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 could not 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 fees on loan. 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: New foreclosure data shows that the 4 states with the worst situations are Nevada (where 1 in every 54 homes is a foreclosure), California, Arizona and Florida. Rounding out that list is Colorado, Georgia, Michigan, Ohio, Massachusetts and Connecticut. Meanwhile, the nation is facing a record high number of vacancies with 3 out of every 100 houses going empty. Unfortunately, REO properties (real-estate owned) are notoriously unkempt and invite crime of all kinds.

In related news, Dow Jones recently reported that the Miami/Ft. Lauderdale area has 3 years of backlog inventory to burn through. That's if another house never went on the market again! Only 3 markets are doing well by any standards. Seattle, Houston and Dallas each only have a 6-month supply of housing for sale.

So here's the good news: This is a great time for buyers (especially first-time homebuyers) and renters. Affordability is coming back to the market after going AWOL for years.

About 10% of rentals are vacant, which means that you can steal a deal as a renter. Try to shop around about 4 months before the end of your current lease. The greatest hazard and opportunity alike is in renting from an involuntary landlord who can't sell. They usually just need the money and don't know much about maintaining a property. But you'll get cheaper rent than in a traditional rental complex. The danger comes if they stop paying the mortgage and go into foreclosure. Then you'll be out on the street too.

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!

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

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

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

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

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

There's a new trend that you need to know about if you have a home equity line of credit. Buried in your HELOC is a clause that allows the bank to freeze or reduce your line, at will, with almost no notice. In his TV work, Clark recently did a story about Bank of America doing this to its HELOC holders. But many banks other than just BoA are doing this.

This is a double whammy because many banks charged fees upfront to set up the HELOCs. So far they're not refunding the junk fees. Meanwhile, your credit score can also be demolished based on utilization of the HELOC. Say you have a HELOC with a $100K limit and you're only using $30K. That means you're using 30% of the limit, which is a relatively low level. But if your HELOC is suddenly dropped to a $30K limit, then you're using 100% of what's available to you and your credit is buckling under that strain.

Banks are slashing HELOCs because people are increasingly defaulting on them. Yet people with solid credit can get fantastic offers for borrowing right now because it's such an odd time in our economy. Clark's credit union is offering a 5-year fixed rate HELOC at 3.95%. That's really inexpensive! He also has access to car loans at 3.90% for new or used vehicles on loans of 4 years or less. There's such a stark contrast between what's available to people with good credit and people with bad credit.

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: Clark recently heard bits of sobering news on the banking and housing fronts. First, the feds are providing $200 billion in bailout money to try to keep banks afloat. It's disturbing to Clark that banks which made bad bets are being propped up by taxpayers. Zombie banks should be allowed to fail as the marketplace dictates. But the feds are probably heeding the unwritten "too big to fail" rule. We'll have to see how it all plays out.

In our own financial lives, the equity we have in our homes is the lowest it's been since the Great Depression; it's now less than 50% for the first time ever. As part of trying to prop up the housing market, you can now borrow more from conventional sources. This means people with jumbo loans can refinance into conventional loans that may carry lower interest rates. This may affect you if you live in California, Colorado, Florida, Hawaii or through the Northeast. See a complete list of the affected areas.

Finally, all the ups and downs of the market mean that there will be both winners and losers. The big winners are first-time homebuyers and some investors who can steal a deal from builders or on REO (real-estate owned) property. Some Europeans are even taking bus tours of foreclosures here in the United States. They're looking to leverage the Euro's strength against the dollar to buy properties at a fraction of their original cost. There is one caveat for the first-time homebuyer: You should put something down -- at least 5% -- in order to get a decent loan.

Selling a house is a turbo-challenge right now. Clark's mom recently put her condo on the market. Figuring out the price point was the most difficult part. Everyone's perplexed by the question of price point these days. Here's some advice: Don't look at comps from a year or 2 ago; look at today's comps. Know that if you overprice, you'll likely get less in the end than those who price realistically upfront. You lose your initial marketing thrust when you overprice upfront. Listing your home at a realistic price will lead to less angst, a shorter time on the market and possibly a better price.

Clark and Christa have a mutual friend who was selling her home last year. Clark advised the friend to price her home at a totally oddball figure, something that ended in $XXX,552.27, for example. Everyone laughed at him at the time. Now financial writer Jonathan Clements reveals this pricing strategy actually works. When you throw out an oddball figure, people think 2 things: First, that it's a bargain. Second, that's there is carefully thought out reason behind it. But whatever you do, do not overprice your home!

CLARKONOMICS: New stats show that the inflation level at wholesale was 7.5% last year. It's been a long time since we had similarly bad numbers. Some of Clark's staff -- namely Joel -- weren't even born the last time we were in such a squeeze. At the same time, housing prices have declined 9% year-over-year in some big markets. That's the biggest decrease ever in the Case-Shiller home price index. So the things we own have gone down in value, while the things we buy are going up in price. That's why people feel ill at ease, even if they're relatively comfortable in their own lives.

There's also a push/pull going on between lenders and homeowners. On the one hand, you have Bank of America leading an initiative on Capitol Hill to dump the cost of low-performing mortgages on taxpayers. Meanwhile, there's also a move to establish cram-downs for homeowners. That's where you get a judge to reduce your loan to the current value of the house. Clark is opposed to both extremes. BoA's move is outrageous, and cram-downs -- while frequently done in commercial real estate -- would undermine the confidence of investors with disastrous long-term results. The reality is that we'll have to work through the housing and inflation issues by readjusting how we spend.

Think about groceries: With costs rising, you've got to fight back by using coupons; buying in bulk when dry goods are on sale; and trading down in brand when you shop. You should also heed the common sense wisdom: Never shop on an empty stomach; don't go down the candy, ice cream or cereal aisles with your kids; and get your children involved by having them clip coupons and giving them a percent of the savings.

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.

A few years ago, Clark told you about a website that lists trash facilities and toxic waste sites in a given area. Potential homebuyers could use the service to vet a neighborhood before a purchase. Then he recently read about a website called CrimeReports.com that allows you to do the same thing for crime statistics. CrimeReports.com is still a fledgling effort so there's not too much info in the database yet; so far Dallas and Chicago are the only big cities listed. One of the main impediments to growing the website will be from politicians and police departments. Unfortunately, a lot of politicians don't want their local police departments to be honest about crime rates. Spikes in crime reflect poorly on a politician's leadership. So we'll see how this site progresses in the future. CrimeReports.com was the brainchild of a man in Virginia who had been the victim of a crime. The site could prove to be a real boon to community-based policing of the sort that was favored by former New York mayor Rudy Giuliani.

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.

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.

A lot of us got a lump of coal from our own government this past year. Your home may have gone down in value in 2007 and may continue to do so this year. But talk about rubbing salt into the wounds; people are getting property tax reappraisals that are way up from where they were before. The Washington Post reports that Maryland residents are seeing property tax increases of 33 percent, yet property values are down in much of the state. This scenario is being repeated all over the country. The appraisals are out of date and use faulty data from boom-year sales. The net effect is that your local government is ripping you off. There's no other way to say it. Do you have to take it? No, you can appeal your appraisal. The rules for appeal vary by jurisdiction. There may be an informal process before the formal one. Never gripe about the government during the process, just present the facts about recent sale prices of homes similar to yours. These figures, often called "comps" in real-estate lingo, are the smoking gun that will help you get an appraisal price rollback. Search out comps on the Internet or consult a local real-estate agent for help. If you can get comps for foreclosures in your neighborhood, that's like having extra ammunition. Clark suggests dressing business casual if you have to appear before a panel as part of the process. The idea is to dress nicely -- but not too well -- and people will respond to your appearance.

For the past 2 years, Florida hasn't had any population growth. Moving companies report that as many people are moving out as they are moving in. Real estate prices are now down 20 percent from their peak, and The Washington Post reports that enrollment in public schools is down year after year. Many families are leaving because they're being priced out of the market, not to mention that the cost of insurance with all the hurricanes has been too much. Florida's popularity ultimately became its own hex. So that means this a great time to zig when others zag. Clark thinks there will be tremendous real estate opportunities throughout Florida in 2009.

If you hope to buy Sunshine State real estate, don't go by the last sale price on a given property. Instead, look back at what properties sold for in 2004 and use that as your baseline. Keep in mind that the ridiculous prices of 2005 and 2006 were speculative. Miami will present a lot of opportunities in the condo market, but beware of location. Many developers built condos in unsafe neighborhoods as desirable land got scarce. Know the market before you buy.

Take a look at The Wall Street Journal and you'll see one dire headline after another. In the latest edition of Clarkonomics, Clark explained how one root of the problem is that money has been too easy to borrow. Between 2000-2006, our average household debt rose by 500 percent. That's unprecedented in our history. Banks kept making mortgage loans and didn't care if the loan was going to get paid. They were all too happy to package loans together and sell them off as supposedly safe investments. Meanwhile, conventional wisdom says that sub-prime mortgage holders get in trouble when their rates reset. Yet the reality is that most got in trouble even earlier. On the other side of the spectrum, you have upper middle-class people who took out option payment loans and bought expensive homes. These are people with good credit scores and histories. But the balance on option payment loans goes up over time. So the story of one man who contacted Clark when he was $400,000 upside down in his home is not unique.

In the past, when the economy started to tank, you flooded it with money. That's no longer an alternative. We're facing a time when we'll have to go cold turkey and clean the excess out of the economy. Millions will get hurt, and hundreds of thousands in the financial sector may lose their jobs. States and local governments will continue going in the red and have to decide whether to cut spending or raise taxes.

At some point, people will lose confidence in owning real estate. They'll have to double up, move in with family or become renters. We're not there yet. But after we get there, look for a time when the excess housing supply will be a real deal. If you have an opportunity to buy for pennies or dimes on the dollar, pounce on it and then be prepared to wait for recovery. The other bit of advice Clark has for tight economic times is perennial: Reduce your debt exposure!

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.

As a counterpoint to the last story, Federal Reserve economists are predicting that housing values could fall 15 percent before the overall market returns to normal. Believe it or not, that's good news. Historically, people have paid marginally more to own vs. rent. Right now the costs to own vs. rent are very disproportionate. That's partly because the speculative trend and "Dare To Be Great" mindset fueled a lot of stupid investments. Now we have the largest number of vacant properties ever. The good news is that housing will once again become affordable to the average working family. It may take a 15 percent overall decline to get there, but it will happen. It's funny how all the press you read about the housing market says the sky is falling, but that's not really the whole picture. For people who are in their houses and have some equity, this is just a temporary bump in the road. And when those people eventually want to trade up in housing, their next property won't be so exorbitantly priced.

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.

There's a new recipient of the old "car on blocks" award. You know the saying, "Stay away from neighborhoods that have cars on blocks," right? Portable on-demand storage (PODs) units are getting that kind of stigma now. Instead of you going to storage, you bring the storage to your front yard with a pod. Leaving one on your property for too long is a sure way to drive your neighbors crazy. The Washington Post reports that there's now a big backlash over the prevalence of PODs. You'll see them invading neighborhoods of all price points, in addition to construction sites. And these things aren't cheap, either; they can cost nearly $400/month to rent! So townships are getting ordinances passed to restrict or to require permits to have PODs on your property. The original concept with PODs was that you loaded them up and moved to another place or had them stored elsewhere. It's a more recent phenomenon that they've become at-home storage units! Clark's wife would kill him if he got a POD at their house.

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.

In the latest session of Clarkonomics, our favorite penny-pinching guru offered tips for homeowners looking to maximize their resale value in an increasingly tough market. The latest data shows that housing sales are definitely down, but not as much as you'd think. Some 5 million people (at an annual rate) closed on homes last month across the nation. But from the headlines, you'd think that number should be zero. Prices are definitely around 5 percent down, but all real estate is local. Areas such as Tampa, Miami, San Diego and Detroit are down over 10 percent, while Las Vegas, Phoenix and Los Angeles may be down between 15 and 20 percent. Yet if you're in Atlanta, Charlotte, Dallas, Portland or Seattle, you'll find that home values are fairly stable. Also, keep in mind that widespread housing recovery probably won't come until 2009.

So what should you do if you're trying to sell your home? First off, consider owner financing if you own your home free and clear. You'll take on the role of being the bank, and you may get a better price and a quicker sell, plus a higher rate of interest back from the buyer. But beware that you have to get between 15 and 20 percent down to protect yourself. Second, be realistic about your listing price or you'll scare people away. Finally, try doing a FSBO (for sale by owner). Just know that sellers will come looking for a real steal, so be aggressive in sticking to your pricing. It might be better to hire an agent.

The investment world is in a buzz with a loss of confidence and a lot of fear. Citibank was recently rescued by Middle East investors who put a lot of money in to keep the bank afloat. HSBC is also in a similar bind. The problem is that over the last few years, people started to get really cute with Wall Street investments. That's the heart of the housing/mortgage meltdown. Lenders just wanted to package mortgages and resell them for a profit -- they didn't care if the loans were ever paid. The drop in lending standards also really took a toll on the market. Home values in California are now down 15 percent from their peak and they're expected to go lower.

Economists now are talking about the possibility of recession. The foreclosure epidemic is a personal tragedy for families and neighborhoods alike, but the big test for the economy is if the stock market hollows out too. Beware of a bear market, where the value of stocks falls 20 percent from peak prices. The combo of a bear market with a housing slump could definitely lead to recession. It's been about 25 years since we as a nation have had really tough economic times. If you came of age during the last 20 years, you don't know the level of discomfort that could be yet to come. So what should you being doing right now? In a word, have your act together. The recent "in" thing to do was to take out a home equity line of credit and make your house a piggy bank. But now that piggy is tapped out. So you must pay off the debts you may have developed. Ask yourself how much you have in savings and how much debt you've accumulated. Have a plan in place in the event of a job loss. If you're looking ahead to retirement soon, move your retirement savings into safe havens. If retirement is many years away, then stay the course and keep putting money into your 401(k) plan. Doing that during lean times is like buying merchandise at a deep discount.

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

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

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

The fallout from the recent California fires has exposed more ugliness for homeowners who've been facing evacuation, temporary homelessness and charred ruins. To add insult to injury, some 40 percent of homeowners may be ruined because they didn't have enough insurance on their homes, according to the California Department of Insurance. Several times a year Clark will advise homeowners to raise their insurance limits. It's one of those good ideas that most people never get around to doing. Say you purchased your home 10 years ago for $100,000. Now your home may be worth $250,000. But your insurance has not kept pace. So you'll be destroyed financially if you have a catastrophic loss. It gets even worse if you have a mortgage on the property. You can lose your home, be foreclosed upon and get sued by the lender for losses on the loan. Is Clark scaring you? That's his intention.

You need to have your homeowners insurance limits raised every 3-5 years -- even though it will raise your premiums. The scary thing is that the insurance company is not required to rebuild your home if you're grossly underinsured. Clark has been in his house for 11 years, and he's had to fight his insurer three times to get them to raise the insurance limits. An appraisal demonstrated that his home had greatly appreciated in value and needed to be better insured. But he still got pushback. Sometimes insurance companies are scared you'll torch your house for a financial gain. Do what you must to get your insurance limits raised. Don't end up like the California homeowners with no meaningful coverage and no way to rebuild their homes.

A lot of people in real estate love doing 1031 Exchanges. If you're not familiar with the term, 1031s allow you to sell an investment property and roll your gains over into a new investment property -- rather than paying taxes on your capital gains. There are certain rules governing 1031s. The money must go directly into the hand of a qualified intermediary. You have 45 days to identify a new property, and you have 180 days to actually acquire that property. But there have been a lot of problems with 1031s because some qualified intermediaries are running off with the cash. Now The Washington Post reports that the IRS is retroactively disallowing some 1031s as a precaution.

Clark's real advice is to not do a 1031. People are so obsessed with avoiding tax that they lose sight of the bigger financial picture. For example, right now the max tax you'll pay when you sell a property is 15 percent. That's the best deal we've had in years. With the Democrats likely to get into office in 2008, most of their candidates are talking about capital-gains taxes of 28 percent. So doing a 1031 now to defer paying 15 percent when you'll later pay 28 percent is not "Clark Smart." Instead, just harvest your gains and pay your taxes! Clark knows everyone will tell you the opposite. But he believes the tax rates are only likely to go higher. This is best it's ever been; it's probably not going to get better -- only more expensive.

Orphan subdivisions are a topic that Clark spoke about frequently in the late 1980s and early 1990s. Now there's reason to be concerned about them again. Throughout most of the country, developers buy up land and put in streets and utilities before selling off to builders or developing new homes themselves. People often wanted to be early buyers in these burgeoning developments when the housing market was going strong because they could get better deals. But now the danger is that builders are going broke and abandoning developments midstream. Clark's fond of saying that you should only live in a swim or tennis community if you can swim in the pool and play tennis on the courts. Anybody can woo you with a four-color brochure that has pictures of a pool, a clubhouse, and other amenities that are supposed to be built. But it's all smoke and mirrors until you see it for yourself.

These orphan subdivisions will be a problem especially in the South and West as developers go insolvent and dump their projects. Nothing good comes of it even when the lenders come in and take over. Lenders really aren't in the real estate development business. One of the worst scenarios that Clark has seen involved a large development of more than 1,000 high-end home that were two-thirds of the way built when the builder went belly up. The insurance company that took over sold the land to the highest bidder, who in turn built townhouses and starter homes. That made the home values of the existing owners plummet. Now imagine the lender can't find anyone to step in at all. You could be living next to scarred earth that's been homogenized for development and looks awful. So Clark has a simple rule when it comes to orphan subdivisions: Buy at the tail end of a build, never at the start of a development. Don't be a speculator -- unless you get an absolutely phenomenal deal.