Clark has a special tip for those who are interested in buying distressed real estate.

Banks are demolishing the credit scores of would-be bidders on short sales and foreclosures by running credit checks to decide if they'll be allowed to bid. Furthermore, The San Francisco Chronicle reports that people are also being told if they don't do a mortgage with the bank, then the bank won't even entertain their offer.

Don't let a bank force you as would-be bidder to allow them to run a credit check on you. Agents, beware of this abuse of your buyers and pushback if necessary.

Banks claim they're doing this to make sure they're not wasting time with a potential buyer who's not credit worthy. Well, again, that is not your problem. Don't let the bank make it your problem and push you to the point where you don't qualify because you have all these inquires on your credit.

Short sales are gaining traction among lenders because of a new federal incentive. In essence, the government has agreed to absorb a part of the loss that a bank sustains whenever they do a short sale.

"In May, the Treasury Department said it would offer a streamlined framework for short sales and incentive payments of $1,500 to homeowners, $1,000 to loan servicers and $1,000 to second-lien holders," The San Francisco Chronicle reports.

Just 18 months ago, the term "short sale" was not widely known. Today, it's gaining some currency as more and more short sales get done, but it's still a misunderstood concept.

Short sales are when you need to get out of a house and you get the lender to agree to take market value on the sale -- instead of what you actually owe on it. You'll take a hit of about 120 or 130 points on your credit score for doing one.

Are banks doing this as a charity effort? No, it's cheaper for them to do a short sale versus a foreclosure. Some of the biggest lenders now have "war rooms" with specialists to process short sales. Certain lenders even take requests for short sales electronically nowadays.

Our associate producer Joel started looking to buy a home last winter. He immediately began honing in on short sales, much to Clark's dismay. The consumer champ knew that banks were notoriously incompetent when it came to processing short sales.

Naturally, Clark urged Joel to steer clear of them. But being a young man, Joel completely ignored Clark! So much of the market was short sales that it would have been very hard to ignore them in his search.

Joel was right in this case; he bought a short sale for $89,000 with a 15-year loan at 4.375 percent. The property had last sold for $155,000. So his patience was rewarded, but it took the better part of a year. And that's now made Clark himself reconsider the short sale as a viable option for struggling homeowners. It's for real this time!

Newly released housing data shows that foreclosures were at a record high during the last three months. It seems that the wave of embargoed foreclosures the banks were holding back have finally hit the market.

This new wave of foreclosures is generally among more expensive homes. In the past, it had been at the lower end of the pricing scale. That means both hazard and opportunity is on its way.

Clark thinks we'll see another attempt in Congress to allow workouts, as they do in commercial lending. This effort has failed in the past. But now with the rich losing their homes, there's a greater possibility they'll exert their influence in Washington D.C. and get it passed.

Yet workouts (aka "cramdowns") are not just freebies; there is a market cost to them. That cost comes when lenders have to factor in the risk of losing money on a workout, thereby driving up their mortgage rates. There is no free lunch for anyone!

The market overall still has awhile to go before things get healthy. Look for intensified opportunity to buy foreclosures in 2010. The best opportunities will be in discretionary home purchase categories like vacation homes and second homes.

Clark is often asked how a short sale or foreclosure will impact someone's credit score. A new report from syndicated writer Kenneth Harney now reveals the damage.

Before we go further, please note that these figures below are compiled based on your Vantage credit score. The Vantage score is a fake score manufactured by the three main credit bureaus -- Equifax, Experian and TransUnion. It is not the official score used by most lenders. Yet it still give you a good indication of what to expect with your true credit score.

• A short sale will ding your credit score by 120-130 points.
• A foreclosure will drop your score by 140-150 points.
• Bankruptcy can decimate your credit score by 365 points.

When you do a short sale, the lender agrees to let you sell your property for below market value and everyone walks away, essentially with almost no harm, no foul. But if you go into foreclosure, the lender has the right to sue you for deficiency. That means you're responsible for whatever financial losses they suffer as a result of the foreclosure.

And that can lead you to bankruptcy, which will remain on your file for 10 years.

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.

A small number of real estate markets around the country have seen activity firm up with multiple bids on houses. This has been especially true in the bubble states where values fell the furthest.

Does that mean recovery is coming in the market at large? Don't bet on it just yet.

Remember that all real estate is local at heart. New numbers Clark saw in The Washington Post indicate that there will be an ongoing buying opportunity for first-timer homebuyers and real estate investors through the end of 2010.

But here's the disturbing news. There are now over 1 million homes in the U.S. in which people are delinquent on their mortgages, but the banks have not foreclosed. The banks may not have enough staff on hand or else they simply don't want the houses.

Our associate producer Joel is stumbling through the home-buying process as a first-timer. He found a shortsale listed at $99,000 and bid $71,000 for it. The bank came back 4 months later and countered by asking for $138,000!

Clark's advice to Joel is to focus on foreclosures instead of shortsales. Also, be persistent if you hit a brick wall in the process. An answer of "no" to your offer should just be seen as a temporary answer.

For investors, the rules are a little different now. You will need to come to the table with cash. At least 50% of your offer should be in cash to increase your likelihood of being taken seriously. Know that buying a distressed condo could have a potentially greater return than a single-family home at this time, which is a very unusual circumstance.

And what if you are one of the 1 million homeowners in trouble yet you want to stay in your home? Seek free or low-cost housing counseling through a local affiliate of the National Foundation for Credit Counseling at NFCC.org.

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.

RIP-OFF ALERT: Have you seen those little signs on the side of the road that say, "Facing Foreclosure? Call Now!"

People who are in financial difficulty with their home are being hit by scamsters holding out the possibility of foreclosure rescue. But beware: They'll either strip the equity out of your home or charge you several thousand dollars in upfront fees.

The bubble states have been hit the hardest by foreclosure rescue scams. The Orlando Sentinel reports there are 40 outfits being investigated in Florida for violation of a new anti-fraud law.

Under the Foreclosure Rescue Fraud Prevention Act, fines are $10,000 per incident. If it involves a senior citizen, it's $15,000 per incident.

That's all well and good, but Clark thinks a criminal statute would have been better!

Please note that these scamsters have very professional presentations and their employees know the lingo of the industry. One outfit in the Sentinel article even went so far as to put all its employees in 3-piece suits!

If you are upside down in your house, you need to speak to a housing counselor. Visit NFCC.org to find one near you.

Have you heard the term "shadow inventory" recently? Shadow inventory pertains to houses that are falling into a "no man's land" after banks foreclose on them.

Here's the scoop: The nation's banks have not been staffed adequately to deal with the vast number of foreclosures throughout the country. Even as the banks ramp up their REO (real-estate owned) departments, they're still falling behind. As a result, it's believed that more than half a million properties are falling by the wayside.

That's the shadow inventory.

According to a recent San Francisco Chronicle report, there are an estimated 600,000 foreclosed homes of this sort right now. The banks aren't getting them ready for sale and they're certainly not maintaining them in any way.

Neighborhoods suffer greatly from shadow inventory. Unused houses tend to attract vandals, squatters and a host of other troubles.

But as an investor, shadow inventory is a source of great opportunity. As these houses sit and go unmaintained, there will be many that have nothing fundamentally wrong with them; they just simply look and smell awful. That means no one else wants them and you can swoop in to steal a deal.

On another note, Clark believes that until the banks come to terms with their shadow inventory, we can not truly call a bottom in the real-estate markets around the country.

Meanwhile, a recent RealtyTrac study analyzed foreclosures in 4 states and found that 70% of them were not showing up in the MLS. Either they've gone into the shadow inventory or the banks put them up for sale as REO but without any agent representation in the MLS.

So how can you tap into shadow inventory as a first-time homebuyer or an investor? Go to the websites of individual banks and look for a link to their listings. You used to have to hunt around for this kind of info, but now you'll usually find it linked directly on their homepage.

This gives you the ability to potentially ferret out a bargain before others get it through an agent and the MLS.

Does that mean you don't use an agent? No. If you a hire a buyer's agent, you need to have a written agreement stating that they only represent you on properties they show you. You don't want a blanket agreement where you owe them commission on any property you buy -- even if they have nothing to do with locating it.

Do you like the mountains, the beach, the lake or another resort area? Vacation homes and second homes are one area of housing that is providing more opportunity than any other right now.

The National Association of Realtors reports that sales of second homes have collapsed. This is a major reversal from recent history, when vacation homes were a big part of the excessive speculative buying and building.

Of course, there's a big "if" here in Clark's advice about the second-home market. This advice only pertains to you if you're in a financial position to afford it!

You've got to understand that second homes are not investments; they're a lifestyle choice. The only reason to own a vacation home is to live in it and/or enjoy it at your leisure.

However, sometimes what begins as a lifestyle purchase can wind up being an investment.

For example, Clark and his brother bought a vacation condo in Park City, Utah back in the 1980s. They bought in a building that was hit by a trifecta of trouble. The lending bank, the builder and many of the owners all went into foreclosure. This was a risky move on Clark's part, but he and his brother were later able to sell for an obscene amount of money during the peak of the real estate bubble.

The consumer champ does not recommend trying to time the market like this, but sometimes all the stars just line up.

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 news on the housing market continues to be bleak, bleak, bleak. In just one example, the latest numbers from the Case-Shiller index show that home values in Phoenix are down almost 50% from their peak in July 2006.

This is not surprising considering that many Phoenix properties were not owner-occupied, but were bought to be flipped -- a trend that really fueled the overbuilding of houses.

There are similar numbers in Las Vegas and Miami (both down more than 40%) and San Francisco and San Diego (both down 40%). But you've got to realize that the housing stats are skewed by the bubble markets where people were trying to get rich quick on someone else's money.

So where's the good news in all of this? Well, so many sales today are of REOs (real-estate owned properties). That's where you buy directly from the bank after they foreclose on a property and let it go unloved and neglected for several months.

Meanwhile, half of all purchases in February were from first-time homebuyers taking advantage of incredible deals and fantastic financing, according to The Financial Times of London. So they're getting incredibly affordable housing.

In addition, true investors (not speculators) are buying REOs and fixing them up and turning them into rental properties. Clark was recently talking with a real estate investor who bought a 4BR/2B in the suburb of a major metropolitan area for $21,000!

That particular property needed lawn care, new carpeting, new paint, new appliances and a replacement for the HVAC system that had been stolen. The total cost of repairs was just under $15K. That's amazing! You may not find a new home for the cost of a Camry, but there are deals out there. It just requires thorough research.

Finally, a word about Clark's prediction that mortgage rates on 15-year loans will dip into the 3s by May 1. A kind listener recently informed us that at least one homebuilder is offering 3.625% on a 30-year loan.

But because that's a subsidized rate geared to boost sales, Clark isn't counting this one. So the pies may still fly…

CLARKONOMICS: There is just so much opportunity in buying foreclosures and other distressed real estate at this point. But a few words of caution are also necessary.

The condo market in particular has a lot of hazards. For example, when you buy a condo, you're buying an obligation and a commitment in a condo association. Do not buy in a building that has been recently constructed. You want to look for established condo buildings that have been there 6 years or longer. With established buildings, you know that most people are paying their condo fees.

In fact, you should never buy early in any new development. If you do and the builder goes belly up, you could be living next to scarred earth that's been homogenized for development and looks just awful.

Meanwhile, in more heartening news, February data shows that the sales of existing homes went up 5% year over year.

Are you looking for foreclosures or distressed property in the single-family home market? You want to look for several things: An established neighborhood that's 10 years or older; a neighborhood where it's mostly owner occupied -- not rental; and a house that is structurally sound with cosmetic damage only.

Pres. Obama's new housing initiative has brought intense reaction from many Americans who are not happy that those who didn't meet their mortgage obligations will be bailed out. Here are a few more tidbits to enhance Clark's original discussion of the plan:

• Beginning March 4, people who are current in their loan but upside down in their home may be eligible for a refinance.

There are a few stipulations to know about. First, the new mortgage can't total more than 105% of a property's current value.

Second, your loan must be underwritten or insured by Fannie Mae or Freddie Mac -- and that info is not easy to come by unless your lender specifically tells you.

Finally, you can't have a jumbo loan. Jumbo loans are typically above $417,000 throughout much of the country -- with some notable exceptions such as California where the limits are higher.

• When it comes to loan modification, this is a method of marking down a loan so that the payment is affordable -- usually 31% of your monthly income. However, it's instructive to look back at the results of the HOPE NOW loan modifications. What we learned from HOPE NOW is that there's a tendency for people to return to default even after concessions are made on their loans.

On the one hand, it's easy to feel compassion for families that are facing a home loss. But from an economic perspective, the reality is that somebody gets an unfair shake if concessions are made to non-payers at the expense of those who do pay.

One other fact that hasn't been widely reported, but Clark sees as a very positive sign: Housing starts have hit their lowest level since right after WWII. This is actually great news for recovery in the housing market. After all, we have way too much inventory and not enough people to buy the houses.

In the end, all the programs and proposals amount to nothing if you don't look at the fundamentals of supply and demand. You can't outlaw economics.

CLARKONOMICS: Pres. Obama announced his housing rescue plan today and Clark wants to give you an overview of it.

• People with mortgages that have become unaffordable would be allowed to file a petition to have their monthly payments reduced to roughly one-third of their household income. Essentially, they could be allowed to stay in their homes at a big discount -- a very controversial move.

• People who are current on their mortgages but could not qualify for a refinance because they lacked equity may have the chance to refi going forward through Fannie Mae and Freddie Mac. Look for a forthcoming briefing from Clark once more details about this part of the plan become available.

• In the most controversial move of all, Congress could pass a statute to give bankruptcy court judges the right to do cramdowns. Cramdowns are common in commercial real estate. In this scenario, they would be used to reduce the mortgage of someone who is upside down in their home to reflect the property's current market value.

All of these points obviously raise strong questions of moral hazard. Yet on the other hand, many economists believe that the nation's financial institutions will not stabilize until the housing market stabilizes.

Maybe that's true…but Clark thinks the real problem in housing is that we have too much of it! Supply and demand still have yet to meet up through natural population growth. Simple demographics must do the job of eventually soaking up the excess supply of houses.

RIP-OFF ALERT: In most states, there are public records of who is falling behind on a mortgage. That's created an opportunity for swindlers who show up at your doorstep with a "personalized foreclosure rescue package" for you.

Likewise, we've all seen the "stop foreclosure now" signs on the side of the road. The punch-line in both cases is that you have to pay money upfront to stop the foreclosure. The average amount these swindlers steal from people is around $3,000, according to a recent New York Times report.

Meanwhile, there are some legitimate parallel tracks you can explore if you're facing foreclosure. These include seeking free counseling from a local affiliate of the National Foundation for Credit Counseling or going through the HOPE NOW Alliance. Be forewarned that Clark thinks the latter is a "political puff piece"; he'd prefer you go with the former option.

Lastly, you can try contacting your lender directly if you're in dire straits. It's surprising how many people won't talk to their lender when they get in trouble. Bad move.

Tenants in good standing are often unintended victims when a landlord faces foreclosure. You can pay your rent month after month, but what good does it do if the landlord isn't paying the mortgage? You may come home and find you're supposed to be out on the street in weeks or even days.

Banks have been very stubborn and fought with tenant rights group over this issue. But there are smart business reasons to treat tenants with respect. After all, the banks are notoriously bad at being property managers of foreclosed homes. So why not let the tenant temporarily do the job for you?

Fannie Mae will now permit tenants in good standing to continue paying rent directly to the lender until the end of the lease. Clark thinks it's a smart move all around; it helps the neighborhood, it helps the tenant and it helps the lender.

In related news, the Federal Reserve's latest rate cut is aimed to reinvigorate lending in the housing and car markets. The cost of getting funds to lend is now the lowest it's been since the '60s, however, banks aren't capitalizing on it. As a result, the average consumer probably won't feel the benefit of the Fed's move.

Yet others will benefit from it. For example, Christa has a mortgage that is tied to the prime rate. The amount of interest she pays every month should drop because of the Fed's decision. She'll now be able to hit more of her principal if she continues paying the same amount she's been paying all along.

RIP-OFF ALERT: If you're among the roughly 1 in 3 Americans who is a renter, you need to be aware of a new scam in the housing market.

The Washington Post reports that criminals are going to foreclosed properties and changing the locks at the houses. They post ads about a house for rent online or in newspaper classifieds, and then play landlord when you go to look at the property. Then they'll collect a deposit -- and sometimes the first month of rent -- before giving you the keys and telling you to move in.

You may live there for days or even months before the bank wises up and evicts you as a trespasser or a squatter. It's perfectly within the bank's right to do so -- even though the whole scenario only took place because of their incompetence in managing REO (real-estate owned) property.

What telltale signs can you look for to avoid getting ripped off? You definitely want to know where the supposed landlord or real estate agent showing you the house has his or her office. In some cases, you may even want to jot down their license plate number. Just be sure to have some verifiable information about who they are and where they do business.

In non-judicial foreclosure states, there is no paperwork documenting the real owner of the property. That creates a legal loophole big enough for Mack truck, as Clark says, and it can easily be exploited by crooks engaged in this scam.

CLARKONOMICS: FDIC Chairwoman Sheila Bair and the HOPE NOW initiative have come up with a way to help struggling homeowners facing foreclosure.

Bair has made no bones about her belief that the federal government should play a strong role here. After the FDIC took over IndyMac, Bair put a moratorium on foreclosures for the failed bank's customers. Then she implemented a system to determine if a workout should be done. The jury is still out about the FDIC's re-dos of mortgages.

Meanwhile, there's been a big tug of war between the FDIC and members of Bush's team who resisted the initial mortgage modification plan. So a compromise has been announced, effective Dec. 15.

If you are delinquent, there is a new formula to determine whether or not you can refinance into a more affordable loan. Under the compromise, your payment will be reduced to 38% of pre-tax income. That includes taxes, insurance, HOA/condo fees, etc. All outstanding late fees will be waived.

In order to be eligible, you have to be at least 3 months past due; must be an owner-occupant; and can't have more than 10% equity in the home. There's even a flow chart detailing every step of this streamlined modification program. (Editor's note: This is a pdf file.)

All of what Clark is saying here leaves out the question of moral hazard. He's purely talking about the practical nuts-and-bolts of what's going on -- this is not intended as a discussion of the inherent fairness issue.

The banks, brokerage houses, insurance companies and automakers all got theirs, so why shouldn't homeowners? Clark's talking, of course, about the government plan for a federal bailout of some 3 million homeowners who are delinquent on their mortgages.

This is the first truly organized attempt to assist those facing foreclosure. The fairness issue aside, this is an effort to provide some level of base support for homes around the country. A foreclosure will reduce the values of neighboring homes by around 1%. That's partly because banks do such an atrocious job of managing real-estate owned properties (REOs). The idea of providing a bailout to homeowners is to do a cram-down, with the loss split between taxpayers and the bank. We'll see how it works out on the ground.

The reality is that we have too many houses. The best guesstimates put the figure at anywhere between 3 million to 10 million houses. So we have a ways to go before we burn through that excess. But housing markets that have been going down in value will start to stabilize. It took us several years to get into this mess and it will take us several more to get out.

Be sure to vote in Clark's poll and let him know what you think!

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.

There's always opportunity that comes out of adversity. For example, Clark bought his latest foreclosure earlier this year and is looking to acquire more in the next 24 months.

One strategy Clark wants to warn you about is purchasing pools to buy foreclosures in bulk as an investment opportunity. These typically haven't worked out great. Clark thought a particular syndicate called Red Brick might hold promise. They were buying in the mid-Atlantic states in blue collar neighborhoods and had a real economy of scale. But The Wall Street Journal reports they've been losing money competing against solo investors.

So be wary of investing in a syndicate to buy properties. Know that it's tougher to make money than indicated in the pitch.

If you want to buy distressed property, you need to be hands-on in all aspects of research, finance and maintenance. Historically, Clark has said that concentrating solely on foreclosures is a mistake and that you should instead look for all manner of "people problem" houses.

However, today is a bit of an exception; traditional foreclosures likely will be the best deal because of the sheer numbers of them taking place and the inability of banks to adequately maintain the properties.

Know that buying foreclosures takes discipline. You must have your money ready and be prepared to cough up a substantial down-payment. Understand that the cost of bringing a house to good condition won't wipe out the bargain.

There's currently a move in Congress to put a moratorium on all foreclosures. This is, of course, a direct result of our government's recent "bail out the rich investors" mentality. Since we bailed out the big guys like Bear Stearns, Fannie Mae, Freddie Mac, etc., shouldn't we do the same for the little people?

That kind of moral equivalency troubles Clark. After all, if someone is paying their bills and staying in a home, why should another person get to keep a home if they're not making mortgage payments?

The penny-pincher instead advocates workouts (aka cram-downs). That's where you sit down with your lender and come up with a new financial plan that allows you to meet your mortgage obligations. It's done all the time in commercial real estate.

Clark's advice is very timely advice considering the latest August numbers show that foreclosures have hit another record high.

Everyone wins when a compromise is reached. Think about it like this: The lenders don't have to spend money to foreclose and pay to maintain a property; the neighbors don't have to take a hit on their home value when there's a foreclosure in the 'hood; and the homeowners get to stay put.

CLARKONOMICS: While there's no shortage of down news about the housing market, Clark believes we've seen the worst of the bad news already. But don't expect everything to suddenly become sunny. Rather, it's more like we've gone from absolute downpours to moderate showers.

For starters, the banks are reaching capitulation. In California, for example, foreclosures are again attracting multiple bids. That's a clear sign of the market stabilizing. Note that word: "Stabilizing" -- not "recovering." We're getting back to where market values are based on fundamentals, not speculation.

In related news, the new housing rules have a controversial measure to create land banks. These land banks would take areas that are blighted and turn them around, but there is a potential for corruption.

Whatever happens, you can be sure it won't happen in a day. Some markets do have more to fall, like condos in Miami and single-family homes in Las Vegas and Phoenix. But much of the rest of the country never really had a bubble to begin with.

Remember to study the market and not overpay. Know your max price and don't pay more if you're in an auction scenario.

Meanwhile, mortgage rates have recently climbed -- just about the last thing the market needed! But here's an important reminder: If you can buy at a great price, it may still be worth it to pay a higher-interest mortgage for a few years. The purchase price is set forever, but interest rates can be refinanced down the road.

Clark wants to share some information that could impact those in the housing market as potential buyers of distressed real estate and those trying to sell a home in a neighborhood that has foreclosures.

In economic terms, we're beginning to hear that "capitulation" has come. What that means in plain English is that banks have sobered up and are dropping their prices on REO (real-estate owned) properties, according to The Wall Street Journal.

Previously, the banks had been asking unrealistic prices that were comparable to the outstanding loan balances on foreclosed properties. No wonder they didn't get any bites!

So it may be worth your while to make another offer on REO property right now. The banks are more likely to be humbled after sitting with that house in inventory for this long.

On the other side of the ledger, capitulation means that you should probably have a new target price in mind if you're selling in a foreclosure-riddled neighborhood.

Think about it this way: If REOs sell after banks come down in price, then those lower sale prices become the comps you're competing against in the area. It's incumbent on you as a seller to photograph the sad, rundown foreclosures so that buyers can see exactly why they sold for less than your house. That way you can justify asking a higher price for yours.

Meanwhile, Zillow.com is reporting that roughly 30 percent of people who bought during the last 5 years are upside-down in their homes. Zillow also has a new feature that allows you to see national home value trends on an interactive map of the United States.

Of course, talk of lower home values comes with Clark's usual caveat: Don't worry if you're not selling right now. None of this impacts you. In fact, you can use the decline in home values to contest your property taxes. Check with your local tax assessor for details on entering a dispute.

CLARKONOMICS: We live in a time when "Dare To Be Rich" foreclosure schemes are pushed via infomercials, web ads and more. If you believe the hype, foreclosures are the hottest deal since sliced bread.

But do you remember when it was all about how to get rich with leverage using other people's money to buy real estate? Well, the whole house flipping trend ended in "jingle mail" -- that's what lenders call it when you mail in the keys and just walk away from a mortgage.

So we've moved from excessive speculation to excessive hype. Clark has done well with foreclosures over the years. He actually purchased his most recent one about 5 months ago. But realize this: Foreclosures are just one area of opportunity, not the "be all, end all" area that people think.

In fact, foreclosures are part of a larger category of "people problem" houses. These are houses sitting on the market as wounded ducks because the owners endured a job loss, a divorce, a relocation or other troubling scenarios.

The bottom-line is this: People focus unnecessarily on foreclosures. All manner of distressed real estate can be a deal. The key is to know local market conditions where you're buying.

You have know the exact neighborhood you're targeting. Go after the properties that are REOs (real-estate owned by the bank or lender) for 45 days or longer. Lenders are usually unrealistic about properties on their books for about the first 6 weeks.

But don't think foreclosures are the magic bullet. They're just one possible way to get wealth. Again, know the neighborhood, and pay attention to those houses sitting on the market for 150 days.

Beware of agents who may delete a listing and relist it to conceal the fact that the seller is desperate. This practice may be illegal in some states. So dig through the MLS and see if the house has been listed before.

Think of the real estate market as a pie. Foreclosures are only one slice; look at the people problem houses -- relocation, job loss, estate sale, divorce and others.

CLARKONOMICS/RIP-OFF ALERT: Here's a story that's disturbed Clark so much it required both a Clarkonomics sounder and a rip-off alert one!

During the coming weeks, you're going to be hearing about how Congress is rescuing the American homeowner with a foreclosure bailout. This is natural rhetoric for an election year. But Clark wants you to know the real story.

First off, Countrywide is being sued in Illinois and California for conspiracy to defraud would-be homeowners. They allegedly issued loans when they knew there was no way they'd ever be paid off. Countrywide made a lot of money by originating these loans and then selling them off. The ones who really got burned were the investors who snatched them up from Countrywide.

Meanwhile, The Washington Post recently reported on a 28-page Bank of America document -- marked "confidential and proprietary" -- that's been floating around Capitol Hill.

The document basically outlines a potential bailout for lenders, where the Countrywide loans and others like them would be dumped on the government. This plan is being sold as a "bailout for homeowners," but it's the lenders who really benefit.

This is a perfect example of socialized risk and privatized reward. BoA is using its influence in Washington to get a deal for itself and other lenders from the government -- with taxpayers being put at risk to fund it.

The question remains: Will this move actually help the homeowners who are delinquent? We'll have to wait and see. There's no telling if this is a workable solution for those who got into loans they could never afford.

Most of us who pay our mortgages every month aren't happy about a taxpayer-supported bailout. But there are complicating factors. For example, every foreclosed house in a neighborhood lowers the value of surrounding homes by 1%.

Still, the takeaway here is this: The next time Congress pretends to act like a knight in shining armor, you need the real story behind the scenes. This is all about bailing out the influentials in the banking business.

There's new hope for those who are behind on their mortgages and either want to stay in their homes or do a short sale. As Clark told you months ago, a collective of the nation's largest lenders are pushing The Hope Now initiative.

The lenders' interests are purely monetary as they face a critical mass of some 2 million potential foreclosures. The reality is that lenders don't want you out on the street because it's expensive for them and they're notoriously bad property managers. Under the voluntary Hope Now program, participating lenders will help you to do a short sale or get a loan modification.

By the end of July, participating lenders will be required to confirm receipt of your request for either option within 5 business days. Then they'll have 6 weeks to accept or decline your request. This is a major change because it puts a timeline on the procedure for the first time.

The biggest beneficiary here will be your fellow neighbors. Their home values won't automatically plummet with your foreclosure, now that there are more options available to you. Keep in mind that home values decline about 1% for every foreclosure in a neighborhood.

The other beneficiary is the bank. They lose a minimum of about $70K on every foreclosure. That's why they're willing to do these workouts. For you as borrower, the benefits are obvious. But the big unknown is how it will all work for people who have 2 loans on a home.

One thing Clark doesn't want to see is a Congressional bailout for the mortgage lenders, which may be disguised as being in the best interest of homeowners.

There are now 51,000 storage units throughout the country. Unfortunately, a lot of people are now living in their storage units because of economic hardship in the housing market. This is a dangerous and usually illegal practice.

In related news, Clark recently saw a very sad eviction in progress. Someone's possessions were piled up on a side street, and people just came up and took what they wanted. Could you imagine coming home to discover that you're homeless and bereft of your belongings?

Meanwhile, what happens when you stop paying your monthly storage bill? Clark read a New York Times report about a cottage industry springing up around the auction of property that's been seized from negligent accounts.

One storage company near Clark's house prominently posts signs -- illegally, on telephone poles -- when they're getting ready for an auction.

If you do have to put something in storage, know that you must get insurance on your belongings. In his TV work, Clark has done stories about how some people found their belongings damaged by flood or vermin and had no recourse. In fact, a rat jumped out at the camera while they were filming the story!

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 person involved, but it's also a chance for you to make lemons out of lemonade. Consumers are very interested in foreclosures, yet they can be very confusing and risky. That's why Clark wants to pass along some information to you. The delinquency rate on HUD homes, and FHA home loans in general, has shot up. It’s about 7 times higher than it has been in the past. But it’s not just HUD homes that are up for grabs. The IRS, the Dept. of Agriculture, the US Army Corps of Engineers, the Small Business Administration and the Customs Department all have delinquencies on FHA loans. So, Clark has found the link to all the available houses and how the sale is conducted in each state. It is hud.gov. Just remember that each organization has a different way of selling these homes, and you’ll have to do a lot of research and work to get the great deal you want. And if you’re a first time homebuyer, don’t buy a home in pre-foreclosure. You want to leave that to experienced real estate individuals.

New data out shows that mortgage delinquencies are going to be bad in 2006 and worse in 2007. People bought homes with interest only loans in huge numbers this year and now they’re having trouble making the payments. People are already calling their mortgage companies asking for leniencies, according to Fitch, which rates commercial mortgage services. Fitch has just put out a report showing delinquencies going up about 15 percent. About one in 100 homes is in foreclosure right now and about 5 percent of homes are in delinquency. So, people are going to face some serious difficulties in the coming years. Now is the time to eliminate as many problems as possible. If you sense that making payments will be difficult, you need to reconsider your path. Another issue is the fact that floating mortgages readjust. If you’re thinking of staying in a home for a number of years, go ahead and refinance into a fixed rate loan or an ARM that is fixed for at least five years. There are decent deals out there. But the greatest worry is for people in what are called “option payment mortgages.” Overwhelmingly, these people are not able to pay enough each month to keep the loan amount from rising. Do not worry about your credit card bills if you don’t have enough money to pay your mortgage. Your mortgage comes first! You may trash your credit, but you’ll keep a roof over your head. Food on the table is next. And credit cards are last, despite how many calls you get from creditors or collection agencies.

What are the chances that you could buy a home today and it will be worth less in two years? A new study out by PMI Mortgage insurance researches this very question and claims that there is a 16 percent chance - on average - that your home could decline in value in two years. It depends, in part, on where you live. And, the Boston metro area has the largest probability for a decline in home values. Homes in the Boston area, which includes some of New Hampshire, are expected to decline in value by 53 percent in the next two years, accordin got the survey. Other at-risk areas include San Jose (a 53% chance of decline), San Francisco and Oakland (48%), San Diego (43%), Providence, R.I. (40%), Sacramento (37%), New York City (36%), L.A., (36%) and Detroit (27%). The least risky areas include Pittsburgh, Buffalo, Rochester, Oklahoma City and Indianapolis. So, there is definitely a decline in some markets, but it’s not yet a collapse. Get the full list by clicking here. So why is it happening? Well, there are a handful of areas where home values have outstripped family income. Add to that the fact that people have gotten ahead of themselves in terms of the type of homes they’re buying. According to the National Association of Realtors, people buying homes "on spec" or as second homes accounted for more than 35 percent of all houses sold last year. One in four homes bought last year were for investment purposes only, which always means the market is ahead of itself. People see real estate as the safe place to put money. But, it's important not to get caught up in the excitement of buying. Real estate should be a long term proposition. If you’re not planning to “flip” the house, look at it as something you would keep for a minimum of five years. And, before you buy, take a look at the PMI survey to find out what risks you might be encountering.

People ask Clark about real estate investments all the time. One of the hottest questions is how to find or buy a property in foreclosure. Local publications often charge hefty sums to get a list of the properties. But what about homes in the federal inventory? Most people know that you have to go to several different federal agency sites and sources to get this information. Each agency, including the VA, the FHA and the USDA, all do loan guarantees, and many people who buy these homes go into default. Better than one in 10 homeowners in the FHA home loan program are in default in their mortgages. Wouldn’t it be nice if there was a one-stop-shop where you could get all of that information? Well, now there is. It’s at homesales.gov, and it should be completely ready in a few weeks. As a general rule, HUD properties will be urban/suburban, USDA homes will be rural, and VA homes will include both. Keep in mind, though, that foreclosures are just one area where you can find distressed properties for less. A divorce, a change of jobs, and estate sales are all people problems that you can capitalize on. Make sure you do thorough homework before buying one of these properties.

Over the last 10 to 20 years, we have had steadily rising home values that have surpassed the rate of inflation. This has caused a tremendous amount of foreclosures, meaning about 1 in 60. So far this year, the number of foreclosures is up 56 percent compared to last year. The main reason is that people are applying for mortgages they can’t afford. As a result, foreclosures in the high end of the market now equal those in the moderate and low-end markets. Houses really deteriorate when they are foreclosed on, and the owners or mortgage companies don’t maintain their properties. The Wall Street Journal found that in northern California alone, high-end foreclosures are up 1600 percent in one year. That’s a huge increase! The upside is that foreclosures present an opportunity for people to buy cheaper houses, especially at the higher level where one can purchase mansions at a steal!

Clark has heard a lot of bad press about these real estate investing seminars that try to convince people to buy some piece of property that will make them rich. They get you to come to the “free” seminar at a hotel, and then they try to push a very expensive real estate class on you. The classes usually cost $1,500 to $2,000 and are held over two or three days at another hotel. Don’t get him wrong - Clark loves real estate And he’s bought a number of foreclosures and distressed properties. He believes there is potential for wealth over time. But a lot of these hotel road show presentations make it seem as though you will become a real estate mogul in days. The Washington Post assigned a reporter to go to these seminars for an entire year. She then wrote about the number of people who got rich through these presentations. How many do you think got rich? Zero! Most people told the reporter these seminars were a total waste of time. Others thought they were very uplifting and motivating, but they still didn’t make any money. You’re not going to be able to go to a hotel ballroom for two or three days and become an instant expert in how to invest in real estate. One of the biggest companies running these operations filed for Chapter 7 bankruptcy a few years ago. So, stay away from these rackets.

---

What about foreclosures? Even though there has been a big run up in real estate values, foreclosures are still extremely common. Foreclosures are a way for you to acquire a personal piece of property at distressed prices, and often you can find a needle in a haystack. But you have to know how best to buy. The process of foreclosure works differently in different states. But you will hear a lot about people buying property “pre-foreclosure.” This means the buyer swoops in before a home goes through the foreclosure process and buys a house. Stay away from this unless you are a very experienced real estate buyer. You want to buy a property after it’s been foreclosed on. These are called REOs or “real estate owned” foreclosures, and they end up in all kinds of places including HUD, the Department of Veteran’s Affairs, credit unions and even banks. You can also find a real estate agent that specializes in foreclosed real estate. So, check out those resources before buying.