the loan balance if you can get the place sold. Why would a lender want to do this? Well, it turns out that it costs a lender $70,000 on average to foreclose on one home, according to industry estimates!!! So a short sale is something of a win/win situation for lender and borrower alike. The neighborhood also wins in this situation because for every house foreclosed on, the average selling price of other homes in the immediate area drops 1.5 percent. Foreclosure is like a cancer that spreads in a neighborhood, but it can be healed with prevention by contacting your lender and setting up a short sale to actively market the property before the fact. An answer of "no" today may be "yes" tomorrow, as the lender may have to first get a waiver from someone they sold the loan to in order to permit that short sale.

Meanwhile, a Zip Realty survey has found that listings around the country are up significantly. This means trouble if there aren't enough buyers around. In fact, the average home value will drop between 1.5 and 2 percent this year around the nation. Of course, it's bound to be worse in the bubble markets like the Miami condo market, parts of Phoenix, Southwest Florida and elsewhere. One thing to keep in mind is that if you're not actively moving or selling, none of this matters to you. You don't have a big issue unless you're selling, and then you're selling into weakness. If you're staying put, you're fine.

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.

What do you do about a mortgage market in which several million people around the country are delinquent on their mortgages and headed for foreclosure? There is a big impact on the neighborhood when that happens. This happened in Chicago in massive numbers and it’s spreading to other cities. The question is should the government get involved? Clark doesn’t think so. When politicians get involved, things just get more complicated. The good news is that several of the big banks have gotten together with the American Bankers Association in an attempt to prevent more foreclosures. We’re on the path to having 2 million foreclosures in the country. So, how can we do that? The entire lending industry needs to change. During the real estate bubble, lenders sunk to new lows when it came to approving loans. Homeowners took out loans they couldn’t afford. And the banks that were buying the loans went along with it. Everyone has some blame in what has happened in the mortgage market. But the industry is moving steadily toward giving people alternatives, which is good. Bankers are trying to do “work-outs” where they can do one of two things. First, they somehow reduce the amount of the loan because there is no way the borrower can pay it off. Secondly, they can do more refinances with those people. If you are in over your head and your lender blew you off, you need to call again. They want to work it out with you.

The state of California’s foreclosure rate is up 800 percent compared to a year ago, according to the LA Times. And, that’s only the average. In Ventura County, for instance, foreclosures are up 1,100%; Riverside County is up 900%; Orange County, LA and many southern California areas are up 700%. The rest of the country is not as bad, but foreclosures have increased tremendous amounts compared to past years. The foreclosure rate throughout the country is up 200 percent. Many of these homes were speculative buys, especially in Nevada, Arizona, California and Florida. No one ever intended to live in these places. They were just hoping to flip them for more money. What if you’re not a spec buyer? You own your house and you can’t make payments. Clark has been recommending that you talk to your lender and try to work something out. He’s gotten some feedback on this from folks who say their lender won’t work with them. That may be the case in rare circumstances. But, for the most part, your lender wants to work with you. They may offer you a 40-year loan instead of 30-year loan to help you keep your home. It will reduce your payment about 5 percent, which isn’t much. But if you’ve called before and gotten the blow off, give it another try.

The number of people falling behind on home loans is up 53 percent from one year ago. That doesn’t automatically mean those people will go into foreclosure, but foreclosure rates will go up as a result. Basically, a lot of people have gotten into houses that they couldn’t quite afford, and now things are getting bumpy. In markets that were speculative, the number of foreclosures is up even more. In Arizona, for example, foreclosures have increased 155 percent, according to foreclosures.com. The news has bankers and lenders so concerned that the CEO of Countrywide Mortgage has been randomly calling people with option payment mortgages. He’s trying to find out why they went into the loans and if it’s really as bad as it seems. Option payment loans basically cause balances to increase instead of decreasing as customers pay off their loans If you or someone you know is feeling pinched, pick up the phone and call the mortgage company to work something out. The lender does not want your home, so they will try to work something out with you.

The number of home foreclosures is rising and in many states it's becoming a huge problem. It's unforutnate for the pers