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

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

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

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

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

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

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

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

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

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

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

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

Several just-released home market stats highlight how stinky the real estate market has become. In the latest session of Clarkonomics, Clark explains how the current market situation is turning some of his long-standing advice on its head. New stats show that home prices in 10 major metro areas are down 8.5 percent from a year earlier. That's the worst number since stats have been kept. Meanwhile, the Commerce Department reports that sales of new homes have dropped 27 percent -- the worst since record keeping began 44 years ago. Finally, the National Association of Realtors reports that overall home sales are down 13 percent over the last year. Add it all up and there's no denying that the new home market is in much worse shape than the used home market.

If you read Clark Smart Real Estate, you know that Clark spoke about people putting too much focus on foreclosures; and about how buying used is a better deal than buying new. But that's not the case anymore. Right now, you're better off getting a new home -- preferably one that's an REO (real-estate owned). When a lender takes a house back, they drive it into the toilet because they're not in the business of property management. So REOs quickly morph into overgrown, smelly houses that deteriorate into crummy shape. That's when you can steal a deal, hopefully somewhere in the range of 20 percent below market value. Of course, you'll have a lot of cosmetic work to do.

Congress is currently cooking up some temporary props for the housing market. There's talk of giving people in jumbo loans (above $417K) the chance to refinance at standard rates, not jumbo ones. Keep your credit score as high as possible in preparation for when/if this legislation goes into effect.

The slowing economy presents many challenges along with many opportunities. In the latest edition of Clarkonomics, Clark focused on some of the latter. The Fed's drop in interest rates has led to an opportunity to refinance. Here's the back-story: People who are skittish about the stock market right now are instead putting money into U.S. treasuries, which are like CDs for rich people. Clark recently saw a 10-year treasury trade going for around 3.6 percent. That low rate in turn affects what you pay for a mortgage.

Let's look specifically at how Countrywide is helping to make refinancing a smart move. The mortgage lender had gotten into all kinds of trouble with their undesirable liar's loans and option payment loans, which they hoped to sell off to investors. But there are no buyers willing to take the risk in these tough economic times. So Countrywide is stuck with them. The Los Angeles Times reports that right now the mortgage lender may be willing to work with you if you're in one of their weirdo, exotic loans. They'll waive all kinds of requirements to get you into a good loan. Their goal is simply to package you up with other "safe" loans and sell you off to investors. So keep asking what you can do to get into a better loan -- even if you've been turned down before. Meanwhile, what do you do if this scenario doesn't apply to you because you're in a relatively good loan? The Fed's interest rate cut still means that you may have the opportunity to refinance for an even better rate.

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

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

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

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

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

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

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

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

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

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

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.

You’ve probably heard that people who put money away for longer periods of time earn more money than those who put away money for a short period of time. It’s called an “inverted yield curve,” and it’s typical in investing. Well, right now things are upside down and backwards. The 10-year Treasury is paying much lower interest rates than it was 4 months ago with rates at about 4.6 percent. That’s important to you because the treasury directly affects what mortgage rates people can get. And people aren’t thinking about refinancing or filling out paperwork around holiday time. So, it’s a great time for you to take advantage of the slow down. You can shop your refi all over right now – both online and at banks and credit unions. If your credit is rock solid, you can get a loan in the five-percent range on a 30-year loan right now. Many are paying more than 6 percent, but it is possible. For 15-year loans, you can get below 5.5 percent. Even if you don’t have great credit, you can still get a good deal. Also consider a home equity loan if you have a second mortgage. Rates on HELOCs are great at credit unions, if you’re willing to borrow for five years and you have good credit. So don’t sit on your hands. Take advantage of this opportunity.

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

USA Today reports today that Americans have become a nation of ATM users instead of savers. Historically, people have paid down debt on their homes, not taken money out on their homes. But more and more people are treating their homes as piggy banks. People are taking out 800 percent more money on “cash out refinances” on their homes. And banks have been happy to allow you to tap most, if not all, the value of your home. People use the money to buy a car, go on a vacation or pay off debts. But within about 18 months, those debts are back up to the level they were before. So, those folks now owe more on their homes and the credit card bill is still looming. Clark wants you to pay off your home so you can own it. Many people think ownership means buying the home. But ownership actually means you don’t owe anymore on it. It’s time that we start looking at housing in a different way compared to the past five years. Home prices may not go up much this year, and, in many places, they may go down. Then, if your home value doesn’t go anywhere for a few years, you’ll be ok when it’s time to sell.

The Feds have raised interest rates several times already this year and it’s about to happen again. The difference is that this time it’s going to go up even higher. Economists are predicting that the prime rate is going to 7.5 percent. That means if you have a home equity line of credit, and you don’t have very good credit, you could be paying upwards of 10 percent on your loan next year. So, how do you keep from getting hurt? Join the 36 percent of people who don’t carry a balance. Come up with a plan to pay your credit cards in full every month. Of course, you have to stop using the card first! Then, see if you can either pay off your HELOC or get it changed to a fixed rate. People obviously see the rising interest rates coming because they are getting out of exotic loans like crazy. That includes interest only loans, LIBORs and option payment mortgages. Clark is ecstatic about this. Even if you have to pay a little bit more upfront when you refinance to a long-term fixed rate, you’re going to be much better off in the future.

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

The Federal Reserve has just released information about debt in America, and the results are staggering. Americans owe $11 trillion in debt, which is double what we owed 10 years ago. So, for an individual household, the debt burden for families is huge. The “must pays” that we’ve developed in our lives are growing exponentially. Half of all consumer debt is floating rate interest and more than one fourth of mortgage debt is floating rate interest. So, think about what you’re borrowing money for and what you’re going to have to pay back. If you have a floating rate mortgage and you’re going to stay in your house for any length of time, refinancing to a fixed rate loan is still a great idea.

Clark sometimes must eat crow, as they say, when he makes a mistake on the show. That happened the other day when he spoke to a caller named Shawn about a refinance he was thinking of doing. Shawn said he’d been offered a home loan for 1 percent for five years, and Clark told him there was no such thing. He told Shawn that it was probably a teaser rate that would balloon soon after he signed for up it. Well, it turns out that it does exist, but it’s much worse than he originally thought. What happens is the company charges you as if the loan is at 1 percent interest, but it’s actually being calculated at the real market interest rate. So, if you pay on the loan for five years, you will owe much more money at the end than you did when it started. The home’s value may not go up at all. So, it’s basically playing with fire. Now is the time to open boring, vanilla fixed rate loans, especially if you plan to be in your home for a while.

This was the year that Clark – and many economists – figured that it would finally not be a good idea to refinance. But today, one out of two people could benefit from refinancing their mortgage. That’s because interest rates that the federal government does not control are defying all predictions. Ten-year treasuries are now selling at 3.9 percent. And that rate is what sets the rate for mortgages. So, if you took out a 30-year loan, you could get a 5.5 percent rate on your loan if your credit is good. You will pay about 5.8 percent for a 15-year loan. That’s fantastic! It’s not a biggie if you are not going to be in your home long. But if you’ll be there a while, you want a fixed loan. As for car loan rates, they were rising and have declined some, but you can still get about 3.5 or 4 percent. The odd thing is that adjustable rate mortgages are going to move higher than fixed rates. So what about savings? CD rates have shot up recently, but they’re coming back down now. It’s a good idea to purchase Series I savings bonds instead. They are earning 4.8 percent right now and you can keep these for up to 30 years. Learn how to buy them at savingsbonds.gov. You can buy online and be on your way.

This was the year that Clark – and many economists – figured that it would finally not be a good idea to refinance. But today, one out of two people could benefit from refinancing their mortgage. That’s because interest rates that the federal government does not control are defying all predictions. Ten-year treasuries are now selling at 3.9 percent. And that rate is what sets the rate for mortgages. So, if you took out a 30-year loan, you could get a 5.5 percent rate on your loan if your credit is good. You will pay about 5.8 percent for a 15-year loan. That’s fantastic! It’s not a biggie if you are not going to be in your home long. But if you’ll be there a while, you want a fixed loan. As for car loan rates, they were rising and have declined some, but you can still get about 3.5 or 4 percent. The odd thing is that adjustable rate mortgages are going to move higher than fixed rates. So what about savings? CD rates have shot up recently, but they’re coming back down now. It’s a good idea to purchase Series I savings bonds instead. They are earning 4.8 percent right now and you can keep these for up to 30 years. Learn how to buy them at savingsbonds.gov. You can buy online and be on your way.

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

Home equity line values are growing dramatically. The amount of money people are taking out has been steadily increasing. But as you take more money out, your net worth declines. As you borrow against the value of your home you have debt against your assets. So your worth declines. Home equity lines have become like ATM machines, meaning people just withdraw money whenever they want. There are circumstances when these loans are a good idea. For instance when you’re remodeling or redecorating. But paying back the money can get tough. And if you have a floating rate, the interest rate could jump all over the place. So, bigger banks are now offering you the chance to lock in the rate on your loan. The Wall Street Journal reports that Bank of America and Wells Fargo are a couple of the banks offering fixed rate home equity lines. They allow you to take a portion of the home equity line and fix the rate on it. If it convinces people to use these loans for their intended purpose – making home improvements – that’s great. But don’t use it to buy a boat, car or to take a vacation. If you get deeper in debt and are unable to make payments, the bank can take your house.