It shouldn’t surprise you that not every applicant will have a shot at the very best deals on new or refinanced home loans. If you are thinking about refinancing your home mortgage and are hoping to get one of those killer deals, then you’d best double-check your qualifications now. If, for example, your credit score is less than the “great credit” cut-off of seven hundred twenty, you might well be turned down. If that’s not the case, you could end up paying a higher rate than the one advertised. Your lender can check your credit score for you ahead of time to give you advance warning as to whether you can expect any trouble, or you can order a score from FICO for less than twenty dollars.

The state of the equity in your home could also become a deciding factor in whether or not you get approved for a refinancing deal. If the price of your home has fallen too much, your initial down payment or any accumulated home equity could well be wiped out. There’s a reason that as many as half of all homes in the United States are currently considered underwater – home values have tanked in the last three years or so. You will be ineligible to refinance your current mortgage if the loan is worth more than the house. The way to know this for certain is with an appraisal, but those can be expensive. A good first step would be to get your lender to run what’s called an “automated valuations model” on your property, checking comparable homes in your neighborhood that have sold recently. This should be free of charge. Don’t bother paying for an appraisal for a refi unless your lender tells you with reasonable certainty that you have at least twenty percent positive equity in your home with which you can qualify for refinancing.

You can also expect that your income will be called into question. Even if your credit is stellar and your equity is good, you might have qualification issues if either you or your spouse is unemployed at the time of the refinance. It doesn’t matter if you are managing to pay your bills and haven’t seen any impact on your credit – your lender will still want to see a steady income history spanning at least two years. A period of joblessness will reflect poorly, no matter how bad the economy or how little it has affected your ability to pay for your bills.

If you have managed to hit all these qualifications, the next step is to decide what the best new mortgage is for you. The industry standard is a fixed-rate, thirty year mortgage, but that is not necessarily the nest option for every homeowner. There are numerous online calculators intended to help you figure out which mortgage option will give you the most bang for your buck at different periods of your life, but there are several things to consider. Younger homeowners who might struggle a bit with bills could benefit from lower monthly payments and almost certainly have the time to chip away at a mortgage, so the typical thirty-year plan just might be the best bet. Those closer to retirement who will be very old after thirty years might look at a fifteen year mortgage, especially if they are getting a much better rate and can swing the higher payments. On the plus side, you can expect your rate to be around half a percentage point less for a shorter repayment plan, but your monthly payments could be the same or higher. Of course, this is nothing compared to the security of knowing that you could own your home when or soon after you retire. Another choice is to take the thirty-year loan and just commit to paying extra on the principal payments every month. The choice is totally yours.

One decision to avoid, no matter what your situation, is an adjustable interest rate. It can be extremely tempting to go with an ARM, given how low these rates are, but you can never lose sight of the fact that these rates can and will inevitably reset down the line. In the best of cases, you will need to refinance again and lose time and money. In the worst of cases, inflation could take hold (as experts are warning could happen), rates could soar, and you could end up in hot water. If rates should happen to move lower again, you can always refinance again in that case.

Keep in mind that you can never look solely at the annual percentage rate of your loan when you are considering refinancing, because this is only one piece of the equation. You also need to consider what costs and fees you might be assessed. Extra points (costs equal to one percent of the loan) might be added when you consider how much it will cost to pull the deal together for your broker. Make sure that there is not more than a quarter point of difference between the APR and the quote for your total costs. Also keep in mind that you will likely pay more for so-called “jumbo” loans, or those written for more than a certain percentage above the median home price in your neighborhood. For example, Fannie Mae and Freddie Mac start jumbo loan rates at four hundred seventeen thousand dollars. You also need to consider the cost of escrow, which includes your property taxes and homeowners insurance. In some situations, you will not get a choice as to whether or not you add escrow to your payments. I personally like the security of knowing that my taxes and insurance are taken care of without too much interference from me, so I’d go with escrow if given the choice. Other people who are not required to do it feel that they’d rather pay a single bill. That’s another decision that you will need to consider.

Once you have met the qualifications and decided on a mortgage, your final step towards refinancing your home is to decide upon who will help you do the work. You can get a mortgage (or, of course, do a refinancing deal) either directly from a lender, or through a mortgage broker. There are pros and cons to either choice, but you can expect to have to jump through lots of hoops and to provide more paperwork and documentation than you ever could have thought humanely possible. The property will be appraised during this step, and your credit and financial history will be examined with a fine tooth comb by the bank’s underwriters. At this point, you will lock in a rate for thirty days, at some point during which you will close on the deal. Don’t worry if the rates should happen to drop in the interim – many lenders are generous enough to allow you to access the new rate for free and without interrupting the process.

There are online matching services that you can access if you are looking to find a bank or broker. Many of them advertise on TV with promises that they will make lenders compete for your business, and this is technically true – you’ll still need to wade through their loan offers and possibly talk to a lot of different people, however. You can also use a simple online search engine query to find mortgage brokers in your area, and go from there. Make sure that you check out the company’s profile through the Better Business Bureau, since you will be trusting these people with the future of your home! Don’t just go with whomever has the most advertisements, or the lender that you saw in a TV ad or heard about through a jingle. Recommendations from past customers are best, followed by strong endorsements on business review sites on the World Wide Web.

Refinancing your mortgage can turn out to be a serious blessing, if you are able to pull it off. Lowering your monthly bills (or at least making the terms more favorable) is never a bad thing, especially for those who have managed to steadfastly pay their mortgage payment every month during a period of time when people have been walking away from their obligations left and right. Bets of luck to you in your endeavors, and may you have many years of happiness in your home.

I read an article online recently about borrowing from a home equity loan to pay for the costs of making landscaping improvements to your home. There’s something that just strikes me as sour about the whole proposition, despite this promising statement: “Who knows…by the time the project is finished, the actual equity in the house may have increased enough to pay for the whole endeavor!”

Landscaping, while one of the least expensive home improvements, can still be pretty expensive for those on a tight budget. You’d be surprised how quickly gardening supplies add up – seeds, flowers, mulch, shrubs, decorative accents, pots, trim… and that’s to say nothing of the tools you’ll need to get all these items in place. A good shovel and hoe are not cheap, and you’ll want a nice pair of gardening gloves for each adult working on the project. Add some fancier elements like a stone patio, a fountain or fishpond, or a garden shed, and you could be easily looking at a very expensive ordeal! If you have revamped your home recently, you’ll want your yard to look just as good.

The article I read recommended securing advance funding for your landscaping project with a home equity loan, on the hopes that your landscaping contractor might give you a discount for paying up front and showing that you have cash on hand for the entire job you are planning. Their rational is that, when the business is brisk and there are lots of people competing for the limited time of good landscapers – say, during the spring and summer – you could earn the most attention from your contractor by showing readily-available cash funding. Many customers, the article claims, are apt to run out of money before their yard project is complete. This angers the landscapers, who have perhaps turned other clients away because their calendar is filled up with flaky types who couldn’t pay to have their projects finished.

There’s no doubt that you can very likely recoup a good amount of the money you sink into landscaping projects when you sell your house, but there are limits. Having an exquisite Japanese garden out of Better Homes & Gardens will not get you anywhere if you try to sell your house for ten thousand dollars over the closest comp in your neighborhood just because that’s what you spent on the project. Buyers simply won’t leap on your home for that great of a price difference in the same neighborhood, and you will ultimately end up having to let go of the house for much less than you initially wanted. The article says that, “[p]articularly in a competitive real estate market, an excellent landscaping job can bring more potential buyers in from the curb, and help clinch the sale.” My comment on this is, when’s the last time that any place in the United States has had a competitive real estate market? 2007? Today’s wary, jaded buyers are more likely to pay fire-sale prices for stripped, no-frills foreclosure properties that they can invest in on their own time than to splash out for a home with all the trimmings.

I say that it’s risky to borrow against your home equity for something as frivolous as landscaping. If you have plenty of equity, first of all, count yourself as one of the lucky ones and don’t go blowing it. You never know what can happen, or whether the market will go lower. Furthermore, there is a rising school of wisdom that says that you should not make improvements to a home just to sell it. By all means make improvements for your own sake, but don’t make the mistake of looking at your home as a cash cow. Too many people have been burned in this way. If you feel like using your home equity for anything at all, make sure that it is for much more necessary and applicable home repairs and improvements – new appliances when old ones are inefficient or don’t work, extra bedrooms when they are affordable, or bathroom renovations when old ones are dated and gross. I don’t think that a pretty garden is really the best use of your money!

The National Reverse Mortgage Lenders Association (NRMLA) issued a press release late last week touting the new reverse mortgage terms, which have already been approved by the Federal Housing Authority. Details are not final and remain in the process of discussions, said NRMLA spokesperson Lemar Wooley, but the news is nonetheless exciting.

In exchange for charging lower fees for reverse mortgages, homeowners seeking one of these “Saver” loans would be eligible to cash in ten to eighteen percent less equity on their homes. This is intended to keep the FHA from losing money the way it has been doing on current reverse mortgages. The large fees for current reverse mortgages come from the fact that the government has collected an upfront two percent insurance premium on the mortgages. The “HECM Saver” loans will eliminate the need for that insurance policy, since the percentage borrowed against the home’s equity is not nearly as great. Losses will hopefully become much lower, and the government will stop losing money. Both the Saver loan and the old-style reverse mortgages, now called “HEMC Standard” loans, will be available side-by-side in October.

Many prospective reverse mortgage candidates have been historically deterred by the high upfront costs of processing such a loan. Luckily, the Saver version of the reverse mortgage will still allow seniors to access money they need to use for crucial living expenses, without having to scrimp, save, and borrow to pay two percent of the home’s value upfront. They’ll get less money, but it’s believed that the Saver product will fulfill a pressing need. The percentage of a home’s equity that can be tapped with a reverse mortgage depends on many factors, including the age of the homeowner(s). Any equity in the home will first be used to pay off the existing mortgage balance. That’s why experts say that HEMCs are best suited for those who completely own their homes or only owe very little on them in payments. Whatever money is left after the mortgage is paid off is doled out either as a lump sum or in the form of lifetime monthly payments. Alternately, the funds can be accessed as a line of credit similar to that of a HELOC. The reverse mortgage lines of credit are backed by the government, so there is no worry that they will suddenly dry up in the way that many consumers’ home equity lines of credit did when the economy soured. Homeowners need make no further mortgage payments and can live in the home as long as they’re able. They must continue to pay any taxes and home insurance, of course, and maintain the property, but they are essentially getting paid to live in their own homes. Paying back the borrowed money would of course cancel the reverse mortgage at any time.

When the homeowners pass away or leave the home – say, for a nursing home or to reside with family members – any equity remaining in the home can be bequeathed to heirs. Depending on how long the loan has been outstanding, the lender might well end up upside down on the loan if the property has lost a lot of value over the years. Since reverse mortgages are non-recourse loans, however, this is not a problem for homeowners or heirs. As long as the money from these mortgages is being used sensibly and ideally for paying for living expenses, there is no good reason why the elderly should not turn to this exceptional financial option – especially nowadays, with a greater range of choices available.

That’s not even talking about investments that actually turn out to make you very little money in the end, two examples of which are given as swimming pools and bedrooms converted into home offices. Swimming pools cost a lot of money to build, and they tend to recoup barely half of the cost in corresponding home value, since so many buyers don’t want the work and expense of dealing with such a “luxury.” For example, my husband and I actually told our realtor to avoid houses with swimming pools, because we have two very young children. Home office renovations are also risky business, since many prospective future buyers would rather just have an extra bedroom. Other pricy home repairs that are cited as tough to recoup include granite countertops, vast and expensive landscaping projects, family room additions, and upgrading appliances that still work. But every so often, realtor word-of-mouth reveals certain properties that actually end up almost impossible to sell due to expensive choices made by the previous homeowners.

Take, for instance, the tale of a Salt Lake City homeowner whose home really was his castle – literally. The homeowner had reportedly invested thousands of dollars to add turrets, concrete gargoyles, and a drawbridge to the house – along with a moat dug out front. Unfortunately, the job was done poorly, and the multi-level roof was leaking badly enough that mushrooms were growing down through the ceiling on the first floor, and up through the carpet on the second floor. The house sold, but for a fraction of what it was initially listed for. After all, who wants to be perpetually telling visitors that their home can be recognized by the flag tower on the roof? (That’s to say nothing of the growing of fungus inside your home. Yuck!)

That’s to say nothing of the Californian homeowner of a house and attached half-acre empty lot, who was trying to sell the two parcels of land separately. The seller scored a buyer, only to have the deal collapse at the last possible instant when it was found that the seller had done some do-it-yourself plumbing and routed a waste drainage line from the house straight into the water management company’s storm drain. The realtor telling the story bemoaned the fact that “fifty-plus days of negotiations” went to pot in moments when the illicit pipe job was found by the appraiser. The house remains unsold, because nobody in their right mind wants to take on that burden! That leads to the second category of distressed real estate – those homes with over-ambitious sellers who took on renovation projects far beyond the scope of their own talents.

Under this category fall those homeowners who started to build additions and never finished them. The Times story told of a home in Nashville with an entire brick back wall removed and covered with plastic as the sad remnants of a husband who abandoned his wife and kids… and the addition he had started. An unfinished addition is a huge liability when it comes to trying to sell a house, because not everyone has the time, money, and energy needed to realize the project. You will never get any credit for the materials you put into the project, rather, you can expect to have to take a significant chunk off the selling price to accommodate a potential buyer who will want some room in the budget to tackle their new albatross. And that’s assuming that you can find a buyer at all!

Of course, sometimes finished projects make so little sense that they aren’t much better than incomplete additions. In Los Angeles, the story reported, the city’s vast amount of “creative types” tend to love to convert extra bedrooms in their homes into recording studios and/or screening rooms. These conversions are iffy, but not too bad – recording studios are easily converted back into their rightful status as bedrooms, and in such an area, sellers might just be lucky enough to snag a similarly-minded buyer. On the other hand, grumbled one fine-estate realtor in the Encino area, there was a certain three bedroom home with a recording studio conversion and the smallest, middle bedroom turned into an epic walk-in closet for the master bedroom. Well, make that the SINGLE bedroom. There simply was almost no market for single-bedroom homes in La La Land, as there probably would not be anywhere. The house, again, probably had to be sold at a loss, although the story did not spell out that homeowner’s particular fate.

Another story, from Nashville, tells of a homeowner who felt that they could benefit from more storage space. Interestingly enough, the realty company in question had helped sell the house in 2005 as a four bedroom, two bathroom home. Imagine their surprise when they again received the home for listing… with one less bathroom on the specs. The homeowner had decided to turn the downstairs bathroom into a storage closet. This person wasn’t content to box in the sink and toilet and to fill the shower with unused items, however – oh, no. They had decided to remove every single fixture, leaving a space that was essentially worthless. The seller bragged that his home would be worth much more money with all the extra storage space. His realtor had to gently break it to him that most likely, the opposite was true. After all, how many people with a two-story home fancy the thought of having to run upstairs every time they need to answer the call of nature?

Then there are the homes that look like the abode of Frankenstein, with extra parts just added willy-nilly all over the place. A tale was relayed from Athens, Georgia, where realtors were baffled by a farmhouse that had been extended with a new kitchen, a few new bedrooms, and new bathrooms. The only problem? The new additions were added with zero thought for the logic of layout, with multiple levels of elevation throughout the house, and the living room so cluttered with doors to other rooms that it was practically impossible to place any furniture in it at all. Every room was said to have its own crawlspace, and the roof was reported to be a complete monstrosity. If your home looks like a miniature version of the Winchester Mystery House, then expect potential buyers to be at least a little dismayed.

Look, nobody’s saying that you shouldn’t have the home of your dreams. Style is subjective, and what’s beautiful to one person could be anathema to another. I remember, as a small child, looking at a home with my parents when we were in the process of relocating to a new state. The home in question, which was located on a gorgeous beachfront lot, was priced strangely low for the neighborhood. A quick glance inside revealed why. The home sported four bedrooms, all of which were arranged in a line down a hallway, like a hotel. The rooms each had a step-down sitting room-esque area separated by a sliding glass door. There was buttercup-yellow fixtures in the kitchen, bright pink tile in the bathroom, and the aforementioned bedrooms were painted electric colors of yellow and orange. There were numerous structural issues with the house, including a rotting roof and a living room floor that creaked dangerously enough when walked upon that even us kids worried about falling through. The home’s owners undoubtedly had arranged the home’s décor (although undoubtedly not its level of disrepair) to their satisfaction, but it was repulsive to look at. Use your common sense when you are undertaking serious changes to your home. Is the renovation going to add space or amenities in logical places that will preserve the natural flow and footpaths of your home? Are your changes very eclectic? This isn’t as subjective an assessment as you might think… look out the front door! Do any of your neighbors have a moat in the front yard? How about your whole neighborhood? Is the answer no? Give some thought to what that might mean.

If you make common sense choices when deciding what to do with your home, it’s unlikely that you will be hit with a major case of the buyer freak-outs when you start getting people through your house. Experts estimate that paint is one of the best investments for your money. Keep your home clean, paint the interior walls neutral colors, and maybe through on a pan of break-and-bake cookies before your open house. Those things are much more likely to impress buyers than a bathroom-turned-closet.

Experts weren’t exactly surprised that home sales tanked in July. The new homebuyers’ tax rebate incentive program ended for purchases in June, and a drop-off in the heretofore modestly steady sales numbers was anticipated. The actual results for the following month, however, turned out to be quite a bit worse than forecasted. Between June and July, closed sales of previously-owned homes (as opposed to purchases of new construction) in Ohio tumbled by a dramatic, horrible twenty-seven percent. That’s slightly higher than the nationwide drop-off of twenty-five and a half percent.

The first-time homebuyers’ tax credit was a program begun in 2009 and extended by the Legislature into the first half of this year after its wild success and positive stimulation of the moribund housing market. Brand new homebuyers could qualify for an income tax credit of as much as eight thousand dollars upon the purchase of a home. It was required that qualifying applicants submit a contract with the seller by the last day of April, and that they closed by the end of July. Congress ended up agreeing to an eleventh-hour extension of the closing date, since so many buyers were getting bogged down in the snails’-pace closing process. Still, the lion’s share of the tax credit homebuyers finalized their purchases in April, May, and June. Home sales don’t count until the closing date, so all those sales went on the books for the spring months.

In the month of July, the National Association of Realtors dismally reported the lowest level of nationwide home, condo, townhouse, and co-op sales since they began keeping records in 1999. The sales of single-family homes, which count for the bulk of all real estate purchases, hit their lowest numbers since spring of 1995. The terrible numbers are leading some cynics to wonder whether the homebuyers’ tax credit was even worthwhile in the first place – if the drop-off afterwards is so severe, will it really turn out that the net gains outweigh the negatives?

In Ohio, the numbers were – again – even worse than the nationwide figures. Between June and July, the sales of both new construction properties and existing single-unit homes dropped off by thirty-five and a half percent. The Northern Ohio Regional MLS reports that July 2010’s sales were a drastic twenty-one and a half percent less than those of the same month last year. Condo sales did even worse, if that’s possible – almost forty-six percent fewer were sold between June and July 2010, and almost twenty-nine percent fewer between July 2010 and July 2009.

The end of the tax credit isn’t the only factor driving lousy sales, experts insist, even if it is probably the strongest. Also complicating the matter is the fact that foreclosures throughout the state remain sky-high, a state of affairs that diminishes home prices across the board. The poor economy continues to make potential buyers wary of closing a deal. And those who actually want to buy a house are being stymied on their path to closing – with lending standards almost impossibly strict these days, would-be buyers who are arguably quite qualified to purchase homes are being turned away by banks or giving up the quest in frustration. There’s not an immediate improvement in sight, although the longer-term forecast is a touch rosier: experts are predicting low home sales in August and some improvement in September.

It’s not that people are disinterested in the concept of purchasing a home, insist the realtors. In fact, with prices so low, more people than ever are window-shopping (as it were) the market. Those realtors on the scene report plenty of showings, open house visits, and website views of listings. That doesn’t mean that all this interest is translating into sales, however. Many buyers are cagily wondering if the government will throw more incentives their way if the market continues to flounder. Others are choosing to refinance their current mortgages to take advantage of low rates, instead of moving. And many are just concerned about the overall state of the economy and not willing to make a big purchase, the experts bemoan.

Realtors claim that the disastrous numbers are playing havoc on their sales results. Sales patterns have been sketchy and irregular, and the overall numbers have been very weak. Throughout the state, the prices of homes varied all over the place last month. On a nationwide price of a home with a previous owner was around one hundred eighty-two thousand dollars, up slightly less than one percent from a year before. The Ohio Realtors report average prices instead of medians, however, which slightly skews the results. The average sale price for a new or existing home in the state was slightly less than one hundred thirty-seven thousand dollars in the month of July, down slightly more than three percent over the results from a year before.

The goal of the new initiative is to target the rising foreclosure rate by attacking one of its leading present causes: the high unemployment rate. While the so-called “first wave” of foreclosures that hit during the financial crisis were undoubtedly due to sketchy mortgage deals going bad as a result of greedy banks and overreaching consumers, today’s wave of foreclosures is stemming from the economic downturn as a whole, as well as the light of unemployed borrowers with no ability to pay on their mortgages.

Obama is aiming to assist homeowners who are underwater on their loans by giving incentives to banks who restructure these mortgages to eliminate some of the negative equity in these properties. The Federal Housing Administration would be able to help out those homeowners who remain current on their loans by allowing homeowners to refinance their mortgages under more favorable terms. With home prices across the country continuing to fall, the issue of upside-down homeowners has become larger and more pressing than ever before. No taxpayer funds will be used to fund the fifty billion dollar program. Instead, the money will be pulled from existing foreclosure relief monies set aside from the emergency bailout program.

Oval Office insiders say that Obama is flush after his victory in the area of health care reform law, and ready to tackle the seemingly insurmountable problems of continued economic grief and unemployment. It’s said that the program will also address the issue of homeowners who owe a great deal more on their mortgages than the house is worth, and are therefore at a greater risk of strategic default. The program will provide incentives to banks who chop the principle loan amounts of underwater borrowers, which is to say those borrowers who owe at least fifteen percent more on the home than it has been surveyed as being worth. One proposal would allow for banks to forgive the extra amount of the loan after three years as long as mortgage payments are kept current. This suggestion would not only address the issue of negative equity, but would also encourage borrowers to stay current on their obligations.

The federal government is also planning to double the sum of incentive cash it pays out to lenders who agree to assist homeowners by modifying the terms of second mortgages, including infamous “piggyback loans.” Incentives for lenders who come up with ways to avoid foreclosing on delinquent homeowners will also be stepped up. One such initiative would reward banks for allowing short sales instead of pushing for foreclosure.

It’s believed that mortgage origination levels this year will come in around just half of what was seen in 2003. Seven years ago, mortgage rates were considered exceedingly low at around 5.21 percent. That year, Freddie Mac logged over four trillion dollars in new loans. Interest rates have plummeted to unforeseen lows due to paranoia about the U.S. economic recovery stalling and Federal Reserve actions, as well as ridiculous lending standards and poor home equity. Just as the banks made it far too easy for consumers to get loans a few years ago, now it is way too hard for most people to bother buying a home.

Nowadays, even borrowers with the most magnificent FICO scores – we’re talking over eight hundred here – are having trouble obtaining financing on a new home. Banks want buyers to jump through incredible hoops to get a mortgage, including a debt-to-income ratio of less than forty percent and a substantial down payment that many people can’t come up with due to plunging home equity and insufficient incomes as the result of job losses and lowered salaries. It’s believed that as many as forty percent of all would-be homeowners are being barred from the market due to insufficient credit scores, insufficient income, or failure to meet other qualifications. Lenders are now accused of tightening requirements far too much to be realistic. The Denver Post article that I read quoted Lou Barnes, with Premier Mortgage Group in Boulder, as indicting Freddie Mac and Fannie Mae “for loosening their standards when the market was overheated and tightening them too much when the markets needed credit, rather than maintaining consistent underwriting like the Federal Housing Administration.”

There is hope that credit standards may be relaxing somewhat, thanks in joint part to the gradual re-emergence of no-cost refinancing for existing homeowners or expanded access to private mortgage insurance that almost completely dried up in the recession’s darkest days. Still, home sales are very unlikely to come close this year to 2003’s numbers, due in the greatest part to the latter day’s reliance on cash in the home buying process. Historically, only five to ten percent of home sales have been conducted as cash transactions. Nowadays, that number has swelled to a quarter of all home sales. This is due to investors buying up cheap foreclosures with cash and flipping them to rentals. Many second-mortgage lenders are also barring borrowers who might reasonably qualify for refinancing.

It’s astounding how WRONG this is, but it’s not technically fraud under U.S. law as long as homeowners do not lie on their mortgage applications. Lenders have followed suit after Fannie Mae and Freddie Mac made dramatic changes to their home loan approval standards in an attempt to prevent these shenanigans, but they have not managed to completely stamp out this practice. Experts say that the avarice and/or desperation of homeowners willing to undertake these dramatic schemes to get out of their homes and secure in another before they foreclose are proof that the most disastrous housing crash since the 1930s will have long and severe consequences. The pros say that, in the hardest-hit locations like Florida, there is almost no hope in site for people struggling. They need an escape plan – so they make them.

Across the country, the average value of the U.S. home has plummeted by a third between 2006 and last year. The SP/Case-Shiller index shows that many areas have seen numbers that are far worse: Phoenix has seen the average home price drop by fifty-five percent, and Las Vegas and Miami have each seen a drop of fifty-six percent. Over twenty percent of all American single-family homeowners are upside down on their mortgages as a result. Consequently, an estimate twelve percent of all foreclosures in the month of February were classified as strategic, meaning that the homeowners in question could have paid if they wanted to, but chose otherwise. Even if home values have a bit of a rebound, experts warn that the number of strategic defaults (which has catapulted from less than four percent in 2007) will very likely continue to rise. The reason is because, at the bottom of the market, the underwater homeowner will be able to exactly calculate how many years they can expect for it to take to recover their losses – if it’s at all possible – assess the situation, and possibly throw their hands up and walk away.

According to a report by Morgan Stanley, those homeowners most likely to abandon their mortgages as a strategic move are those with the highest credit scores and the highest loans. The cap at which Fannie and Freddie will not buy a loan (and therefore potentially score the homeowner a government restructuring deal) range from four hundred seventeen thousand to over seven hundred twenty-nine thousand dollars in pricy areas of the country. Homeowners with “jumbo loans” are much more likely to be facing tremendous negative equity (possibly into the six figures), and to strategically pick up something cheaper as the opening gamut in dumping their original mortgage. People with large paychecks and great credit can generally qualify for two concurrent mortgages, especially in days like today when home prices and mortgage rates are both so low.

Zillow lists the mean property value in Miami-Dade county as a smidge below one hundred forty-five thousand dollars, or twenty-one percent less than 2009 (the worst year of the recession by far). Adjacent Broward county has seen an almost fourteen percent drop in home values, down to a mean price of around one hundred thirty-nine thousand dollars. Since the height of the real estate boom in 2006, home prices have dropped fifty-five percent and fifty-four percent on average in Miami-Dade and Broward counties respectively. An alarming forty-four percent of all single-family homes in South Florida have negative equity, meaning that the property is mortgaged for more than the home is actually worth. That number has not budged since the beginning of this year, and with property values continuing to drop, the number of upside-down homeowners will only grow by leaps and bounds. An according forty-four percent of all homes sold in this region during the month of June were disposed of at a loss, undoubtedly by homeowners desperate to escape what is very obviously a sinking ship. Miami-Dade saw forty-seven percent of all sold homes let go at a lost, and Broward home sales lost forty-six percent on average in the month of June.

The scary part is that the South Florida region is not even the worst in Florida for property crisis. The Tampa and Orlando regions of the state have both been affected even worse by the ravages of the real estate collapse, according to Zillow. The fallout has been far-reaching and tragic, with many homeowners’ home equity loans and lines of credit being severely scaled back, if not closed completely. Homeowners looking to tap into new home equity products report that it is almost impossible to access a loan or line of credit in this day and age, because banks simply are not willing to take the risk. This effect is amplified significantly in areas of the country where the real estate disaster is much worse, like all of Florida.

As someone who lives in the Sunshine State, I can report that things are indeed really bad around these parts. You can’t ride down a street in any residential neighborhood and not see bunches of for sale signs, or the tall grass and disheveled upkeep that are the trademark signs of foreclosure and abandonment. It seems that there is at least one of these houses on every block, and it’s worse in certain neighborhoods. It certainly feels like it will be a long time before meaningful economic recovery comes to rescue Florida’s homeowners.

The American Bankers Association released a statement recently announcing that delinquencies on home equity loans are soaring, having exceeded those of car/boat/other auto loans, personal loans, and credit cards issued by Visa and MasterCard. The lenders of home equity products have so far had little success in getting back the money they are owed. Why, you might ask? Well, the collateral on these loans – the value of borrowers’ homes – has evaporated like water in the desert, and many borrowers at their wits’ end are simply threatening bankruptcy rather than being compelled to repay the loans. The greater the amount of money that was borrowed, the less chance there is that banks will ever see a scant time of their cash back.

Financial experts say that it’s not at all hard to see where the crisis happened. Households making only modest incomes were allowed to withdraw triple-digit equity loans on the inflated values of their homes. Now that the market has crashed, there is precious little chance of the bank ever having the chance to collect. The damages from this trend? An estimated eleven point one billion dollars in home equity loans written off as bad debt, and an additional twenty billion in defaulted home equity lines of credit in 2009 alone. That’s more than banks wrote off in bad debt from primary mortgages gone bad, which is really saying something. This year is looking to be no better, with over seven and three-quarters billion dollars in combined write-offs going on the books during the first quarter of 2010.

Lenders are finding themselves over a barrel to do anything about this crisis, either. Efforts to exercise some legal muscle on recalcitrant borrowers have been almost pointless, considering that many borrowers dragged to court end up settling ten cents on the dollar – or even less. It’s a system that rewards unethical behavior, tut-tuts the banking industry, but it doesn’t seem likely to change any time soon. Debt collectors that scoop up home equity loans in the hopes of collecting on them in the future seldom pay more than a few hundred dollars for the loan, regardless of how high the loan happens to be. The chief executive of Utah Loan Servicing, a specific collector referenced in the NYT article, claims that any home equity loan of more than fifteen or twenty thousand dollars is likely to never be collected. Clark Terry claims that American homeowners “seem to believe that anything they can get away with is O.K.”

For their own parts, homeowners sitting on huge home equity debts with no conceivable way to repay them claim that they are simply trying to recover from unspeakably stressful financial crises and to rebuild their lives. Banks have a great deal of the blame for having extended home equity loans and lines of credit all willy-nilly, and possibly even having been predatory in their approval of middle-class homeowners for huge loans. The same consumers who happily accepted fat checks for vacation homes and other luxury items now say that they were duped by their banks, and that they are now flat broke while banks had the benefit of fat bailout amounts from the American government. At the end of the day, homeowners also hold what the article rightfully referred to as the trump card – most of them have already had their credit trashed in other ways, and they will simply declare bankruptcy and have the total debt discharged if the bank won’t give them a huge settlement break or let the loan go.

The article quoted one such homeowner, a Shawn Schlegal of Arizona. Schlegal voluntarily walked away from his home last year through a foreclosure after the value plummeted to less than a third of the mortgaged amount. He owes his bank almost ninety-five thousand dollars in a home equity loan that is currently sitting collecting dust, even after a court order for wage garnishment that has as yet yielded no action. Schlegal shamelessly admits that he is hoping the case will simply “go away.” He admits to getting seduced by the real estate bubble, scooping up three investment properties and some vacant land with dreams of becoming a small-time real estate tycoon of sorts. He used the inflated “proceeds” from each deal as a launching pad for the subsequent purchase. This chain turned into a domino effect of disaster when the market crashed. In one case, a property that Schlegal bought for two hundred sixty-five thousand dollars was worth just sixty-five thousand by the time that the dust had settled. Schlegal’s lender for one of these loans was the Desert Schools Federal Credit Union, the largest credit union in the state of Arizona. The contract for Schlegal’s loan with DSFCU states that the approval was based on a “security interest in your dwelling or other real property.” In other words, he had other properties worth money, so the loan should be okay. Right? Wrong. The credit union has been forced to up its budgetary allowance for all losses by a phenomenal nine hundred twenty-six percent in the last two years. That comes of dumb decisions like approving the unrepentant Schlegal for a loan that he should never have qualified for.

The article quoted Keith Legget, a “senior economist” with the American Bankers Association, as grieving the fact that “more conservative underwriting practices” were not put into place a lot sooner. He blames the fact that “no one had ever seen a national real estate bubble” on why the banks engaged in such freewheeling lending. Now, the fallout damage from the collapse of the home equity loan bubble is way too huge in scope to even be accurately quantified. In retrospect, it all looks incredibly heedless and stupid. A vast amount of the outstanding debt from these loans gone bad remains on the books of the country’s largest lenders, which include Bank of America, Citigroup and JPMorgan Chase. Home equity loan repayment delinquencies ran around four and one-tenth percent in the first quarter of this year, which represents a slight decrease from Q4 2009’s all-time record-setting percentage.

Homeowners who turn their backs on the home equity loans are not free of penalties, of course. Severe damage to credit scores and a possible hit at income tax time (since debt written off can be recorded as income) are just two possible consequences of defaulting on such an obligation. That hasn’t stopped many homeowners, however. Another example of a home equity loan borrower defaulting is Eric Hairston, an erstwhile apartment owners and property manager who took a fifty percent hit on the three-unit building that he bought in Hoboken, New Jersey at the apex of the real estate boom. This spring, the property sold for seven hundred fifty thousand dollars – exactly half of the one-point-five million that it was appraised at during the peak of the market. Based on this inflated value, Hairston borrowed one hundred ninety thousand dollars in home equity loans. Hairston, who works as a technology consultant for i-banker Lehman Brothers, used his bounty to invest in a pizza catering company in the state of California. Like so many start-up ventures launched during that time, the pizza joint flopped. His investment failed, so Hairston defaulted. He has yet to hear from his lender, but stated to a reporter that he believed a ten percent settlement would be reasonable. His justification is that “it’s not the homeowner’s fault that the value of the collateral drops.”

This is a commonly-held belief nowadays. The Times also interviewed Marc McCain, a lawyer in the city of Phoenix, Arizona, who has made three hundred new clients in the past year by helping distressed homeowners execute strategic defaults on their homes. In case you are unfamiliar with the term, this refers to homeowners who are technically able to pay their mortgage, but choose not to because they believe their investment is shot and that they are throwing away money on a property that is worth nothing like the value at which it is mortgaged. McCain states that his average client is also dragging around unpaid home equity loans of anywhere from fifty thousand to one hundred fifty thousand dollars. He estimates that a full eighty-five percent of his clients are fully willing to default on the loan and to back-burner the remaining obligation, troubling themselves with the balance “only if and when they were forced to.” Ten percent of the clients are in the process of negotiating a short sale on their homes, through which they will broker a deal with their primary mortgage and home equity loan lenders to sell the house for less than what is owed in exchange for everyone involved being able to unload the house and move on. Of course, primary mortgage holders get paid first in these deals, so home equity lenders still get shafted. Only five percent or less of McCain’s clients state that they intend to continue paying their obligation on the loans no matter what happens.

McCain has no shame in admitting that he recently negotiated one couple’s massive seventy-five thousand dollar home equity obligation down to a settlement of just thirty-five hundred dollars – less than five percent of the original amount owed. He says that morality is “no longer an issue” in these cases.

The final person in the article, Darin Bolton, seemed to imply that morality should not be an issue, either. He claimed that a feeling of “tossing [his family’s] money into a hole” was what spurred him to say goodbye to his cumbersome mortgage and home equity loans in favor of a comparable rental property just blocks away from the home he gave up. Bolton optimistically opined that he believed there is “strength in numbers,” and that there may just be way too many delinquent home equity borrowers for banks to chase them all. Great news for Bolton, bad news for banks.