We have ID the Problem: foreclosures, decline in value of Real Estate, loss of equity, families losing their home in record numbers, homeless people squatting in vacant properties, raise in homelessness, neighborhoods becoming ghost communities and creating ghost towns, economic flat line, small businesses closing because customers have loss homes, copper being stolen out of abandon homes, stain glass being removed to destroy the character of houses, collapse of the economy, recession moving towards depression, destruction of families, loss of the middle class, increase in crime in a hollow neighborhood because no chance of a neighborhood watch and finally Real Estate is at a risk of depreciation instead of appreciation.

These are some major problems as a result of bad loans. These bad loans were given by Loan Officers with little or no training and some with bad intent. Most states have adopted the policy of doing a background check on the Loan Officers. But this is a relatively new policy within the last 5 years. Before, a person could be fresh out of jail with a record of fraud and become a loan officer. Just think you would be giving all your information to a criminal. These adjustable rate loans have caused havoc all over this country.

The Solution is first cleaning up the industry. The financial institutions need to make sure that the Loan Officers submit to a personality test and screen their background closely. The personality test will identify their character and morale standing. There are many people that have not being caught legally but their character and intent are very flawed and the greed shadows their professional integrity. Loan Officers, Real Estate Agents, Real Estate Attorneys with the title company, Appraisers, Builders, Whole House Inspectors, Mortgage Counseling Companies, Insurance Agents and the Closing Agents are all professionals in this process and should be held accountable and carefully screened to weed out the criminal minded person that prey on the unsuspecting novice. The above mentioned professionals are on the same level as the Doctors, Lawyers, Judges, Preachers, Dentist, Painters, Roofer, Police, Fireman and others professionals you depend on. Most professionals have to have several years of school or intense training, why not the professional that help you make the biggest purchase in your life. The solution to clean up the industry is to have Loan Officers with under 3 years experience have a mentor assigned or create Mortgage Mentors to oversee your terms of the loan and make sure you understand the “Good, Bad and Ugly” of what you are signing. Some Mortgage Counseling Companies tried to do this but with little or no background experience over 5 years as a Loan Officer. The Mortgage Mentor will be a Senior Loan Officer working in the day to day industry getting tabs on the pulse of the Mortgage Industry, they will be paid a consulting fee right on the settlement sheet.

Another Solution is to eliminate the Adjustable Mortgage totally. The 5 years proposal the government announced will have the same problem later. Instead of just helping those hurt within the past 2 year; help them all. Adjust the rate back to original and give them a 2 point reduction in their rate so the victims of this failed loan can comfortably pay their new reduced mortgage payment. The families that were victims of losing their home as a result of the adjustable rate should be able to get their home back if it is not sold and get a reduced rate also. These families should be able to get their homes back at a reduced amount negotiated by both parties not to exceed 50% of market value. This would be better than HUD selling these homes for a dollar which was proposed this year. We must breathe new life into our neighborhoods. There should be a rehab loan attached to ensure a safe environment for families.

Another Solution is to create a grant to given to small businesses to reconstruct neighborhoods. Each neighborhood should have access to grocery stores or corner stores that are run by people that live in the neighborhood instead of the foreigner coming into neighborhoods and milking the people then taking the money to an upscale neighborhood. Most of the time these stores sale rotten food and products that tear the fiber of the people apart like cigarette, wine, lottery tickets, beer and other negative items. I know about supply and demand but we can take this opportunity to rebuild a positive neighborhood. It's time to get back to basics. Have loans for laundry mats, dry cleaners, restaurants, car shop, tire shops, and other small business to enhance the community.

The Alternative Solution or Plan B would be to help everyone in an adjustable loan and stop the adjustment until it is refinanced and make the loans assumable at the frozen rate. Stop all foreclosures and start creative modification of the loans.

Implementation should be immediately with the lending institutions mailing out letter to relieve borrows of the stress of foreclosure. Mortgage Mentors should be assigned to clusters of customers to modify their loans to save their homes and get a fresh start. Guidelines need to be established to take on this huge task. Workshop should be set up around the country to assist in this giant undertaking and partnerships need to be established to help turn this upside down mess right side up.

This program would need to be monitored after two years in the Fresh Start program. The Mortgage Mentors will be called on again to record feedback and see what customers can not maintain their payments and document where changes need to be made. The problem is so massive that the guideline will have to be adjusted and refined to become a fix for the Upside down Real Estate.

In Summary We Must Use the Problem Solving Model:

• ID Problem
• Find Solution
• Have Alternative Solution(s)
• Implementation
• Monitor the Solution to make sure it is working or if it needs to be adjusted

The Mortgage Industry needs to be cleaned up and the Adjustable Rate Mortgage needs to be abolished. This is a great opportunity to rebuild positive communities by giving loans or grants to small businesses to people that are willing to live in the community and not take from the community. Stop the poison in the neighborhoods with the sale of cigarette, wine, beer, rotten food, expired can goods and lottery tickets.

The problem is urgent and the implementation must be immediate. People are dying from stress about the foreclosure of their homes; their minds must be relieved as soon as possible. After the Fresh Start incentive, there must be a follow up plan to see how it worked and if their needs to be any changes.

It's a mess but the problem needs to be attacked logically and firmly. It's not necessarily a government problem, it's the lending institutions problem and they need to solve the problem using Modification with the guidance of Fannie Mae, Freddie Mac, Ginnie Mae and HUD.

An investor comes along and buys several properties for a little as $50,000 or less each. You need to refinance your home after being in your property for over 15 years and you owe $50,000 on your property and you know the value in the area is $100,000 so you think you have $50,000 worth of equity. You want to do a $20,000 cash-out refinance to do some repairs around your house. Well, your property must appraise for over $70,000 plus any closing cost. If the properties in surrounding neighborhoods have been selling for $50,000 within the last six months you are at risk to lose some or all of your equity. Equity is the difference between what you owe and the market value. So even if you are not in foreclosure the foreclosures in your neighbor will affect your property value. No one is untouched by this crisis. The Appraisers must indicate if the neighborhood is declining. This will change the terms of your loan for purchase or refinancing.

If a seller put their house on the market to sale the buyers think they can get a great deal. The media has given the buyers the illusion that they can offer $20,000 to $30,000 less than the listing price. The dilemma continues with insulting offers and nasty negotiations between the buyers and seller increasing the frustration in the housing market. Let's be clear about the negotiation of Real Estate in this upside down market. The negotiation gap can be greater with the lender owned property versus property that is owned by a consumer.

Now let's look at the investor's plight. Yes, the investor is getting a great deal but if they plan to flip the property they may be in for a rude awaking. After the rehab has finished and the investor is ready to put the property back on the market the vale in the neighborhood has decline and the profit margin will decrease. The best approach is to buy the property, rent it out and wait for the crisis to turn the corner. Now is the time for the investors to get some good deals but their profits will be better later.

The Mortgage Industry is trying to correct the bad loans by tighten up on the qualification for buyer. There have been several changes in the industry that have made a lot of the creative financing disappear. Several states have made it impossible to do state income loan, no income-no asset loans, no reserve loans, pre-payment penalties on loans and zero down loans. These are some other loans that were misused by the inexperienced Loan Officers in the past. The stated and no income-no asset (nina) loans were primarily designed for self-employed buyers that wrote off most of their income so they would pay little taxes but they actually made more money than what was stated on their tax returns. Another use of the stated and nina loan was when one member of the married couple could not be on the loan but there was more money coming into the household to maintain the mortgage payment without difficulty. Many Loan Officers would part a single parent with a fixed income into this stated loan and after a few payments the dream of owning a home turned into a nightmare.

The main nightmare in this upside down market is the dreaded adjustable rate loan. The reality of this loan is the selling point was that the buyer was suppose to improve their credit score within the next two years before the adjustment then refinance into a fixed rate and everyone would live happily ever after. Well, it did not work out that way. The Loan Officer was happy to get more money, the homeowner was happy to get an improved credit score and the economy was suppose to thrive. Not to be. What really happened in some case was a run in with Murphy's Law.

Whatever could go wrong did go wrong. Life hurt some people. Loss of a job; there are hundreds of jobs being outsourced everyday because the corporations suffered from greed and searching for an increase in profit margin. The loss of a job will cause unyielding stress that ultimately leads to divorce which leads to foreclosure. Health issues can cause a change on your credit report if your insurance do not cover the illness or co-payment. If the illness is life threaten bills may not get paid resulting in foreclosure. Make sure you have disability insurance if you can. Death in the family can cause a change in the ability to pay your mortgage especially if it's the death of a spouse.

If you experience any of the forementioned issues and your credit is negatively impacted you made not be able to refinance when it's time for the adjustable rate to start adjusting. Most adjustable rates adjust after the initial 2, 3 or 5 years and ever 6 months after that until it reaches it's ceiling which is about 5% higher than it is now. On the average a person can handle the first adjustment and maybe the second adjustment but after a year the payment can adjust more than 3.5% and their income raises are only 3% per year - well you see the dilemma.

Most people don't have a budget or don't keep to it. The increase in the price of gas alone has crashed most people's budget not to mention the extra cost every month to supply your habits to relieve stress: smoking, gambling, drugs, cable, driving, spa, gym, kid's sports, traveling or whatever extra spending that helps you make it through the day.

To answer the question what happened in the Real Estate Market: The Adjustable Rate Mortgage. The proposed freeze by the government is a temporary Band-Aid. I will address the solutions in Part 3.

Why are there so many foreclosures? Why are so many people losing their homes? Why are so many people walking away from the homes? Why is this problem all over the United States? The answer is the Mortgages that were sold to the general public. The answer is also the lost of jobs, divorce rate going up and major medical bills that are not covered by the health industry. All of these factors equal recession. Outsourcing of jobs to get cheap labor has crippled our economy. Now we have recalls because of lead in many products manufactured in other countries for cheaper labor but now the cost is tremendous to correct this problem.

The housing industry is a forecaster of the economic climate and our economy is crashing because of bad loans. Bad loans are the cause of so many foreclosures. The Mortgage Industry had no governing regulatory guidelines for the Mortgage professionals. Loan Officers were unleashed on an unsuspecting community that trusted a professional without training or compassion for their future. Greed was the motivating factor behind most of the loan that were made over the last decade. Some financial institution came up with the bright idea that if you give people that barely qualified for a loan a 2 to 5 year period to get their credit together than increase their interest rate the Loan Officer would be guarantee to get repeat business; thus more money. The concept took off like wildfire. The financial institutions were offering adjustable rates 2% less than fixed rates. The Loan Officers were like dope pushers. They left professionalism behind and was fueled by the thrill of making lots of money. Unethical Loan Officers had a field day. The untrained Loan Officers just did not know any better. The incentive of more money thrusted some Loan Officer that had the proper training into a money - money - money frenzy. The Hay Day let many first time homebuyer get a house that was not quite ready.

All this activity was filed under the term Creative Financing. The term sub-prime lending was also created and First Time Homebuyers were the jargon coined for the last decade. The terms have now changed to Foreclosure, Housing Slum, worst housing market in years, housing bail-out, freezing adjustable rates and Help are in the head line all across America. In the 1980 the housing jargon was assuming loans because the interest rate was as high as 20%. There are trends in the housing industry every decade or so; but this present market is upside down.

In closing I would like to say all Loan Officer were not bad but the bad one put us in this mess.