Different states throughout the United States utilize two basic concepts when it comes to property ownership. The first concept is known as title theory. In title theory of the lender has the right to assume instant possession of the mortgage property when the borrower defaults. Once the lender assumes the properties of property can be sold.

The second concept is known as lien theory. Lien theory requires the lender to foreclose on a lien on the property in the court of the jurisdiction relevant to the transaction. Only a court action can give them the ability to acquire possession of the property. At that point the property can be offered up for sale and the funds from the sale can be used to extinguish the debt.

In both lien theory and title theory if there is any money left over from the sale after the debt has been paid, the Boer war is entitled to receive that money. If the lender has to spend any money to sell the property, these are known as cost of sale, the lender can recoup that expense is well before the borrower receives any money from the sale. The sales are often managed by a representative of the court, typically known as an executor. Unfortunately, lenders are often in a hurry to recoup their losses and avoid further risk. Sales often happen fast and with minimal effort. Excess funds during a sale are not always common.

If an owner had a large amount of escrow in their home, they could potentially have refinanced and avoided the foreclosures in the first place. So banks or lenders often end up selling homes at an amount just above what they need to cover their unpaid debt, leaving very little if anything for the borrower. Monitoring the behaviors of the parties during a sale will typically yield little benefit. Its difficult to prove that lenders are doing anything wrong when they take no effort to fix up a home for sale and give it enough curb appeal to garnish a better rate. A lender can hardly be expected to put more good money after what is already proven to be bad.

Similarly, home owners that have lost their homes often do not want to give up the property and their efforts to delay exit or foreclosure can also harm the ability of the home to sell at a good price. The two sides in these case can become embroiled in arguments and controversy, even engaging lawyers and private investigators armed with a telephoto spy camera, but it rarely amounts to anything useful for either side.

The concept of mortgages stayed back to ancient Egyptian times.  A mortgage is essentially a promise or pledge of some type of property against a debt.  Under ancient Roman law, if the person did not pay their debts, they would become a slave to the person that the debt was owed an unpaid.

Reforms in Roman law enabled people to avoid slavery by giving up their property which would then be sold to pay down the debt.  As time progressed, Western lenders bound by Christian strictures and laws would assume the control of this property and receive up the profits or rents from that property until the debt was paid instead of selling it.  As the 14th century came to be, Jewish lenders that were not bound by Christian strictures were laws were able to charge interest and this process known as hypothication became popular.  This process were interest was charged and able property owners to maintain control over their land or property while paying interest to the people that they borrowed a principal amount from.

Today, when we consider foreclosure, we think of losing our credit, our home, maybe even the new home theatre system with all those expensive CAT6 cables dipped in gold.  We don’t think of being put into bondage and slaving literally for the person or company that we borrowed the money from in the first place.  That may sound archaic, but as late as just a few decades ago many people were still sent to debtors prisons in the South Pacific from France and England.  When large debts are involved in default, fraud often goes hand in hand and today many people might still end up in prison not for the bad debt itself but for other reasons related to that debt.

The sub prime mortgage scandal was definitely created in large part by mortgage brokers offering up shady deals, but they could not have acted in a vacuum. Someone had to underwrite those mortgages and securitize the portfolio, reselling it to investors via hedge funds. Well, FBI Director Robert Mueller and the FBI is still in the process of following the money working to trace the fraud back to the money that created that demand and enabled it to happen by not operating in a truly free market fashion.

“We are targeting accounting fraud, insider trading and deceptive sales practices. These investigations may well lead to other instances of fraud, from investment banks and private equity firms to hedge funds.” Subprime probe may lead to hedge funds, others: FBI

Mortgage fraud was possible in part because the people that should have been reviewing the mortgage brokers actions and the banks above them both turned a blind eye to what was really going on. In the drug world, this is part of the reason why the FDA is in place to test drugs, such as was done with lipovox reviews, and now many politicians including the Fed are lining up to set up controls that would do the same in the mortgage market.

As the real estate market starts to settle out, and as inflation starts to enter into the picture, it is very likely that America will see a period in real estate very similar to what we experienced in the 70s and early 80s.  Fewer people will own their own home and more people will write.

The equation has not changed in that there are still many many people looking for places to live.  The population across United States is expected to increase by 100 million people over the next 15 to 20 years.  Those people have to live somewhere in those places do not exist today.

Some people would point to the Federal Reserve and state that the Federal Reserve is lowering interest rates and that mortgage rates should follow soon.  The problem is that inflation has entered into the equation.  The Federal Reserve cannot control inflation especially when the United States has a massive debt that is building on a regular basis.  That inflation essentially adds percentage points to the real mortgage rates banks can offer.  Let’s say that the Federal Reserve sets rates at 3%, and inflation is running at 3%, and banks need to make a profit of 1 1/2 percent to keep operations going in to lure in investors to buy securitized mortgages.  That would mean that the real interest rate for a person with excellent credit would start off at 7 1/2 percent.  If that person has less than stellar credit the interest rate is going to be even higher.

If inflation increases, then interest rates in total will also go up no matter what the Federal Reserve does.  Now as those interest rates go up that points towards the need for many people looking for a home to live in to consider renting.  It also means that people that are sitting on homes today with low interest rates are likely to become landlords very soon.  If they are locked into an interest rate is lower than what can be had on the market, they may not make their money back in equity in the house but they could make it back in rent.  In doing that we are going to see a nation change from being a flip that house nation into a rent that house, sublet the apartment, where sublet that room.

For a similar example, you can look at what is going on in city centers around the US or even in the United Kingdom or Europe.  We all face the same inflation and the same rising population centers.  All those baby Emily crib sets have to go somewhere.

Wall Street finally figured out what most Americans already know.  Inflation is back.  The Consumer Price Index rose in January and that hints at inflation being on the rise.

Its small wonder that inflation is hear as milk hits $4 a gallon, gas hits $3.10 and oil keeps hovering over $100 dollars a barrel.  What is amazing is that the Fed has managed to keep its basket of goods that is used to calculate the CPI shielded from reality for so long!

This explains quite a few things, one of which is why home interest rates are still fairly high and even more so why all other loan rates are high.  When inflation is present banks tack it on to their interest rates to cover  . . . . the cost of inflation.

The Fed can lower rates all day long, but there is only so far down they can go, while inflation can keep going up, especially if the country keeps spending money on a war that we can no longer financially afford.  Things have to change and they have to change for the better quick or they are going to get ugly for the long haul.  If you can lock in a low interest rate loan, now is definitely the time to do it.  If inflation hits the banks, you will not see a rate drop.

In the meantime, get out and gets some exercise, take a yoga class or something, if its too cold out, hit the elliptical machine (keep your knees safe) and burn off some of that stress.  All of us are going to need to keep our disposition in check while we simultaneously keep our noses to the grindstone.

In the meantime, if you can not sell your house, start thinking about how you can rent it out.  If double digit rates hit the country in the next few years, not too many people will be able to afford to buy and rental demand will increase.  This could be an investment or it could be a necessity of financial survival depending on your situation.

People were already making the move to refinance before the Fed came in on Tuesday and cranked down interest rates.  They were acting before the White House and Congress came up with a plan to open up credit by increasing loan limits for FHA loans and enabling Freddie Mac and Fannie Mae to secure some of those same large mortgages.

Refinance applications drove the increase: Applications to line up new financing on an existing loan rose 16.9% during the week ended Jan. 18, compared with the previous week, according to the MBA’s weekly survey.

“Refinance applications are up 92% since the beginning of November and purchase applications are up 7%,” said Jay Brinkmann, the MBA’s vice president of research and economics.

Refinancing applications continue to rebound, MBA data show - MarketWatch

Now don’t start packing your Samsonite bags in preparation for a vacation to Real Estate Boom 2.0.  The amusement park rides there are still shut down for repairs for the most part as credit is still tight.  The planets are starting to align themselves however, and there is potential that we might just pull out of this thing sooner rather than much later and that at least is good news!

One of the questions that we have to consider about the changing environment of real estate is whether or not homeowners will stay in their homes longer that it has become more difficult to borrow and buy and sell their homes.  Over the last couple decades more people have been staying in the same home for a shorter period of time.  Many people continually moved up into bigger and better homes.  This continual movement meant that they did not always have defined a dream home the first time, because they could experiment and try again in a few years when they bought their next house.

Now that things are slowing down and it’s to be more difficult to buy and sell a house, buyers may have to become a little bit more choosy about what they buy and why they buy it.

Impact of Higher Energy Prices on Home Buying Decisions

at the same time there is a slowdown in the real estate and mortgage market, energy prices are at all-time highs.  The price of oil has finally reached the level of $100 a barrel in people are definitely noticing the cost of energy.  I suspect that people may take a look at the homes they are buying and work to ensure that these homes are built and energy efficient ways, using energy-efficient products, and possibly even powered with alternative energy it least in part.

I think the putting green products in the homes before a buyer closes on a home will also become a bigger trend.  Many alternative energy products are expensive and most buyers don’t necessarily want to foot the bill for an energy system separate from their home mortgage.  I suspect that many buyers may start requiring a sellers install alternative energy systems into their houses as a requirement of sale so that the buyers can then finance the upgraded home and the new alternative energy products with a single mortgage.

It only makes sense, why spend $20,000 on an alternative energy system and finance at 10 or 20% interest when you could pay six to 7% interest on the same energy system.  I also think this makes sense for small upgrades like replacing light switches with switches that automatically timeout in turn lights off in many other common everyday things in the household or a house that add to the cost of electricity, heat, natural gas and many more aspects.

The history of renting property may possibly go back as far as the history of buying or owning.  Over the last few years, many many more people that would historically rent a home have been purchasing homes or condos.  For some of these people this has been a great opportunity.

Credit was easier, sub prime mortgages were easier to qualify for and some of these people had the resources financially to make the purchase work.  For some buyers, easy credit was a trap and the easy credit may have set them back more in time and credit ratings than if they had followed a traditional route working their way up through rentals first  until their finances were strong enough to buy.

During the credit boom and real estate bull market, many people completely forgot about renting as an option unless they lived in Manhattan or were looking for nyc apartments for rent with New York’s notoriously high property prices and rent control pricing opportunities.

So now Sub prime and the mortgage companies that offered them are at some of their lowest points ever.  Credit has dried up considerably and people are looking to rent again, not by choice but by necessity.  Along the way they might even learn that renting can be the right financial choice for their future as well.

Last week, President Bush attempted to offer Americans an 800 number to help them solve their mortgage problems.  Unfortunately, the president didn’t know the number.  He offered up an 800 number when the number was actually an 888 number.  This resulted in many Americans facing foreclosure calling a Texas home schooling telephone number, but Americans do not need to be homeschooled in mortgages, they needed help. 

It remains to be seen, just how much this phone number will actually help Americans, but if you are looking for assistance in avoiding foreclosure the correct telephone number is 888-995-HOPE.

For what it’s worth, the White House press office sent out a correction via a press release. The president was only a few digits off. “CORRECTION TO THE PRESIDENT’S REMARKS: THE TOLL-FREE PHONE NUMBER FOR THE HOPE NOW HOTLINE IS 1-888-995-HOPE.”  President Bush: Call 1-800-OOPS

The president’s most recent plan, a micro-bail out, would enable mortgage holders of cheap homes, luxury homes and everything in between that are facing an ugly arm adjustment to freeze their variable interest rates for five years.  So if your mortgage rate is supposed to adjust upwards, it could be frozen at the current rate for five years while you attempt to straighten out your mortgage or sell your house.  It’s not a true solution, but it does keep things from getting terribly ugly while the president is still in office.

If you want a real solution, you better pick the right president in 2008.

There is another loan crisis that is brewing rapidly on the heals of the sub prime mortgage crisis.  Like mortgages, this other loan crisis revolves around one of the biggest investments (and possibly the most important) that most people will ever make.  This new crisis is brewing in the Student Loan market.

Many of the same banks and companies that made a killing in mortgages and even fraudulently took advantage of borrowers in the sub prime market as well.  Those same banks and companies used similar tools and marketing vehicles to go after another susceptible group of borrowers, high school and college students. 

This group of people were eager and in some cases desperate to take out money in the form of a loan so that they can go to college and get a good education, or at a minimum a degree.  That sounds very familiar on many levels to borrowers that were eager to consolidate debt, or reduce their interest charges or their total monthly payments or many other things.

At least mortgage borrowers get some sort of free gift maybe even personalized pens when they sign the close documents, but Students are just getting saddled with debt and if the recession does hit, this could definitely sap the vitality out of Generations X, Y, Z and beyond.