Jeff Kaller

We also profile four home owners who have used real estate to begin building their own portfolios of wealth and power.

When you buy a home, you typically take out a mortgage loan to finance the purchase. Think of rent as the money you give landlords to pay their mortgage or to stop foreclosures. Company credit unions and many companies have credit unions that offer their employees discounts on everything from car loans to mortgages. If you belong to a credit union, check to see if it will lend you money for a down payment or closing costs.

In seller financing, often the owner of a property will "hold paper"-that is, finance a portion of the purchase for the buyer by not taking all the proceeds when the sale closes. These bank programs plans can help with down payments. For example, Wells Fargo features the National Homeownership Mortgage, which lets buyers obtain 100-percent financing if their FICO credit score is 620 or better. The Department of Housing and Urban Development (HUD) is also proposing a "zero down payment mortgage" next year for Federal Housing Administration (FHA)-backed mortgages.

You've found the house you want at a price you can afford. Your other debts Banks will also look at other installment bills you pay monthly, such as credit cards, school loans and a car note, when evaluating you for a loan. In this instance they don't want your mortgage debt and other installment debt to be more than 40 percent of your gross monthly income. If it does, this will affect how much of a house loan you actually qualify for.

Credit rating is just as critical as income in qualifying for a home loan, because your credit rating tells banks how good your record has been in making timely payments on other debts. Credit-reporting agencies now connect a score to your credit rating. Financing isn't impossible, but you'll probably have to pay a higher interest rate or other fees to obtain the loan."

Even in today's red- hot real-estate market, there are house deals to be found.  If foreclosed properties aren't bought privately, they're put up for auction to the public. Local newspapers will also advertise available properties and auction dates and times.

With community programs Increasingly, African-American organizations in predominantly Black neighborhoods are developing real estate or renovating housing and selling it on favorable terms to area residents.  Hit upon out which organizations in your neighborhood are financing housing ventures by calling churches, community-development corporations and civil-rights agencies. 

Real estate usually involves big money, which makes it ripe for scams. In Developer's glad-handing, many housing developers will offer to do everything for you from inspecting the property you're buying from them to financing the mortgage. Compare rates and your eligibility with banks or mortgage companies before going to a developer financing.

 Home-a-loan sharking "Hard money" or "shark" lenders prey on high-risk borrowers with ads that say things like, "Mortgage money guaranteed! Your income is critical, and so is the price of the house, but interest rates are the key to calculating how much you can afford: The higher the interest rate, the more it costs to pay for the loan. Say you want to take out a $100,000, 30-year, fixed-rate mortgage loan. At today's prevailing rate of 6 percent, the payment on that $100,000 mortgage would be $599.55 a month. Suppose property taxes and insurance add $250 (actual amounts will vary, depending on the property), equaling $849.55 a month. At 9 percent the rate a few years ago, your mortgage payment alone would have been $804.62, or $205.07 a month more than at 6 percent. At the lower interest rate you can afford the mortgage, taxes and insurance for about the same cost of just the mortgage at the higher rate. With mortgage interest rates the lowest they've been in 40 years, houses have never been more affordable, which makes this a good time to buy, even with higher house prices?

Mortgage a loan that is made against real estate, with the real estate serving as the collateral. For instance, if you put down $5,000 on a property that cost $100,000 but is now worth $125,000, you have $30,000 worth of equity in the property (the $5,000 you put in, plus the $25,000 rise in value). Fixed rate the amount of interest you disburse on a loan remains the same for the term of the loan.

Points another term for percent: a bank, for example, that's charging three points on a mortgage loan, is charging 3 percent. PITI Refers to the four components of a monthly mortgage payment: principal and interest, taxes and insurance. Escrow The amount of money a bank may collect from you and hold in reserve to pay the taxes and insurance on a property.

PMI If you put down less than 20 percent of the purchase price when buying property, banks may require you to take out private mortgage insurance, which indemnifies them from loss should you default on the mortgage.

Closing the last step in the home-buying process in which you receive the title to a property. Expect to pay closing costs that could run between 4 and 6 percent of the mortgage amount.

Tara Roberts, an Atlanta magazine publisher, lived in New York City. Now bitten by the real-estate bug, La-Nita, 35, a surgical technologist, and Keith, 39, an inspector at Boeing, bought a second property for rental income in 9 1999 for $112,000. The seller of the first house held a second mortgage on this property, which he agreed to sell to the Thomases for $7,000. Keith tapped his company pension to buy out the seller's position. Shortly after, the owner of the house, who owed the first mortgage and had retired to Montana, agreed to let La-Nita and Keith buy the house for what he owed the bank, $105,000. La-Nita and Keith assumed his loan, meaning they took over the payments and didn't have to come up with any more money than the $7,000 they originally paid.

The seller of their new property paid all closing costs. Today they own three properties with an estimated total market value of $579,000 that cost them $10,000 out-of-pocket to acquire. The income from the two rental properties more than covers both those mortgages. Offered through a first-time home-buyers program in Brooklyn's predominantly Black Bedford-Stuyvesant, it was a majestic farick-and-limestone ltalianate four-story, four-bedroom, two-family town house, gleaming like a polished jewel on a block of stately brownstones. "I never thought I could get a property like that-I figured it would go to a sister in the choir," says Benson, 40, a corrections officer at Rikers Island prison, who quickly got his money back from the Queens house and applied for the Bedford-Stuyvesant house anyway. 

Neil

"It used to be you could sit down and we'd explain what happens with 7 or 13 and, if you wanted to save your home you'd always be a 13, which is the only way to pay past arrears. That it prohibits now is the people who don't want the home and want to start over." De Leo says the act presumes everyone abuses the system if they make more than the median income. These filers have to go into a Chapter 13 and it doesn't matter if they ran up the credit card bills, opened a small business that failed or invested in condominium or real-estate deals that have gone bad. "It doesn't matter how you have come to your financial problem but, because of your income level, you're prohibited from filing Chapter 7." Shreveport bankruptcy attorney Kevin Molloy calls the act "one of the most poorly written laws I've ever seen." The law includes a "means test," which determines if filers can qualify for Chapter 7. If they qualify, they can't claim contributions to a retirement fund like a 401[k] as a valid expense, which can result in money left over, which could have been paid to unsecured creditors in a Chapter 13.

In Chapter 13, the deduction to the 401[k] plan can he used as a valid expense, which could mean nothing goes to unsecured creditors and is the supposed point of choosing that option. Also, Molloy says vehicle lenders are big winners because the law eliminated "cramdowns" that would have allowed a filer to pay the value of the vehicle, rather than actual amount owed, if it was bought within 2 1/2 years of filing. "They're taking the wealth that would have gone to credit cards and shifted it to the car lenders."

David Boneno, general counsel of the Louisiana Bankers Association, says his group doesn't see a need to change the act because Louisiana is not experiencing financial distress like other states. Bankruptcies remain low in the state because it hasn't experienced a rapid economic decline or gotten into subprime loans substantially.

Boneno says the means test helps determine if a filer really needs bankruptcy, and the median income level, which changes per state, allows low-income filers to declare Chapter 7 bankruptcy while encouraging those with higher income to go to Chapter 13 reorganization, which would impose a payment plan rather than discharge the debt. De Leo considers the act so oppressive that she says, "I almost think its a war of the classes in an economic war. They've eliminated rich people's ability to file bankruptcy and escape liability."

While some may not sympathize with their plight, she says they have helped grow the economy by investing in property and businesses. "When individuals come in, their No. 1 reason for filing is typically they're behind on their mortgage and want to stop the foreclosure," she says. And the reason they're behind on their mortgages are these ARMs [adjustable-rate mortgages] with payments jumping from $800 to $1,800 a month."

De Leo says many ARM borrowers have appointed her firm to try to renegotiate these loans. They couldn't afford to stay in the house, couldn't get refinancing to avoid the adjusted interest rate and couldn't sell the property in a slowing housing market. When they declare bankruptcy, they typically go to Chapter 13, which means making past-due payments in addition to paying the higher mortgage payments that put them in bankruptcy. Many hoped for relief from Congress' $700 billion rescue plan, but that didn't happen.

"It's a very powerful tool and we've never had that power under the code, but now there's a move to change all of that," Williams says.While Obama hasn't specified whether he supports stripdowns, he does want to help homeowners to stop foreclosures, especially seniors. He has blamed opponent John McCain of siding with the banks and credit card companies in voting for the act. But his Democratic vice presidential candidate, Joe Biden, was its key mover in 2005.

Still, the communication is apparently resonating with voters, particularly those angered by government bailouts of financial institutions that pushed for a bankruptcy code so restrictive that some call it Draconian. She says bankruptcies are still artificially low in Louisiana's Eastern District because of Katrina assistance, but they're steadily climbing, and she says bankruptcies are "flying" in the Western District. The construction boom is fading, and electricians, plumbers and contractors have started declaring bankruptcy, which started in early summer and has gotten worse.

They're facing a humbling process, De Leo says. If they have an ARM or make above the median income, they can only file Chapter 13, keeping them in bankruptcy three to five years. "It's the middle-class, rich people who are getting killed on this," she says. For example, if a filer has a $300,000 mortgage but invests $298,000 in a business, it's considered a personal, not commercial, bankruptcy because most of the debt is not business-related.

Williams agrees the filings generally draw from the middle class, and the act is more oppressive on them. Bankruptcies hit record numbers just prior to the act's passage, dropped off drastically shortly after it took effect in October 2005 and are rising again. Although the act was aimed at reducing them by adding credit counseling, more legal hoops and complexity, and additional costs to file, 1.2 million bankruptcies are anticipated this year nationally. That's up from last year's 800,000 filings, and next year's filings are expected to be even higher. He also says the numbers could be low as more people can't afford to file bankruptcy.

"It doesn't matter how many hoops you create, people are going to end up in bankruptcy one way or another," he says. "In the end, it's a very awesome experience because when people need relief from their creditors, bankruptcy is what the government offers - even with the hoops."A matter of housekeeping

Neil

John Grossi's least problems is to stop his Claremont Home from foreclosure. Unfortunately, Grossi is now struggling to pay the monthly rent on a two bedroom apartment with his Social Security disability income while devoting most of his attention to his 14year-old son, who still lives at home.

While most probably aren't as overwhelming as Grossi's, each foreclosure is accompanied by a tale of woe and nearly all result in the loss of the borrower's hard-earned equity. Creative financing

ForeclosuresMass.com also reports a sharp rise in property foreclosure in Massachusetts, and anecdotal reports at a recent conference focusing on stopping foreclosure noticed a similar spike was being experienced in the Midwest.

The Mortgage Bankers Association reports an increase in the foreclosure inventory rate from the first quarter of this year from the first quarter of last year, but not a spike.

MBA senior economist Mike Fratontoni said he was surprised the rate wasn't even higher, given the recent 4.25 percent rise in interest rates and the hot refinancing market three or four years ago, which simply meant there were a lot more loans made to stop foreclose on later. The expected sharp rise in foreclosures, he said, has been offset by a strong economy.

"We have a perfect storm and its just hard to stop foreclosure other than loaning again to pay the mortgages," said Jeremy Shapiro, president of ForeclosuresMass.com. "We have rising interest rates, a number of creative loans written over the past years and a sharp appreciation and then a cooling off of the housing market."

By creative financing, Shapiro is referring to a number of easy financing gimmicks, especially those loans offered to subprime borrowers - people with a checkered credit history. "People with poor credit now have access to the mortgage market," said Michael Collins, an Ithaca, N.Y., foreclosure consultant. In New Hampshire, a look at foreclosure data from the past 2-1/2 years shows that most foreclosed loans were originated by subprime lenders, with Ameriquest the leader of the pack .

Almost all subprime loans involve an adjustable-rate mortgage, so when interest rates stayed low, borrowers were able to survive that jump. As housing prices leveled off - and in some cases declined - the borrowers found that they owed more than they owned. "When you are upside-down like that, there are very few options to avoid foreclosure," said Shapiro.

Even those who have filed for bankruptcy are having trouble hanging onto to their homes.

Peter Wright, who heads the consumer clinic at the Franklin Pierce Law Center in Concord, said that a number of his Chapter 13 clients couldn't keep up on payment arrangements after bankruptcy filings. A survey conducted by Collins showed that a large percentage of borrowers think that discussing their problem with their lender might spur the lender to foreclose. The foreclosure process is an expensive one compared to stopping foreclosures, and lenders tend to lose money on the deal. If bad came to worst, Gioeli said, the borrower could deed back the property to the mortgage holder. While the borrower would lose the equity put into the house, at least the foreclosure fees wouldn't be added to the debt. As part of the deal, the mortgage holder might be able give back some equity to the borrower if he or she managed to sell the property more then the debt.
Most loans are sold by the originators to various investors. Sometimes these financiers are big institutions that have their own lessening loss department. In the case of federally backed prime loans, the noteholders also have various government guidelines and restrictions that tend to protect the borrower.

Meanwhile services like ForeclosuresNH.com are helping to create an alternative foreclosure market. For a fee, the service lets investors know when a property is in foreclosure. "After the deal goes to auction, the bank tries to recover all of the foreclosure costs and puts it on for market value. The sooner you can get in there, the more equity there is to go around," he said.As housing market cools, foreclosure rate rises

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