Wells Fargo involved in race discrimination

originally appeared in the San Francisco Examiner from Reuters:

Wells Fargo has agreed to pay $175 million to resolve allegations that the financial institution discriminated against qualified black and Hispanic borrowers in its mortgage lending according to the U.S. Justice Department.

In the second-largest settlement of its kind, the biggest U.S. mortgage lender will pay $125 million to borrowers who were allegedly steered into higher-priced subprime loans or who paid higher fees and rates than white borrowers.

Wells Fargo also will contribute $50 million to homebuyer assistance programs in eight metropolitan areas around the country. The government identified those areas as needing the most help in recovering from the housing crisis.

The settlement, which needs approval from a judge, would end the investigation into whether the fourth-largest U.S. bank knowingly targeted minorities between 2004 and 2009 for risky mortgages that came with higher costs, according to documents filed in the U.S. District Court for the District of Columbia.

The U.S. assistant attorney general for civil rights, said at a news conference in Washington, D.C. that this a case about real people, African-American and Latino, who suffered real harm as a result of Wells Fargo’s discriminatory lending practices, people with similar qualifications should be treated similarly. They should be judged by the content of their credit worthiness and not the color of their skin.

The government investigation found that loans submitted to Wells Fargo by mortgage brokers had varied interest rates, fees and costs based only on race and not correlated to the borrowers’ creditworthiness, according to the court document.

The Obama administration has mounted a campaign to closely monitor banks in order to ensure loan discrimination practices that were a part of the housing bust and led to record defaults are eliminated. Bank of America’s Countrywide Financial unit agreed in December to pay a record $335 million to settle similar charges.

Wells Fargo said it was settling the matter solely for the purpose of avoiding contested litigation with the U.S. Justice Department. In the consent order with the government, Wells asserted it treated all its customers fairly and without regard to race and national origin.

Wells Fargo Home Mortgage president said in a statement that he believes it is in the best interest of our team members, customers, communities and investors to avoid a long and costly legal fight, and to instead devote our resources to continuing to contribute to the country’s housing recovery.

Homebuilding looking up

originally appeared in Zacks Equity Research:

KB Home, one of the leading homebuilding companies in the U.S., recently acquired lands for 100 luxury homes in the sought after community of Playa Vista in Westside, Los Angeles. The construction of homes will start in spring.

The company intends to build three story detached homes of 2,800 square feet. The homes will have four bedrooms and three and half baths. The company also intends to build single floor condominium homes of 2,000 square feet with private elevator access for each home.

For simple or more complex bathroom remolding projects, consider an outstanding grand rapids bathroom remodeling company that does quick, professional work.

Owing to its operational business model KBnxt, KB Home always begins construction only after a purchase agreement is executed. As such, the consumers buying KB homes in Playa Vista will get the liberty to plan their homes according to their preference.

This process also helps the company turn over its inventory more quickly than its peers, thereby supplying capital for reinvestment. In the long run, this reduces the risk of unsold inventory leading to higher returns on invested capital.

Playa Vista is one of the most sought after luxurious communities in Westside, Los Angeles. The acquisition of land in Los Angeles’ Westside is in line with KB Home’s strategic shift in its geographic footprint. The focus is to place the communities in highly desirable land-constrained submarkets that enable it to sell larger, higher-priced homes, thus driving a strong increase in average selling price.

The rising demand for new homes has led to a favorable situation in the housing market, where inventory levels are dropping and prices are moving up. The demand has been particularly strong for luxury homes. Toll Brothers, Inc., another leading luxury homebuilder in the US, has been witnessing strong overall growth over the past few quarters.

Therefore, building adequate number of new homes is necessary in order to maintain the required level of inventory to meet the growing demand for homes. Acquiring lots and lands in the Playa Vista community will help the company to capitalize on the increasing housing demand.

With housing market recovery gaining momentum, KB Home believes its strategic initiatives including overhead reduction, margin expansion, and land investments in higher-priced, better-located communities; and increasing backlog will help it achieve profitability in the upcoming quarters. Though we have faith in KB Home’s strategic initiatives, we believe that it may take time to achieve sustainable profitability as the housing market recovery process is erratic and uneven.

We currently have a Neutral recommendation on KB Home. The stock carries a Zacks #3 Rank (a short-term Hold rating).

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Lending Standards Hurt Housing Economy

Story first appeared in USA TODAY.
Home buyers such as Bob and Janet Zych have fueled the U.S. housing market for decades. They have excellent credit with scores that top 800, life-long careers and investment portfolios that have set them up for a comfortable retirement, they say.
But this year, after faxing a ream of paper about their finances, they got so fed up applying for a home loan that they simply wrote a check for their new, $85,000 vacation condo in Phoenix.
Trying to get a loan was just a nightmare, says Bob Zych, 65, a manager for Mohawk Industries in Omaha.
Following the greatest housing crash since the Great Depression, home lending standards have tightened to their strictest levels in decades, economists say. And people such as the Zychs and others nationwide are paying the price.
Tight home loan credit is affecting everything from home sales to household finances. Many borrowers are struggling to qualify for loans to buy homes. Others can't take advantage of some of the lowest interest rates in 50 years because they don't have enough equity in their homes to refinance. Those who can get loans need higher credit scores and bigger down payments than they would have in recent years. They face more demands to prove their incomes, verify assets, show steady employment and explain things such as new credit cards and small bank account deposits.
Even then, they may not qualify for the lowest interest rates.
The National Association of Realtors says lending standards are too tight and are hurting the housing industry's recovery.
The lending industry counters that standards are where they need to be, given still-falling home prices and the shaky economy.
Down payment amounts rise
The change is evident in the higher quality of loans held by government entities, which now buy or guarantee most new home loans.
Lenders that originate loans seek to meet their standards so that they don't have to hold loans themselves.
Through June, single-family home loans bought by government-backed Freddie Mac, for example, had an average down payment of 29% and an average FICO credit score of 751, the agency says. That's up from average down payments of 23% for loans originated in 2007 and average FICO scores of 707, Freddie Mac says.
FICO scores top out at 850. The national median is 711, FICO says.
New Federal Housing Administration loans, popular with home buyers who lack big down payments, likewise are being made to borrowers with higher credit scores.
From January through March, those loans went to borrowers with an average credit score of 704, up from 631 four years ago, FHA data show.
Even the worthiest borrowers have to put down more money than a few years ago to get the best loan terms.
Real estate website Zillow analyzed 3.6 million loan inquiries made through its website to mortgage lenders since 2008.
In July, prospective borrowers getting the best loan rates had average down payments of 28%. Three years ago, before the worst of the financial crisis, such shoppers averaged down payments of less than 24%, according to data from Zillow Mortgage Marketplace.
A struggle to close
Sometimes, even borrowers with seemingly pristine finances are struggling to close home loans.
Stephanie, 45, and Brian Poore, 46, of Hubert, N.C., went through two lenders this year before the third extended them a loan on an $86,000 condominium in Wilmington, N.C. The couple bought the condo for their daughters, ages 19, 16 and 15, to use during college.
The first lender went overboard on income questions, Brian Poore says, asking him to prove that he didn't pay for room or board while living on an Army base in Iraq, where he works as a contractor.
Another lender qualified the couple for a loan, given their credit scores above 780 and other financial resources. But then the lender backed off, saying it couldn't resell the loan to Fannie Mae because the condominium homeowners association didn't have enough cash reserves for maintenance and repairs.
With the third lender, the Poores had to put 25% down — not the 15% they originally intended.
The process took five months. The loan was for $67,000. One of the Poores' relatives recently bought a new car and got a $55,000 loan in less than a day, Stephanie Poore says.
The Zychs were hamstrung by lenders' concerns about their previous investments.
During the past five years, they acquired three rental properties — all in Omaha — that were leased and produce a positive cash flow for the couple. When the Zychs went to buy the Phoenix condo, lenders balked, saying they had too many properties, even though their finances were solid.
Roberta Fernandes, 24, a first-time home buyer, got a loan. But not without help. She needed almost 50% down to get a loan to buy her Miami condo in June. Fernandes is an assistant to a financial adviser at a brokerage firm. Her short work history hindered her ability to get loans with smaller down payments.
Her parents put up more than half the required down payment. Without their help, getting a loan would have been impossible, Fernandes says.
Jose, 40, and Ivelte Hidalgo, 35, also recently bought in Miami. Jose started a medical research consulting business in 2007. Ivelte works in the business, too.
Because they were newly self-employed, the couple were turned down by two lenders for home loans in 2008 and 2009.
They finally secured an FHA loan for a $280,000 house, which they purchased this summer. The couple put 3.5% down, the FHA's minimum.
With higher down payment requirements and tighter standards for conventional loans, the FHA has become a major player in the home-lending market.
For the first six months of this year, almost 51% of loans to buy homes were done through the FHA. That's up from 3.4% in 2007, says Inside Mortgage Finance.
But FHA loans aren't always the best deal.
Although they have smaller down payment requirements than conventional loans and credit criteria that are not as strict, there are limits on how big FHA loans can get.
FHA borrowers also pay a 1% upfront fee that conventional borrowers don't pay. And if buyers have enough money for larger down payments, they can avoid higher FHA premiums for mortgage insurance, which protects against default.
It can also take longer to get rid of mortgage insurance on an FHA loan than on a conventional loan, says Keith Gumbinger of mortgage tracker HSH.com.
Conventional loans with less than 20% down are available. However, such borrowers need mortgage insurance. In general, the lower the down payment, the more one pays in mortgage insurance. Interest rates also rise as credit scores drop.
For some properties — including those needing bigger loans, condominiums and homes in areas hard hit by the real estate crash — 20% or more down payments are the norm, says Greg McBride of Bankrate.com.
Nearly all borrowers are facing more documentation requests.
Except for a few years leading up to the real estate crash — when some borrowers got loans while providing little if any documentation of their assets and income — borrowers have long had to supply two years of tax returns, pay stubs and financial statements when applying for home loans.
Now, lenders want tax records to come directly from the IRS, as well as from borrowers. The IRS releases the records after applicants sign forms giving it permission to do so. Instead of two months of bank statements and pay stubs, lenders may want them for each pay period until the loan closes.
Howard Landa, a California physician, purchased a $900,000 home in Moraga, Calif., last year and refinanced it this year. The refinance lender wanted pay stubs for every two weeks as the loan was in process, which took almost two months.
Landa also had to explain a new Macy's credit card line, which he opened to qualify for a discount on a suit he bought from the retailer.
When he bought the house, Landa had almost enough money to pay cash for it. He also had an outstanding credit score of 810. Even so, the lender carefully checked his income, even requiring copies — front and back — of several $500 and $1,000 checks he deposited in his checking account after being reimbursed for travel expenses.
Reduced risks = fewer defaults
Higher standards do appear to be reducing loan defaults, which means fewer foreclosures in the future.
Fewer than 1.3% of loans originated in 2009 that were resold to Freddie Mac and Fannie Mae went into default after 18 months, government data show. That's down from more than 22% default rates for 2007 loans and about 3% default rates in 2002.
Avoiding defaults has become a primary goal of wary lenders, says Walters, the Quicken Loans economist.
They fear loans will go bad and the investors that buy them — such as Freddie Mac, Fannie Mae or others — will discover mistakes and sue the originating lender.
Many such lawsuits are underway.
Walters says their line of defense is to cross T's 42 times and dot I's 52 times. With home prices continuing to fall across much of the nation, lenders realize that any mistake could be fatal, he says.
Yet, the National Association of Realtors, and a number of consumer groups, say the tight standards are also a drag on the economy.
The NAR estimates that home sales — stuck at anemic levels — would jump 15% to 20% if lending standards simply returned to where they were a decade ago, before they got so loose they helped create the real estate bubble that later popped.
However, lending standards are unlikely to loosen until home prices stabilize, says mortgage loan expert Jason Kopcak of investment bank Cantor Fitzgerald. Nationwide, home prices are down 30% from their 2006 peak and are expected to fall more this year.

ILLEGAL ROBO-SIGNING CONTINUES

Lawmakers and enforcement agencies called for hearings and further investigation Tuesday after learning that the illegal practice known as robo-signing has continued in the mortgage industry.
The Associated Press reported on Monday that county officials in at least three states - Massachusetts, North Carolina and Michigan - say they have received thousands of mortgage documents with questionable signatures since last fall. That's when forged signatures and false affidavits - also called robo-signing - led to a temporary halt to foreclosures. Banks and mortgage processers promised to stop the practice. But the findings of the county officials indicate that robo-signing is still a widespread problem.
Sen. Sherrod Brown, D-Ohio., chair of the Financial Institutions and Consumer Protection Subcommittee, said the subcommittee will hold a hearing on the robo-signing issue.
Wall Street and some in Washington want the public to believe that robo-signing is a thing of the past, but the same risky practices that put our economy on the brink of collapse continue to infect the housing market.
Rep. Maxine Waters, D-Calif., a senior member of the House Committee on Financial Services said the lenders who continue the practice need to be investigated and prosecuted. She believed regulators should step in and that the absence of stronger regulation is the reason why the system broke down in the first place" She said the county officials' findings show lenders will not stop
County officials, who are responsible for keeping land records, including property deeds, say that they have received thousands of robo-signed documents filed in their offices since October.
In Essex County, Mass., the office that handles property deeds has received almost 1,300 documents since October with the signature of "Linda Green," but in 22 different handwriting styles and with many different titles.
In Guilford County, N.C., the office that records deeds says it received 456 documents with suspect signatures from Oct. 1, 2010, through June 30. And in Michigan, a fraud investigator who works on behalf of homeowners says he has uncovered documents filed this year bearing the purported signature of Marshall Isaacs, an attorney with foreclosure law firm.
Early Tuesday, an official from the office of Minnesota attorney general, Lori Swanson, contacted the Essex County's John O'Brien to get more information for its own investigation into robo-signing. The Massachusetts attorney general's office also confirmed that it is meeting with several of the state's 21 registers of deeds to assess the extent of robo-signing in the state.
Also on Tuesday, nine recorders of deeds in Illinois held a press conference to say they will assist the state's attorney general Lisa Madigan who is investigating robo-signing in her state.
Rep. Waters, meanwhile, says the Office of the Comptroller of the Currency, or the OCC, is the main federal regulator for banks. As such, it's the OCC's responsibility to investigate the banks.
The OCC has been criticized by lawmakers and consumer advocates for going easy on banks in the past. The same criticism has resurfaced since the robo-signing scandal broke in September. Last fall, The Associated Press found that robo-signed documents led to banks wrongfully foreclosing on people who had paid their mortgages in full. When asked about the issue, an OCC spokesman flatly denied that any such thing had ever occurred.
The OCC partnered with other federal regulators and conducted a review of bank procedures including robo-signing in December. In April, the 14 largest national banks entered into a consent decree with the OCC in which they vowed to submit action plans as to how they would address such systemic issues as robo-signing.
Last week, the banks delivered those action plans to the OCC, which is now reviewing them, a spokesman said.

U.S. Steps Up Help For Homeowners

WASHINGTON -- The chief executives of Detroit's Big Three auto makers appealed in dire language for U.S. taxpayers to help their industry, but couldn't dispel doubts in Congress that have clouded prospects for a government-led rescue.

In appearances Tuesday before the Senate Banking Committee, the leaders of General Motors Corp., Ford Motor Co. and Chrysler LLC, together with the head of the United Auto Workers union, argued the shaky U.S. economy couldn't withstand a collapse of any of the companies.

The chief executives of GM and Chrysler said they could run out of funds without the government's support. GM CEO Rick Wagoner said the package is needed to "save the U.S. economy from a catastrophic collapse." Many markets however are doing well, these markets include; Raleigh Real Estate, Durham Homes, High Point Homes, Greensboro Homes, Home Inspection, Wilson Homes, Wilson NC Real Estate, Home Warranty, Raleigh Estate Homes, Triangle Homes, Chapel Hill Farms and Farms Chapel Hill.

That the companies were convening -- "hat in hand," as Sen. Christopher Dodd (D., Conn.) said -- before a congressional panel reinforced the depth of their difficulties and the possible diminishment of their political clout. Extending a helping hand to Detroit auto makers, long a central part of the nation's manufacturing base, doesn't appear to be a given.

One question is whether the auto makers can muddle through to January when a new Congress convenes with strengthened Democratic majorities and a Democrat in the White House. The complexity of a possible intervention -- and the political divisiveness it has wrought -- could be too great to overcome this week.

On Monday, Senate Democrats introduced legislation that would set aside $25 billion to help the industry, drawing from the $700 billion fund created to stabilize financial markets. The legislation would allow the auto companies and parts suppliers to receive "bridge home loans" of at least ten years with favorable interest rates. But there is resistance among many senior Republicans and the White House. If no decision is made this week, the issue will be kicked over to the new 111th Congress.

In the late afternoon session, Republicans largely condemned the industry's request. Even some Democrats committed to helping the auto makers showed little enthusiasm for the task at hand.

While noting he backs aid, Senate Banking Chairman Mr. Dodd denounced the companies for failing to move more aggressively to reverse their sharp declines in market share. "They're seeking treatment for wounds that, I believe, are largely self-inflicted," Mr. Dodd said, adding the industry has failed to adapt and "we're all paying the price for it."

As the hearing stretched past its third hour, the top executives disclosed how much they might each apply for if Congress approved the $25 billion loan package: $10 billion to $12 billion for GM; $7 billion to $8 billion for Ford; and $7 billion for Chrysler.

The companies said they would use the money to pay employees, cover current operating costs and develop new products.

Both GM and Ford are on a pace to use up $2 billion each a month, based on their third-quarter earnings. Not getting funding immediately threatens GM most directly because the firm is operating close to its minimal funding requirements. The supply chain is shared among the Big Three, so a bankruptcy filing of one could spell problems for the other two.

Some analysts suggest GM, Ford and Chrysler can cut costs enough to survive until January. But if the U.S. auto market continues to sink, the companies' cash drain could outpace their ability to cut costs.

GM has said that without government aid, the company would run out of operating funds as early as early 2009.

Chrysler joined GM for the first time in linking its survival to a federal bailout. "Without immediate bridge financing support, Chrysler's liquidity could fall below the level necessary to sustain operations in the ordinary course," Robert Nardelli, the company's chairman and CEO, said. He added that the company was currently spending about a $1 billion a month more than they were taking in, leaving the auto maker with slightly more than $6 billion cash on hand.

Only Ford says that while the loan package is necessary for the betterment of the U.S.-based auto companies, it could withstand the downturn without government assistance.

The auto makers and the union sketched their companies' far-reaching impact. They also argued that Chrysler, Ford and GM are on the right track to compete with foreign-based auto makers, but that turmoil in the broader economy foiled their good planning. The companies together employ 239,000 people in the U.S.

Under pressure from senators over the issue of executive compensation, Chrysler's Mr. Nardelli said he would be willing to accept a salary of $1 a year as part of a federal bailout. Lee Iacocca made the same commitment when he ran Chrysler and secured federal loan guarantees in 1979. The chief executives of GM and Ford declined to make the same commitment.

The Banking Committee testimony is part of a broader lobbying campaign that includes parts suppliers and dealers. The executives will appear before the House Financial Services Committee Wednesday. All told, the companies are seeking $25 billion to weather the weakening economy, which has dampened demand for autos and restricted consumer access to home loans.

In another indication of the industry's problems, the world's three dominant credit insurers now consider the U.S. auto industry among the riskiest sectors for default.

Few lawmakers in either party doubt the economic challenges facing the Big Three. At issue is how -- and whether -- Congress should get involved.

Sen. Jim Bunning (R., Ky.) said a rescue proposal by Senate Democrats would give the industry "virtually a blank check," and doesn't require the companies to improve productivity and lower labor costs. "Major changes are needed, if federal dollars are to be made available," he said.

Sen. Richard Shelby (R., Ala.) said he has doubts about whether the money will be enough to meet the industry's needs: "Is this the end, or just the beginning?"

Industry supporters, such as Sen. Carl Levin (D., Mich.) want action this week. "The stakes are great and time is short," said Sen. Levin, who is scrambling to find the 60 votes needed to overcome objections in the Senate. Sen. Levin drafted the legislation that would set aside $25 billion to help the industry using bridge home loans.

To qualify, companies would have to accept limits on executive compensation, allow the government to take stock in the firms, and submit a detailed plan showing how they intend to return to sound financial footing and improve their capacity to produce fuel-efficient vehicles.

It wasn't clear whether Congress would demand management changes as a condition to any bailout, although the topic was on the minds of some lawmakers. Sen. Bob Bennett (R., Utah) predicted the jobs of hourly workers and executives are on the line as the industry restructures itself. "Everybody's going to get hurt in the process," he said, adding that the idea "that we in the Congress can prevent that from happening is wishful thinking."

The proposed assistance would be on top of $25 billion in already-approved home loans intended to help the industry retool to meet higher fuel-efficiency standards. The White House is pushing a rival plan to speed release of the previously approved home loans, by removing certain restrictions.

In testimony before the House Financial Services Committee, Treasury Secretary Henry Paulson said Tuesday the collapse of one of the auto companies "would be something to be avoided." But he said giving the industry access to the $700 billion fund isn't the answer. "I don't see this as the purpose" of the bailout program, he said.

Some Democrats aren't showing enthusiasm. Sen. Dianne Feinstein (D., Calif.) said she has problems with helping the industry without first receiving "a new business plan" that shows how the companies will return to competitiveness.

Sen. Jon Tester (D., Mont.) said the idea of additional government intervention isn't popular with voters: "People in Montana are experiencing bailout fatigue."

'Underwater' Need Not Mean Foreclosure

What does being "underwater" in your house really mean? Probably not that you're drowning.

The number of underwater homeowners -- those who owe more on their mortgages than their home is now worth -- has been growing sharply since 2006 as real-estate prices have tumbled. By some estimates, between one in six and one in eight homeowners are in that position, most of them people who bought homes in the past few years or who put down small or no down payments.

This worries economists and policy makers, since owing more than your home is worth is the first step toward foreclosure. And it's a concern to the rest of us because foreclosures are roiling the financial markets and, closer to home, they drag down our neighborhoods. (Most people who still have equity, by contrast, would rather sell their houses at a loss than lose what's left of their investment.)

In response to concerns about rising foreclosure and delinquency rates, federal regulators are studying possible new programs aimed at needy homeowners. There are concerns that such programs could attract a flood of applications from those who don't truly need assistance or encourage lenders to push homeowners into foreclosure. At the same time, lenders such as J.P. Morgan Chase and Bank of America have committed to working on new loan terms for the most-distressed homeowners.

But experts who have studied previous sharp housing downturns in Texas, California, New York and Massachusetts say that being underwater, while unpleasant, doesn't lead huge numbers of homeowners to default on their mortgages and end up in foreclosure.

Christopher L. Foote, Kristopher Gerardi and Paul S. Willen of the Boston Federal Reserve Bank studied more than 100,000 homeowners who were underwater in Massachusetts in 1991 and found that just 6.4% of them lost their homes to foreclosure over the next three years, according to a paper published in the September Journal of Urban Economics. The vast majority of homeowners simply continued paying as usual because they focused on the affordability of their payments, not on what they owed, and they believed home values would eventually recover.

The economists found that homeowners typically lost their homes only after at least two things happened: Their home values dropped and they either couldn't afford the payments or stopped making payments after losing hope that prices would eventually recover.

Homeowners in California also were more likely than expected to keep paying during the deep 1990s slump, says Richard Green, director of the Lusk Center for Real Estate at the University of Southern California. More people turned in their keys in Ohio and Michigan during the difficult 1980s downturn because they lost faith in an economic turnaround.

Typically, homeowners fall behind after a job loss, divorce or serious illness. In the current downturn, foreclosures are higher than in previous cycles because more homeowners reached beyond their means to buy their homes and simply can't keep up the payments. As a result, the Boston economists project that up to 8% of underwater Massachusetts homeowners could lose their homes between now and 2010 -- a significant amount, but still not catastrophic.

So what does this all mean for you?

If you have a low-interest fixed-rate loan, you have a valuable asset that might be hard to replace in the current market, no matter what your home's value is. Keeping that mortgage current has some value, even if it means cutting other household expenses.

In addition, the penalties for defaulting are great. In most cases, walking away from a mortgage can knock a top credit score down to the cellar, says Ethan Dornhelm, a senior scientist at Fair Isaac Corp., which sells credit-scoring formulas to credit bureaus.

A person with a stellar credit score from the high 700s to the top score of 850 would see it drop more than 200 points. A person whose credit score is lower may see it fall by fewer points, but still end up with a score in the mid 500s. At that level, reasonably priced new debt, from credit cards to car loans, will be out of reach. In addition, a default could lead landlords and utilities to require more cash up front and even affect your job prospects.

If the borrower continues to pay other debts on time, the score will climb gradually, though it may take three to five years to return to "good" scores, from the mid-600s and up. Scores of 790 or more -- which are rewarded with the lowest interest rates -- won't be attainable for at least seven years, when the default blemish finally disappears, Mr. Dornhelm says.

Fannie Mae requires borrowers who have lost their homes to foreclosure to wait five years before it will accept a loan from them, though borrowers who had extenuating circumstances, such as an illness or job loss, may requalify within three years.

What's more, lenders in most states can go after homeowners for an unpaid balance on a mortgage. That's a real risk, especially if you have other assets.

The longer you stay in your house, the better the chances of making it through this down cycle. Though a return to peak prices may take five or 10 years, some housing markets may start to bounce back once credit becomes more available. Meanwhile, you'll be reducing your mortgage as you make your payments.

Lenders aren't going to renegotiate just because prices have fallen, but if you truly can't afford your payments, contact your mortgage servicer to see if you can rework your interest rate or work out new payment options. The federal Hope for Homeowners program, which began Oct. 1, is intended to provide some relief if lenders will agree to reduce the loan amount to 90% of the home's current value.

If you can't get help from your lender, try contacting a credit counselor certified by the Department of Housing and Urban Development. These counselors have direct access to lenders' loss-mitigation departments, which consumers don't, says Natalie Lohrenz, counseling administrator for Consumer Credit Counseling Service of Orange County, Calif. A list of HUD-certified counselors is available through Hope Now, a consortium of lenders and counselors. (Call 888-995-HOPE or go to www.hopenow.com.)

If you need to sell the property and can't afford to cover the shortfall, your lender may agree to a "short sale," in which you sell at a price below the mortgage amount. This is a much more complicated transaction to pull off than a regular home sale, though, and it may hurt your credit score if the lender reports that you failed to pay off the whole obligation.