Edison Park Single Family Home

This large, sunny Edison Park home has FIVE BEDROOMS (four upstairs) and THREE BATHROOMS. The main level includes separate living and dining rooms with an adjoining guest bedroom or office with a full bathroom. There is a large, sunny family room in the rear of this home which is located off of the HUGE updated, eat-in kitchen which includes new stainless steel appliances such as the Bosch dishwasher and new side-by-side refrigerator. See floor plans on other side or go online for more pictures.

Upstairs there are four bedrooms including the large master bedroom with its own private, full bathroom which includes ample closet storage as well as tall cathedral ceilings. There is a dual zoned furnace system and whole house fan for a more efficient heating and cooling system. The basement level includes a partially finished rec room with a full bath as well as an additional storage areas with walk-out stairs to the spacious side and rear yards. Also included is a new 2 1/2 car garage with additional storage room.

This home is just a few blocks from the Edison Park Metra stop and is conveniently located between downtown Edison Park and Park Ridge where you can enjoy all of the amenities of both towns including the restaurants, parks, schools including the Edison Regional Gifted Center ranked #1 in Illinois, block parties, festivals, the Pickwick Theatre, Starbuck’s coffee and the new Trader Joe’s coming soon.

Call me to schedule your private showing.

Visit this slideshow here http://www.jimgramata.com/podcast/property/slideshow.mov

Heading in the Right Direction

Monthly Home Sales Reach 7-Month High

Sales of existing homes rose in January, reaching the highest level in seven months, according to the NATIONAL ASSOCIATION OF REALTORS®.

Total existing-home sales — including single family, townhomes, condominiums, and co-ops — increased 3 percent to a seasonally adjusted annual rate of 6.46 million units in January from an upwardly revised pace of 6.27 million in December. Sales were 4.3 percent below the 6.75 million-unit level in January 2006.

David Lereah, NAR’s chief economist, says observers shouldn’t overreact to the sales gain or to other short-term effects. “Although we’re expecting existing-home sales to gradually rise this year, and buyers are responding to the price correction, some unusually warm weather helped boost sales in January,” he says.

“On the flip side, the winter storms that disrupted so much of the country in February could negatively impact the housing market. “Although the data is seasonally adjusted, these weather events are unusually large — many transaction closings were postponed in February, and home shopping was essentially shut down for about a week in many areas,” he says. “We shouldn’t be surprised to see a near-term sales dip, but that will be followed by a continuing recovery in home sales.”

Inventories Drop

Total housing inventory levels rose 2.9 percent at the end of January to 3.55 million existing homes available for sale, which represents a 6.6-month supply at the current sales pace — unchanged from the revised December level. Supplies peaked at 7.4 months in October 2006.“Inventories are looking better, but price softness should continue until spring when the market is expected to become more balanced,” Lereah says.What Happened RegionallyHere’s a breakdown of home sales by region:

West Coast: Existing-home sales in the West rose 5.6 percent to an annual pace of 1.32 million in January but were 9.6 percent lower than a year ago. The median price in the West was $321,300, down 4.6 percent from January 2006.

Midwest: Existing-home sales increased 4.8 percent in January to a level of 1.53 million, and were 0.6 percent lower than January 2006. The median price in the Midwest was $162,600, which is 3.5 percent below a year ago.

South: Existing-home sales in the South rose 2 percent to an annual sales rate of 2.54 million in January, but were 7.3 percent below a year ago. The median price in the South was $174,600, which is 1.7 percent below January 2006.

Northeast: Existing-home sales in the Northeast were at a level of 1.07 million in January, unchanged from December, and were 5.9 percent higher than January 2006. The median existing-home price in the Northeast was $260,700, down 1.2 percent from a year earlier.

National Single-family and Condo Home Sales

Single-family home sales rose 3.5 percent to a seasonally adjusted annual rate of 5.69 million in January from an upwardly revised 5.50 million in December. But that still accounts for 4.2 percent below the 5.94 million-unit level in January 2006. The median existing single-family home price was $209,200 in January, down 3.5 percent from a year earlier.Existing condominium and cooperative housing sales slipped 0.1 percent to a seasonally adjusted annual rate of 767,000 units in January from a downwardly revised pace of 768,000 in December. Last month’s sales activity was 5.7 percent below the 813,000-unit pace in January 2006.The median existing condo price was $222,200 in January, up 0.5 percent from a year ago.

NAR President: Market is Stabilizing

The national median existing-home price for all housing types was $210,600 in January, down 3.1 percent from January 2006 when the median was $217,400. The median is a typical market price where half of the homes sold for more and half sold for less.

NAR President Pat Vredevoogd Combs, from Grand Rapids, Mich., says a broader view shows the housing market stabilizing. “The market is trending up from its low last fall, and that is important in restoring confidence to buyers who’ve been on the sidelines,” Combs says. “Since buyers can find more favorable terms, and they are looking for a place to call home for some years to come, getting into the market now makes sense. It’s a choice many didn’t have during the boom period of bidding wars in much of the country.”

source— REALTOR® Magazine Online

Overextended Loans

So many loans in the past few years have been granted to what are called subprime or alt-a loans. Loans where people of not so solid or even worse, not so worthy credit are given loans at much higher rates overextending many people who have no business being in the financual risjky situation they were put in (or put themselves in).

These types of loans put not only those who took out the loans at risk, but the entire national real estate market.

If these loans start causing an increase in the already accelerated foreclosures we are seeing in some areas (including Illinois) then this trickle affect could create a spiral downward in the real estate industry.

Every financial reporter and news outlet has for a month been all over the demise of the subprime mortgage, the accent on foreclosures. In the mortgage market, everybody has been blaming everybody: it's only the 2006 originations, it's only the bad actors ... big guys stuffing faulty paper back down the throats of little guys until they fold, giant guys taking big losses (HSBC $10 billion so far), but not giant losses.

As of Friday there are not enough buyers of subprime risk to cover loans recently closed or in process. In panicky conditions, no buyers at any price. Subprime loans this week from time to time may be unobtainable until their rates move high enough and credit standards tighten enough. Trash, like other things, rolls downhill: Alt-A loans are closer to junk than trash, but high loan-to-value-ratio Alt-A loans are still trash. By next week there will be few buyers of Alt-A risk, and that market may lock up just like subprime.

A sudden withdrawal of mortgage credit is a new hazard to vulnerable housing markets, but I think (hope) the damage will no more than prolong the correction. One leading reason: the price of good, mainstream loans may well improve in this rapidly flapping flight to quality.

Here is a WSJ article discussing the topic:

Mortgage Defaults Spread,Snagging More Borrowers

By Ruth Simon and James R. Hagerty From The Wall Street Journal Online

The mortgage market has been roiled by a sharp increase in bad loans made to borrowers with weak credit. Now there are signs that the pain is spreading upward.
At issue are mortgages made to people who fall in the gray area between "prime" (borrowers considered the best credit risks) and "subprime" (borrowers considered the greatest credit risks). A record $400 billion of these midlevel loans -- which are known in the industry as "Alt-A" mortgages -- were originated last year, up from $85 billion in 2003, according to Inside Mortgage Finance, a trade publication. Alt-A loans accounted for roughly 16% of mortgage originations last year and subprime loans an additional 24%.

The catch-all Alt-A category includes many of the innovative products that helped fuel the housing boom, such as mortgages that carry little, if any, documentation of income or assets, and so-called option adjustable-rate mortgages, which give borrowers multiple payment choices but can lead to a rising loan balance. Loans taken by investors buying homes they don't plan to occupy themselves can also fall into the Alt-A category.

Borrowers who take out Alt-A mortgages are considered less risky than subprime borrowers because of their higher credit scores. But as the housing market cooled and loan volume declined, some lenders lowered their standards for Alt-As. Now a rising number of borrowers who took out these loans are running into trouble.

Data from UBS AG show that the default rate for Alt-A mortgages has doubled in the past 14 months. "The credit deterioration has been almost parallel to what's been happening in the subprime market," says UBS mortgage analyst David Liu. The UBS report contrasts with testimony Federal Reserve Board Chairman Ben Bernanke gave to Congress yesterday. "Our assessment is that there's not much indication that subprime issues have spread into the broader mortgage market," Mr. Bernanke said.

To be sure, defaults have remained very low in the prime market -- and despite the uptick in bad loans, the problems in the Alt-A sector aren't as severe as those that have roiled the subprime market. Some 2.4% of Alt-A loans are at least 60 days past due, according to UBS, which looked at mortgages that were packaged into securities and sold to investors. That is well below the 10.5% delinquency rate for subprime mortgages. (During the housing boom, delinquencies were low for all types of loans because borrowers who wound up in trouble could refinance or sell.)

Some borrowers who took out Alt-A loans in recent years are starting to feel the strain. Johnny and Shirley Johnson, retirees in Cleveland, took out an option ARM when they refinanced their $92,700 mortgage in July 2005. The loan carried a 3.5% introductory rate that began moving upward a few months later. The couple, who live on a fixed income, are currently making the minimum payment on their loan. But they are afraid they won't be able to keep up with their loan and other debts once their monthly mortgage payment adjusts upward later this year.

"We don't want to lose our home," says Ms. Johnson. The couple is working with Acorn Housing Corp., a nonprofit group that provides housing counseling, in an effort to refinance into a 30-year fixed-rate mortgage. Though the monthly payment would be higher, the new loan would protect them against future increases.

Housing counselors and bankruptcy attorneys say they are seeing an increase in troubled borrowers who previously had good credit. "We have clients with 720-plus credit scores, and they are in awful products," says Jennifer Harris, executive director of the Home Loan Counseling Center in Sacramento, Calif. Some of these borrowers took out option ARMs with low introductory rates and are likely to fall behind when their monthly payment resets at a higher level, she says.

Thomas Gorman, a bankruptcy attorney in Alexandria, Va., says he is seeing more financially strapped borrowers who "probably bought more house than they could afford and then took on more credit-card debt" to furnish the house and pay for the move. When the housing market cooled, they were "caught in the middle," unable to sell their home or refinance and make their debt load more manageable.

Lenders are also tightening their standards. At a meeting with investors last week, IndyMac Bancorp Inc., the nation's largest Alt-A lender, said it had raised the minimum credit score at which borrowers could finance 100% of a home's value and took a number of other steps to tighten lending guidelines.

This week Lehman Brothers Holdings Inc.'s Aurora Loan Services unit raised the minimum credit score and reduced the maximum amount homeowners could borrower without documenting their income and assets.

Impac Mortgage Holdings Inc., which specializes in Alt-A loans, said recently that it had tightened its lending standards 17 times last year. The company cut back on riskier loans and began relying more on analytical tools to verify a borrower's income and creditworthiness. Other lenders were quick to scoop up many of those loans, but now they are also pulling back, says Impac President Bill Ashmore.

Lou Barnes, a mortgage banker in Boulder, Colo., says a client with a good credit score was turned down this week for a mortgage to buy an investment property with a small down payment and no documentation. That same borrower was approved for a "nearly identical" loan in August and November, he says. Still, Mr. Barnes calls the tightening "modest." Alt-A lenders are "nibbling at the edges," he says.

The UBS study found that the problems are greatest for Alt-A borrowers who took out interest-only adjustable-rate mortgages, which allow borrowers to pay interest and no principal in the loan's early years, with 3.71% of interest-only ARMs originated in 2006 at least 60 days past due. As in the subprime sector, the riskiest loans are those made to home buyers who put little, if any, money down and don't document their income or assets.

As delinquencies rise, some investors who bought lower-rated securities backed by these mortgages are likely to face losses, according to Mr. Liu of UBS. While defaults are expected to be lower than in the subprime sector, so are the reserves set aside to cushion bond investors
against such losses.

Defaults are much lower for option ARMs. But the problems with these loans could be "backloaded," says Mr. Liu, because borrowers with these loans are still making the minimum payment.

Glenn Costello, a managing director at Fitch Ratings Inc. in New York, expects the foreclosure rate for Alt-A loans to ultimately be only 10% to 20% of the rate for subprime borrowers.
Yet investor concerns about Alt-A loans are rising, according to Walter N. Schmidt, a mortgage investment strategist at FTN Financial Capital Markets in Chicago. A report from mortgage analysts at Barclays Capital in New York this week pointed to fraud as one reason for early defaults on Alt-A loans. The mortgage industry is battling a rash of cases in which borrowers, loan officers and appraisers collude in providing false information to induce lenders to advance more money than homes are worth.

Boom Turns to Bust

Another sad example of a crazed real estate market and buyers and investors who are uneducated about the risks of investing in real estate…

By Alex Frangos From The Wall Street Journal Online
The condominium boom that ended last year made a lot of developers very rich. Aleem Hussain, a journeyman property salesman with a winsome personality, wanted to be one of them.
He formed his real-estate company in 2004, calling it Main Street USA, after a nearby Disney World attraction. He bought a complex of 27 aging, two-story apartment houses in Orlando and set out to convert them into condos. His timing looked favorable. That year, for the first time, the average price of a condo in the U.S. exceeded that of a single-family home, and in the Orlando area, condo and house prices jumped 15%.

But not much has gone as planned for Mr. Hussain, 42 years old, nor has it for his hundreds of investors, who include a bunch of local sheriff's deputies. Today, Mr. Hussain's company is being liquidated by a federal bankruptcy court, and he is residing in the Seminole County jail, charged with 23 counts of federal mail and wire fraud.

Mr. Hussain's rise and fall illustrates one of the hazards of a frothy property market: inexperienced developers get in over their heads and drag unsophisticated investors down with them. "Schoolteachers, cops, doctors, priests, everyone thought they were Donald Trump," says Lewis Freeman, the court-appointed trustee administering Main Street's bankruptcy proceeding. Mr. Hussain's company, he contends, was a "microcosm of the total market. You had a lot of unqualified people getting easy money and able to go into businesses in which they didn't know what they were doing."

Mr. Hussain's 300 or so investors face potential losses of up to $400,000 apiece. Alan Cayo, 76, a retired Army officer who says he invested his "entire life savings" of $280,000 with Mr. Hussain, conjectures that the developer crossed the legal line only after financial problems began mounting. "It was incompetence, fraud, plus the market going down -- a triple whammy," he says.

Mr. Hussain's lawyer, James Lenihan of White Plains, N.Y., describes his client as "someone with good intentions who made bad judgments and got overextended." He says others at the company were also responsible for what went wrong. Mr. Hussain has pleaded not guilty.
Mr. Hussain was born in the South American nation of Guyana in 1964, according to a résumé recovered from his computer by investigators. In the 1980s and 1990s, he worked in real-estate sales in Pennsylvania, New Jersey and Costa Rica.

When he settled in Orlando about three years ago, the city was the epicenter of a national boom of conversions of rental apartments to condominiums. In 2005 and 2006, 24,550 apartments in the Orlando metro area, or 18% of the total in 2004, were taken off the rental market to convert, a greater number than in any other metropolitan area in the U.S., according to Reis Inc., a New York real-estate information firm.

The converters were attracted by rising prices. Between 2001 to 2004, the median resale price of existing condos nationwide jumped 57%, compared with a 25% increase for single-family houses, according to the National Association of Realtors. Real-estate experts say demand was boosted by baby boomers downsizing their homes upon retirement, and young people who were moving to cities. In addition, investors who had soured on the stock market had begun buying and selling condos.

Mr. Hussain envisioned Main Street USA, which is located south of Orlando near Gatorland amusement park, as a residential real-estate conglomerate. Its main business would be condo conversions. He and his partners formed "No-Fee Realty" to broker condo sales, and two subsidiaries, "USA Mortgage" and "Main Street USA Mortgage," to broker mortgages and home-equity loans, in some cases to enable property owners to invest in condos.
Former associates describe Mr. Hussain as charismatic and beguiling. He would demonstrate for employees his formidable sales skills by buttonholing potential home-financing customers at supermarkets and persuading them to fill out applications, which involved disclosing their Social Security numbers, recalls former employee Michael Lombardo.

To build trust with the local real-estate community, he took on a partner, Alan Randel, a real-estate broker who had worked in the area for several decades. Mr. Randel, the company's president, hasn't been charged in the case and declines to comment.

First, Mr. Hussain had to raise money to buy apartment buildings. His pitch to investors: Main Street would buy properties, convert them into condos, then sell them at a profit. He said he would set up a private real-estate investment trust to help finance the deals. Investors in the REIT, he said, would get steady, attractive dividends. Those who wanted higher, quicker returns, he said, could co-invest directly in the conversion projects.

In early 2005, he recruited Bernard Presha, who was retiring as public-information officer for the Orange County Sheriff's Department, to join as a vice president in charge of recruiting investors. Mr. Presha and others persuaded at least 10 sheriff's deputies to invest, according to bankruptcy-court documents. Jim Hanton, one of the deputies who invested, was put on a $25,000-a-year retainer. Bryan Margeson, a sheriff's department employee who taught criminal justice at a local community college, introduced Mr. Hussain at investment seminars and talked about how he thought Orlando's boom would continue for years.

Mr. Presha, who has filed a bankruptcy-court claim to recoup $305,000 he invested, says he quit after a couple of months because he wasn't good at persuading investors. Mr. Margeson, who says he lost $100,000, says Mr. Hussain "used me for some credibility, which I didn't realize they lacked."

"Jim [Hanton] said being a drug-enforcement cop, he was super skeptical when his wife suggested they invest," says Mr. Cayo, the retired Army man. "But after a luncheon with Aleem, he was convinced." Mr. Cayo says Mr. Hanton's involvement reassured him. "He was Anglo -- excuse me, but Aleem Hussain could be cousins with Saddam Hussein, so having Jim involved" was comforting.

Mr. Hanton, Main Street's vice president of operations, says he wasn't involved in condo sales or in company finances. He says he lost $130,000, and calls the situation "embarrassing."
In August 2005, Mr. Hussain held a dinner for prospective investors at the Citrus Club, an elite private establishment. According to several who attended, he projected a 100% return in 120 days or less for those who invested directly in a Main Street project.
Magic Marketing Deal

That summer, Mr. Hussain cut a deal with the Orlando Magic, the National Basketball Association franchise. For $350,000, Main Street secured the right to use the team's name in advertising, and to use head coach Brian Hill in a marketing video. Fans could register on the Magic's Web site to attend Main Street investment seminars at the team's practice facility. Attendees could spin a raffle wheel for a shot at free game tickets.

An Orlando Magic spokesman describes the pact as "a traditional team marketing agreement," and says the video was one of 20 the head coach recorded one day for various sponsors. He says the team conducts reference checks on its marketing partners and has never had a problem before.

Mark Pilkington, a counterterrorism official at the sheriff's department who invested $300,000, says the Magic marketing deal reassured him. "We realized there was a frenzy in condos. They were selling like crazy," he says. "I figure, why would he rip me off for $300,000 if he's involved with the Magic?"

In September 2005, with $10 million from about 200 investors, Mr. Hussain moved to buy the 27 apartment houses known as Waldengreen. The complex contained 278 units ranging in size from 517 to 1,079 square feet. His $18.5 million winning bid, financed by a private lender, was a "damn good price for the seller," says Hal Warren, senior director with brokerage Cushman & Wakefield Inc., who represented the South Florida investors who sold. Nevertheless, Mr. Hussain figured he'd turn a substantial profit. He paid $67,000 per unit; he intended to sell them for an average of $150,000.

Mr. Hanton, the sheriff's deputy, alerted him to an 18-acre lakefront estate for sale in Winter Garden, which county records show was owned by Khalil bin Laden, a brother of Osama bin Laden. Mr. Hussain planned to refurbish the Spanish-colonial-style mansion and to add houses, condominiums or stores on the grounds, company documents indicate.

Before Mr. Hussain and a business partner left for Dubai, where the two sides planned to finalize the deal, the company had lined up financing for a $5 million bid, says Jim O'Neil, a former Main Street mortgage processor. In Dubai, after being persuaded by the seller that values had risen, Mr. Hussain agreed to pay $7 million. "We gave Aleem a line not to go over and he jumped over it," says Mr. O'Neil.

Mr. Hussain began renovating the apartment complex, which he renamed Villas at Waldengreen, and his sales team began peddling the planned condominiums. Prospective buyers were invited to seminars conducted by Messrs. Hussain and Margeson of the sheriff's department.

Anthony Cortes, an airline mechanic and father of two, says Mr. Hussain and a retired sheriff's deputy made him an attractive offer: If he put 10% down to buy a condo at Waldengreen, Main Street would make his mortgage payments for two years during the renovations. In February 2006, Mr. Cortes put $14,000 down for a $140,000 unit and took out a mortgage for the rest.
Linda Paralitici, a 50-year-old mother of five who worked for Main Street as a sales broker, bought one unit and persuaded her brother to buy one. "We were not allowed to see the property," she says.

Lack of Experience

Inside the company, Mr. Hussain's lack of experience was showing. Former employees say the operation was disorganized from day one. "The whole thing was a disaster," says Mr. Lombardo, the former employee, who was hired to originate mortgage loans even though he had no experience at it. Piles of mortgage applications by condo buyers who had put down $5,000 deposits, he recalls, languished on the desks of co-workers who were supposed to find financing.

In 2005, signs began emerging that the flood of new condominiums was more than the market could bear. That July, price appreciation for condos nationwide slipped below that of single-family homes. Converters stopped purchasing new properties and smart speculators got spooked.

Main Street sold only 100 of Waldengreen's 278 units. Renovation was haphazard, former employees say. Rather than try to move renters out of one building at a time to allow for the conversions, Main Street tore apart single apartments all over the complex. Several contractors quit because they weren't paid.

Buyers who were told that Main Street would cover two years of mortgage payments began hearing from their lenders that they were in danger of default. Mr. Cortes says he took a second job as a home inspector to take on the $1,200 monthly payment on his unit.

When Colleen Sharkey joined Main Street as a senior vice president in mid-2006, she says, Mr. Hussain told her: "I need to hire you because we've grown so fast and I have no credibility with the bankers and business community." It took her three weeks to understand the books, which were a mess, she says. She says she concluded the company was nearly bankrupt.

By August, the company was out of cash, bankruptcy-court documents indicate. It had lost $3.6 million in deposits on two other apartment complexes it had tried to buy. Dividend payments to the REIT investors, which had been steady, stopped. On Sept. 23, several of those investors confronted Mr. Hussain at Main Street's offices, according to a claim one of them filed in bankruptcy court, and Mr. Hussain responded by writing on a legal pad: "It is our intention to repay all principal investment and interest promised to the above referenced clients at such time as we refinance or sell our assets to provide the necessary funds to accomplish this."
On Sept. 29, Main Street sought bankruptcy-court protection in Orlando. By then, several investors, including some sheriff's deputies, had contacted federal prosecutors to report that REIT dividend payments had stopped and that Mr. Hussain had refused to return their original investments, as promised by the investment documents.

In October, Mr. Hussain rented a car and drove to Atlanta to catch a flight to Costa Rica. U.S. Marshals, alerted by federal investigators in Orlando, met him at the gate and arrested him.
A federal grand jury indicted him on 23 counts of mail and wire fraud. Among the accusations: He falsely represented to investors that their money would be kept in the REIT, when in reality there was no REIT and the money sat in a checking account. And he told investors their dividend payments came from investment profits, when he actually was paying them from money invested by others.

Investigators also say Main Street sold condos at inflated prices to Mr. Hussain's friends or relatives to generate misleading appraisals that justified the higher prices paid by outside buyers.

Mr. Hussain's lawyer, Mr. Lenihan, says his client wasn't trying to flee the country, but was going to Costa Rica and Nicaragua for business and charity purposes. He argues that prosecutors have singled out his client, in part because of his Middle Eastern sounding name, when others at the company were also responsible. "This thing was not set up as a scheme to defraud people," he says. "This is what happens to good people with a good idea and lousy timing who get into trouble." Mr. Hussain's trial is scheduled for April.
Investors and others have filed $19 million of claims in bankruptcy court. Mr. Cayo says he has defaulted on the three condos he bought because broken pipes have made them unrentable. Mr. Cortes continues to make payments on his unit.

The Waldengreen complex, which fell into disrepair last fall, has been taken over by the group that financed Main Street's purchase of it. A new manager has been hired and the units are once again for rent.

The company's remaining assets are being liquidated by the court. It is unlikely that investors will recoup much of their money, according to several people involved in the case.
Mr. Margeson, the sheriff's deputy, refers to the affair as his "$100,000 lesson." He notes that he "never saw people strong-armed to invest. The sad part is people lined up to invest their money. It was the whole furor of the real-estate market."

Loan Refinance Changes

Refinancing Adjustable-Rate Loans Becomes Harder for Borrowers

By Ruth Simon
From The Wall Street Journal Online

With rates on many homeowners' adjustable-rate mortgages rising, some who would like to refinance into a new loan are finding they can't.

In some cases, that is because their loan carries a prepayment penalty, which would force them to come up with thousands of dollars if they refinance in the first few years. Such penalties are common with so-called option adjustable-rate mortgages, which typically carry a low teaser rate that rises sharply after an introductory period.

Other borrowers are getting caught short by a changing housing market -- one in which home prices have flattened and lenders are beginning to tighten their standards after a long period of making mortgages easier and easier to get. The challenges are greatest for homeowners whose credit has declined since they took out their last loan and for those who have little if any equity. Some of these borrowers are still able to refinance but are finding it more costly than they expected.

These new challenges come at a time when many borrowers who took out adjustable-rate mortgages are facing higher payments. There are about $1.1 trillion to $1.5 trillion in ARMs that will face rate increases this year, according to the Mortgage Bankers Association. The MBA expects borrowers to refinance as much as $700 billion of those mortgages.
"The decrease in property values, combined with prepayment penalties, is making it very challenging for people to get out of these loans," says Ed Shanks, an executive vice president with U.S. Bank Home Mortgage, a unit of U.S. Bancorp. U.S. Bank is seeing more loans fall through, particularly in markets such as Arizona, California, Colorado and Ohio, where home values have softened. It could be "the tip of the iceberg," Mr. Shanks says.

In recent years, many homeowners refinanced repeatedly -- to get a better rate, lower their payment, consolidate debt or pull out cash. Even now, mortgage rates remain relatively attractive, though they have moved up from their recent lows in early December, and most borrowers still should be able to take advantage of them. The challenges for homeowners could increase if lenders continue to tighten standards and the housing market remains soft.
Antonio Papa, a construction worker, took out an option ARM with a 1% introductory rate in 2005 on a second home he owns in Jupiter, Fla. The rate jumped to 5.6% in September 2005 and has since climbed to 7.5%. "I was looking to refinance to have more stability," he says. He has decided to hold off because his option ARM carries a prepayment penalty that would force him to pay six months' of interest if he refinances within the first three years. Mortgage brokers often receive higher payouts for putting borrowers into a loan with a prepayment penalty, says Sandra Barrett, a loan officer in Palm Beach Gardens, Fla., who was working with Mr. Papa.Prepayment penalties are most common with option ARMs and loans made to borrowers with scuffed credit. Some 84% of option ARM loans made last year carried a prepayment penalty, according to an analysis by UBS AG that looked at mortgages that were packaged into securities and sold to investors.

The challenges facing borrowers are becoming more apparent at a time when opportunities for refinancing are narrowing. Rates on 30-year fixed-rate mortgages dropped to their lowest levels in 14 months in December, but have recently drifted higher. Rates on 30-year fixed-rate loans currently average 6.45%, according to HSH Associates in Pompton Plains, N.J., up from 6.16% in early December.

"The best deals in going from an ARM to a fixed-rate are passing," says Doug Duncan, chief economist at the Mortgage Bankers Association. "If anything, rates are likely to move up rather than down."

Meanwhile, there are signs that some lenders are beginning to tighten their standards. The shift comes after a long period of liberal lending practices that made it easy for borrowers to finance 100% of a home's value or get a mortgage without documenting their income and assets.
In a survey released Monday by the Federal Reserve Board, roughly 15% of domestic banks reported that they had tightened credit standards on residential mortgage loans in the past three months, the highest share since the early 1990s.

This month, Wells Fargo & Co. will begin reducing by 5% the maximum amount it will lend to certain riskier borrowers in "declining" markets. Those markets, covering more than 150 counties in two dozen states, include parts of California, Florida, Michigan and Ohio.

The change "reflects the tighter requirements of our investors," a Wells spokesman says. "I think all lenders are experiencing this kind of tightening of credit standards." Investors who buy mortgage-backed securities have been growing more concerned about credit quality as defaults have increased.

CitiMortgage, a unit of Citigroup Inc., last month began requiring that borrowers who take out a "stated-income" loan sign an affidavit attesting to the fact that information about their income in the application is accurate and hasn't been modified by their mortgage broker or loan officer. The change is designed "to protect the borrower as well as the lender," because borrowers may have trouble repaying the loan if their income is overstated, a company spokesman says.
On Jan. 30, Fannie Mae, the government-sponsored mortgage finance company, tightened its standards for so-called interest-only loans, which let borrowers pay interest and no principal in the loan's early years.

Other homeowners are being flummoxed by lower appraisals. Those most likely to be affected bought a home or refinanced in the past year or two and have little, if any, equity. "The block to refinancing is mainly located in those areas of the U.S. where there is little or no appreciation," says Peter Lansing, a mortgage banker in Denver.

Michelle Thompson, a medical-claims associate in North Glenn, Colo., pulled out $30,000 when she refinanced her mortgage last year, boosting her loan to $183,000. She would like to refinance again in order to lower her monthly payment, but when she went to apply for a new loan, she discovered that her mortgage debt exceeded the home's value.
Some borrowers are trying novel strategies. Charlotte Keyes, a program/project manager in Shawnee, Kan., refinanced her mortgage two years ago, pulling out $32,000 to consolidate her debt. With the rate on her loan set to rise to roughly 10%, Ms. Keyes is looking to refinance. Because she owes more than the home is worth, she plans on taking out a $13,000 auto loan and using the funds to pay down her mortgage.
With ARMs, "the tag line you always hear...is you can refinance with no problem," says A.W. Pickel, a mortgage banker with LeaderOne Financial Corp. in Overland Park, Kan., who is working with Ms. Keyes. "But it is a problem." The appraisal for Ms. Keyes's last loan was inflated, he adds.

Mitch Ohlbaum, a mortgage broker in Los Angeles, says some of his customers have had to tap the equity on their primary homes in order to pay down a portion of the debt on an investment property and be approved for a refinancing. Other borrowers have had to take a mortgage with a higher interest rate because their high debt load makes them a less attractive borrower.
Some borrowers facing prepayment penalties are sitting on the sidelines for now. David Lorentz, a high-school teacher in San Francisco, recently tried to refinance the option ARM on a four-unit apartment building he owns as an investment. He wanted to pull out cash to pay for renovations and college tuition for his children, but found he would have to pay an $18,000 prepayment penalty. "I guess I didn't get a good loan," says Mr. Lorentz, who plans to refinance in August when the penalty period expires.