The Fair Debt Collection Practices Act (FDCPA) is a federal law that is designed to protect consumers of credit from abuse actions of collection agencies which are pursuing a debt. It provides numerous protections for homeowners and puts restrictions and limitations on what actions collection agencies may take.

When a lender or law firm violates the Fair Debt Collection Practices Act, homeowners may use these violations in their foreclosure lawsuit defense. Although the Act may not apply in every situation, many mortgages have been sold to third parties, investors, other lenders, and servicing companies under the appropriate circumstances, and the law would come into play.

Disclosure notice requirements, dispute processes, and even halting collection calls on a debt are covered by the Act. The law also allows credit consumers to bring lawsuits directly against a collection agency in order to obtain monetary damages for violations of the FDCPA, and it can be remarkably easy for collectors to violate the Act.

When a loan goes into default, the current holder of the loan, however, will not count as a collection agency when it is collecting on its own debt. It must use its own corporate name and must not be primarily in the business of collecting debts. In the case of the mortgage lending business over the past decade, very many loans are sold once they go into default.

The FDCPA applies when a mortgage loan is sold or transferred and another company begins debt collection attempts in the case of default. It is important for homeowners to remember, though, that if the lender before the default keeps the loan, the FDCPA does not apply. But if the bank sells the loan somewhere else, the law will apply to the new owner.

Once the lender or servicing company changes after default, though, the new company which purchases the debt counts as a collection agency and falls under the Fair Debt Collection Practices Act. Any law office that the lender hires to pursue the debt or bring the foreclosure lawsuit into court must also comply with the FDCPA and may face liability for violations.

Homeowners have a number of rights under this law. If they inform the collection agency (or lender or law firm) in writing of their desire not to be contacted regarding the debt, any further communication is a violation of the Act. As well, attorney fees that are charged to an account that are not specifically authorized in the mortgage documents is a violation of the Act.

The FDCPA also describes violations due to harassment, abuse, misleading representations, and debt validation, among other provisions. Other rights protected under the Act can be found by reading the law or consulting with an attorney familiar with the law in detail. There are also many websites that go into further detail about this particular federal law.

Each violation of the Act may cause liability on the part of the collection agency for any actual damage suffered by the borrowers, $1,000 per offense, and costs of any action to defend the foreclosure lawsuit, initiate a foreclosure lawsuit, and attorneys fees. In effect, there are numerous ways to violate the law, and many collection agencies do not know enough about it to follow it exactly.

When defending against a foreclosure lawsuit, homeowners may wish to use violations of the FDCPA (and they may be surprisingly easy to discover) to offset the judgment the bank is seeking. Violations may be included as counterclaims in answering a complaint. The law firm representing the lender also counts as a collection agency and may be brought into the lawsuit for its own violations of the Act.

The housing market has experienced a dramatic collapse, the stock market has shed trillions of dollars of wealth, and the economy has entered into the worst depression since the 1930s. As a result, many Americans have lost faith in the companies and professions they were supposed to be able to trust.

A number of real estate and financial experts played a role in the pump and dump scheme that was perpetrated on the US housing market over the past decade. Homeowners should be aware of the role of these professionals in taking advantage of the artificial boom in real estate prices to impoverish borrowers.

Local real estate agents who arranged sales between buyers and sellers were usually the first contacts that families had with the housing market. Depending on the contacts the real estate agent may have recommended to home buyers, it could be very easy to inflate the value of a property or recommend a mortgage broker able to get fraudulent loans approved.

Mortgage brokers or loan originators for lending institutions were also able to take advantage of a willing buyer. Brokers would often encourage homeowners to take out a loan for as much money as they were approved for, instead of a reasonable amount they could pay back. With the loose lending standards during the boom, getting approved for a large loan was easy.

Appraisers played a role in the housing bubble by estimating values of properties on the high side and finding any excuse in the book to justify market appreciations of 20% per year or more. But even if they wanted to be honest, appraisers would often find themselves with very little business from local Realtors or mortgage brokers if they did not inflate values.

The mortgage lending institutions that funded these loans also helped inflate the housing bubble by looking for loans anywhere they could be found. Lending standards disappeared in the search for more mortgages to fund. Once the loans were made, they were packaged up and sold to the Wall Street firms that mortgage lenders borrowed the money from to fund the loans in the first place.

The Wall Street investment banks played an enormous role in the housing boom by providing the credit lines to subprime and other lenders to make mortgages. Once the mortgages were funded, Wall Street would buy the loans, package them, slice them up, and sell the various mortgage backed securities to investors around the world.

The investors played a role by purchasing these securities that everyone knew would go bad. Public, private, and international pension funds bought these securities believing they were safe. Hedge funds took on some of the greatest risk, using credit lines provided by Wall Street to purchase more mortgage securities on margin.

The media also helped to create the illusion that housing prices never fell and that the boom was a great time to get into the real estate market. Of course, none of this was true, but the news media ran with it anyway and too few homeowners questioned the wild claims made by pundits or market analysts.

The credit rating agencies, which get most of their money from the financial firms whose products they are supposed to be rating, simply assumed that mortgage securities were safe and gave them the highest ratings possible. This made it much easier for Wall Street to sell the toxic assets around the world; after all, they were AAA rated.

This does not even take into account the government politicians and regulators who encouraged bad lending policies. As well, the Federal Reserve set the entire market up for malinvestment through artificially low interest rates during the years after the 2000 dot-com bust and the 2001 mini-recession.

The bubble in the housing market turned everyone into amateur speculators and allowed homeowners to believe in a fairy tale of perpetually rising real estate prices. Now that it has collapsed, the result has been rampant foreclosures, the erosion of trust in government and the financial industry, and the worst recession the country and world have seen in decades.

Lenders who make mortgage loans in a discriminatory basis may face liability under the Equal Credit Opportunity Act, which prohibits discrimination in lending. The Equal Credit Opportunity Act (ECOA) prohibits such discriminatory lending on the basis of several factors. These include race, color, religion, national origin, sex, and marital status. Violations of the ECOA may also be violations of the Fair Housing Act.

Red lining and reverse red lining are practices that are prohibited by the ECOA. These involve offering different credit terms (or restricting lending products) to certain areas based on racial characteristics. Red lining is when a mortgage company marks off certain neighborhoods or communities for reduced lending or higher cost loans on the basis of race or other discriminatory standards. In effect, the bank puts a "red line" around such communities and potential borrowers from these areas are denied credit.

Reverse red lining works in the opposite manner. A mortgage company or bank would establish lending practices that encouraged many more loans to flow into a certain area or demographic. This may be part of a classic pump and dump scheme, where lenders work to inflate the value of homes and provide funds to borrowers who can not pay them back. The lender then forecloses and is able to take the properties. Both redlining and reverse redlining are financially destructive to both borrowers and lenders, which is why the practice is somewhat rare.

Borrowers may have a very difficult time showing they have been the subject of discrimination in a foreclosure case. If they suspect this, however, it may be worth their while to consult an attorney who specializes in such cases. This is because liability under the ECOA may result in lenders being responsible for actual damages suffered by borrowers, punitive damages up to $10,000, and attorney fees. Some attorneys may work on contingency if a special case of discrimination is presented. It may be best at least to consult with an attorney before raising this defense in an answer to a foreclosure complaint.

The statute of limitations for violations of the Equal Credit Opportunity Act is two years. If homeowners obtained their mortgage more than two years ago, this law may not apply to them. Again, the best option in the case of suspected discriminatory lending would be for homeowners to consult with an attorney who specializes in this area of lending law.

The Home Mortgage Disclosure Act (HMDA) requires financial institutions to publicly release information related to ECOA lending. These reports are available online and provide information on the percentage of loans offered to minorities by different lenders in various cities throughout the country. The general public is able to look up zip codes, how many applications each lender took in the area, the racial characteristics of various groups, and the interest rate offered to each group. This can be a starting point for borrowers researching potential discriminatory or predatory lending practices.

Although violations of the Equal Credit Opportunity Act may be somewhat uncommon in the mortgage lending industry, homeowners may want to become aware of the law. However, the real estate boom of the past decade had been more a result of all markets being artificially inflated and anyone who could operate a pen was given a loan. This makes actual discrimination more unlikely, as the Federal Reserve set up the markets for bad investment and banks simply took advantage of any borrower coming through the door.

Overinflated job markets and overinflated housing markets went together during the real estate boom years of the 2000s. But too many companies believed in the Federal Reserve's illusion of low interest rates fueling investment and too many homeowners believed in the same illusion of constantly rising home prices. Now all of that has changed.

Whether is has changed for the better or for the worse in the long run is yet to be determined, but during the current economic recession, the world seems to be becoming a much more dangerous place. And neighborhoods hit hardest by the foreclosure crisis are experiencing the most serious erosion of public safety and rising crime related to abandoned properties.

By pumping up the housing market with inflated dollars and below market interest rates, the Federal Reserve and the banks have turned communities across the country into ghost towns and best and crime-ridden slums at worst. Homeowners left in these towns and cities are facing more risk than ever before.

The risks from foreclosure-related property crimes are just the beginning. Squatting in abandoned, bank-owned properties is becoming more widespread as formerly employed workers take advantage of the overproduction of homes to stay off the streets. Community organization groups have even taken to breaking back into foreclosed homes and putting the former owners back into properties they no longer own.

During an economic recession, crime rates generally rise, but the current depression will be far greater than any before it. Vast amounts of resources are being directed away from job-producing companies through government agencies to help bail out bankrupt private corporations or bankrupt local and state governments. Unemployment will remain high and climb even higher as a result.

Thus, the number of people unemployed will continue climbing and those unable to find jobs will become increasingly desperate to find food, shelter, and other resources for their own families. While abandoned and foreclosed properties can provide shelter, current homeowners should also consider their own safety against home invasion and robberies.

Unfortunately, foreclosed homes are not the only targets of criminals and vandals. While these types of properties are a target for those who can strip them of their valuable assets (pipes, wires, siding, and so on), they are typically not full of food, cash, or people to take advantage of. Only occupied properties offer these rewards for the violently inclined.

And even more worrisome for many homeowners is the real possibility that public safety may break down during the recession. With so much of the growth of the economy fueled by rising property values, local governments were able to keep growing by capturing more property tax revenue from citizens. With rising foreclosures and more empty homes, revenues have fallen dramatically.

This means that there will be fewer people employed as police officers or firemen, as cities and counties that relied on property tax revenue and subsidies can no longer pay for them. In case of an emergency such as vandalism, arson, squatting in a property, or even a home invasion, homeowners may have to rely on their own abilities to survive or protect their families.

During the coming years, people will be learning more self sufficiency and survival tactics in order to deal with a breakdown of the current order. A financial and economic system that once engendered trust from all over the world is now being forced to reveal one disaster or fraud after another. And the little remaining trust is quickly evaporating.

People now realize that their 401k plans and their homes are not ATM machines and have begun saving more money and taking more precautions in terms of their money and assets. What homeowner can trust in the same companies and individuals that set up the market for destruction in the hopes they would be bailed out by the very homeowners and investors they were impoverishing?

The deepness of the recession has caused an erosion of trust and an erosion of responsibility. We are all criminals now, it seems. If corporations are not going to the government for bailouts, criminals are going to corporate and private owned properties for shelter and easy targets. For the remaining homeowners and people with integrity, though, now is long past the time to begin preparing.

Related
Defending Your Home Against an Invasion - Some Tips to Secure the House

When attempting to defend a foreclosure lawsuit, there is a series of steps homeowners must take to have the best chance of saving their homes. The benefits of defending a foreclosure in the court system far outweigh any irrational reasons borrowers come up with to avoid the lawsuit. Simply by appearing in court, homeowners have a better chance of stopping foreclosure and forcing the bank to negotiate an alternative. This is a much better solution than avoiding the case, losing by default, and being evicted from a property within months.

The main problem, though, is that most borrowers just have no idea where to begin in mounting a defense to the lender's lawsuit. Beginning the moment the complaint is served by the county sheriff, it seems the foreclosure is much more "real" and stressful. But there is really no good reason to avoid the problem, as this only makes it more difficult to save the home in the future. The longer the problem is avoided and the borrowers do not seek help or confront the bank, the fewer options they will have available.

In fact, by following a series of relatively easy steps, and depending on the circumstances of the situation, homeowners facing a foreclosure lawsuit can not only defend their home but possibly even win the case, have their loan reversed (rescinded), or have the bank prevented from every suing them again. For a family struggling to pay the heat and food bills, having their loan rescinded and every penny they ever paid into the mortgage returned to them can be a welcome reward to fighting the bank in court.

Of course, this entire process can be a lot of work, and may drag out the foreclosure process for years. But if the bank presses the issue and files a lawsuit for the forced sheriff sale of the home, it is usually in the best interests of every borrower to go into court and defend the home. Also, homeowners should be aware that few cases ever go all the way through to trial. Instead, the most likely result will be that simply defending the lawsuit will convince the bank to offer a mortgage modification, accept a deed in lieu of foreclosure, or help the owners work out some other solution to foreclosure.

The following series of articles appeared on this blog in the past and describes the basic structure of defending a foreclosure lawsuit. Homeowners are encouraged to read it to begin understanding the most important tool for saving their properties. The next step for most will be finding a foreclosure attorney or other type of legal consultant that can help explain how the process works in their particular state and local area.

Defending a Foreclosure
Step 1: Figure Out What You Want
Step 2: Play By The Rules
Step 3: Get More Time
Step 4: Research Your Options
Step 5: Who Owns the Loan and TILA
Step 6: Have the Lawsuit Dismissed
Step 7: Answer the Complaint
Step 8: The Discovery Process
Step 9: Summary Judgment
Step 10: Go to Trial
Step 11: Lose, Win, or Appeal

If the bank does not attach the mortgage or note to the foreclosure complaint, homeowners may be able to have the lawsuit dismissed or defeated very quickly. This is one of the few mistakes a bank can make which homeowners can capitalize on to defeat the lawsuit almost immediately. Attaching the note or mortgage to the foreclosure complaint is typically a condition the bank must meet to begin the lawsuit at all. The bank must meet all of these conditions precedent to have initiated a valid lawsuit against borrowers.

The rules of civil procedure in many states will require that the contract be attached to a complaint alleging breach of contract. If the bank does not attach the contract and state it is the owner of the mortgage, the homeowners may have an easy defense. Unfortunately, this is not a requirement in every single state, so borrowers may still want to do their homework in researching their state and local rules of procedure to find out exactly which conditions the bank must meet.

The specific rule may have something to do with accounts or written instruments and state something to the effect that any claim founded on a written document must include a copy of that document to the legal pleading. In terms of a foreclosure lawsuit, this means that, if the lender is going to allege homeowners broke a mortgage contract, it must include the contract as part of its complaint.

Homeowners may have two ways to fight this procedural defect on the part of the bank. The first is to argue in a Motion to Dismiss that the bank has not even met the conditions necessary to begin a foreclosure lawsuit, and the complaint does not justify an answer. It should be dismissed immediately by the court until the bank can get its paperwork in order and not waste everyone's time bringing lawsuits into court based on documents it has trouble producing. The borrowers may also include this defense in their actual answer to the complaint.

Banks will often include a copy of the mortgage or note in the complaint (although sometimes it just states that it does not have possession of the note). Even in this case, homeowners should request that the lender show it has possession of the actual original paperwork that has the original signatures on it. Many banks only keep electronic copies of these documents and will have a very difficult time producing the original mortgage or note.

Even if the rules of civil procedure allow the bank to include a copy of the document along with an affidavit that it has possession of the originals, homeowners can request that the bank produce the originals for their inspection. If the bank can not do this, it may throw into question the affidavit stating the bank owns the note. Civil Rule 34(a)(1)(A) of the Federal Rules of Civil Procedure, for instance, gives borrowers this right, and many states will have similar rights guaranteed to homeowners trying to stop foreclosure in court.

Some homeowners may want to rely heavily on this defense, as the nature of the mortgage industry over the past decade throws into question the ownership of many mortgages, especially the ones most likely to go into default. Ownership may have changed hands hundreds of times, with no chain of title and the foreclosing institution not even owning the original paperwork. In such cases, the foreclosure lawsuit may be eliminated with a Motion to Dismiss or the entire action may be defeated.

As always, homeowners with more questions about their specific case may wish to consult with a foreclosure attorney or someone else knowledgeable about the law. There are also numerous resources for information online, and local law libraries can provide many useful reference materials. While the laws and courts are designed to keep non-legal professionals from having a fighting chance in court, the widespread information available through the internet and other sources these days give borrowers a much better chance than in the past to save their homes.

Mortgage lenders often have a difficult time adhering to the requirements of the federal law known as the Fair Credit Reporting Act, which may create liability for them when attempting to bring a foreclosure lawsuit or pursue a nonjudicial foreclosure. The Fair Credit Reporting Act creates requirements that creditors must adhere to when reporting consumer information to the credit bureaus.

Inaccurate reporting of information may cause damages to borrowers and create liability on the part of mortgage lenders for a wide array of violations. The FCRA governs the reporting of all information to credit agencies, whether it be inaccurate or not. Whether or not the borrowers have defaulted on payments is irrelevant to application of the FCRA on information reported.

There are a number of specific rules that mortgage companies and all creditors must comply with when offering credit to a prospective borrower and in the ongoing operation and servicing of the loan. Creditors often have a very difficult time following all of these guidelines while also attempting to comply with all of the other federal and state lending laws and routinely misreport information about consumers' accounts to the credit rating agencies.

If a lender denies credit or even a loan modification on the basis of information received from a credit agency, the consumers must be provided with a statement indicating that they can request a copy of their credit report from the reporting agency for free. The request must be sent to the company which provided the credit information within 60 days of the denial of credit by the lender.

Also, the creditor (or servicing company ) may not report information to credit agencies that it knows or has reason to believe is false or inaccurate. With the poor quality control most banks seem to have in place in their collections and foreclosure departments, mistakes are more common than many homeowners might believe. In the event any errors are discovered, the creditor is also required to correct the mistake on the borrowers' report.

There is a specific notice requirement for lenders when offering credit to borrowers. It is titled a "Notice to the Home Loan Applicant" and includes information for the borrowers' use. This notice contains information regarding disclosure of credit scores, an explanation of the credit scoring system, and instructions to contact the lender if the borrowers have questions about the terms of the loan.

The credit bureaus themselves also have to follow guidelines in the FCRA, including verifying any information that a consumer disputes. The verification must be done within thirty days of receipt of the dispute. If a record can not be verified, it must be removed from the credit report.

Willful violations of the Fair Credit Reporting Act allow homeowners to recover damages in three ways. The first is actual damages between $100 and $1,000 for each violation of the Act. The second is any punitive damages that the courts may award to the foreclosure victims. And finally, homeowners are entitled to attorneys fees and the costs of any legal action they bring against the lender for violations of the FCRA.

In practical terms, violations of the FCRA may be used to offset liability in a foreclosure action or lawsuit. When homeowners are preparing their answer to the foreclosure complaint, they may wish to add violations of the FCRA as counterclaims to sue the lender for damages. Depending on the amount and type of violations, along with any legal representation the homeowners utilize, such violations can create significant liability for the mortgage company.

In nonjudicial foreclosure states, lenders can have a home in foreclosure auctioned without going to court. Borrowers have to bring a lawsuit against the bank to have the process stopped in court. States that have a nonjudicial foreclosure process typically use deeds of trust to show a lien on a home. In a few small cases, mortgages may be used that contain a specific Power of Sale clause. But in the majority of states that used nonjudicial foreclosure, deeds of trust are used instead of mortgages.

Deeds of trust act very similar to mortgages in that they record a lien against a property when homeowners borrow money to purchase a home. However, they contain what is known as a Power of Sale clause, which gives the lender the right to sell the house if the loan goes into default.

The deed of trust will typically include the exact terms that must be met for the homeowners to be in default. It also describes exactly when and where the sheriff sale of the property will take place, if necessary. Homeowners who are facing foreclosure can learn a lot of the tactics the bank will use to take the home back just by reading the original mortgage documents.

The state foreclosure laws in nonjudicial states also determine, to a great extent, how the foreclosure itself will proceed. Numerous notices may have to be sent to the homeowners, posted on the property, posted on the courthouse itself, posted in other public places, and published in local newspapers.

Names of the notices may differ by state: notice of default, notice of sale, notice of intent to foreclose and sell, and so on. But the state laws will dictate how the homeowners must be notified of the impending sale of the home. This is extremely important information for borrowers to pay attention to, as any deviations the trustee or lender take from the law can result in the entire process being reversed. If this happens, the bank has to start the foreclosure all over again from the beginning.

In nonjudicial foreclosure states, there will be no foreclosure lawsuit, and the owners will have no opportunity to defend against the charge of breach of contract of the deed of trust. The bank simply declares the owners to be in default and proceeds to have the trustee of the deed of trust send out notice requirements as required by law until it is able to have the house auctioned off.

To defend against an unjust foreclosure or to delay it in court, homeowners will have to bring their own lawsuit against the bank. And then, the burden of proof is on the borrowers to show why the foreclosure should not be allowed to proceed. This process also costs homeowners more money than in judicial states because they will be responsible for filing fees and potentially posting a bond with the courts.

In fact, the borrowers may have to post a bond of several thousand dollars to get a restraining order against the bank. But the three orders that the owners must get from the court to successfully defend nonjudicial foreclosure are a Temporary Restraining Order, a Preliminary Injunction, and a Permanent Injunction.

The Temporary Restraining Order will bar the lender from selling the home until the courts have determined whether the owners have a case or not. The preliminary injunction prevents the bank from going forward with the foreclosure until the case has been heard by the court. And a permanent injunction bars the lender from taking the house back at all.

Many homeowners feel that this type of foreclosure is supremely unfair, in that they are given no chance to defend against a foreclosure that may have been initiated improperly. In a pile of complicated loan documents, they sign away their right to a trial and due process in the case of default. This is one more reason borrowers should learn about their rights in foreclosure and which exact laws and procedures the bank must follow to take the house back.

With all of the different parties involved in a real estate transaction, it can be surprisingly easy for serious mistakes to be made in the mortgage or note documents. Banks can be held responsible for these mistakes, even if they are not discovered until after foreclosure has begun. But if a mortgage or note has serious material defects, homeowners may be able to have their entire loan declared void when defending the foreclosure lawsuit.

The mortgage or note may be defective in any number of ways, from minor deficiencies to major ones that can derail a foreclosure lawsuit entirely. Homeowners may want to take a look at the original mortgage or note that they signed to obtain their loan and compare it to the version that was recorded and the version that the mortgage company currently holds. Any discrepancies may be valuable sources of information and may lead to the uncovering of mistakes. In any event, such differences may be questioned by borrowers.

For instance, terms may not match between one version and another, or terms in riders attached in additional sheets may not match the terms found in the mortgage or note itself. Stated terms may also be impossible to perform, such as if the loan states the rate will adjust in three years but the adjustment date listed is actually only one year from the time the contract was executed. When the loan closed and what terms are contained in the paperwork will hold clues to potential deficiencies.

Even if a loan is modified once and homeowners fall behind again, there may be a defect found in the paperwork. If all of the required parties did not sign the modification agreement, the new mortgage may be defective. Notary stamps that are expired or incorrect also indicate defective paperwork. Homeowners should read the loan documents carefully to find these discrepancies if they wish to include them as defenses in a foreclosure lawsuit.

Invalid terms in a mortgage or note, however, will have different recoveries for borrowers. Minor defects that caused the owners no harm may just be modified by the courts or simply ignored as immaterial. Major, material defects, on the other hand, could result in the entire loan being declared void. Of course, a likely consequence for many homeowners in court may be somewhere in the middle of these two extremes.

Homeowners should also view defects in the paperwork as potential violations of other federal and state lending laws. If the terms are stated incorrectly in the mortgage or note, the calculations based on the defective terms may violate the Truth in Lending Act or other regulations. In such cases, borrowers may sue for damages under these laws or include counter claims in their answer to the lawsuit.

Some common defects that homeowners may run across are listed below:

Terms in the mortgage and note do not match.

Terms in the riders do not match the mortgage or note.

The terms are impossible to perform.

Errors create liability under the Truth in Lending Act.

Errors in the interest rate trigger HOEPA regulations.

Assignments of the mortgage or note are not valid or properly endorsed?

Assignments were not signed at all.

The loan is not properly amortized according to the terms of the mortgage or note.

The mortgage or note recorded with the county do not match the versions included by the bank in the complaint.

A mortgage modification agreement is not signed by all parties to the loan transaction.

The lender that approved the modification is not the foreclosing lender and there is no chain of title to indicate the new lender owns the mortgage or not.

The notary stamp is defective or expired.

The mortgage lien was released accidentally.

Of course, possibly the best way for homeowners to determine if their loan has any of these deficiencies is to consult with a foreclosure attorney. Either by hiring a lawyer to help them with their court case or just consulting with one to find out the best options going forward, good legal advice should be sought out by foreclosure victims. Speaking with an attorney is not a guarantee to stop foreclosure, but it can help homeowners gain some perspective on how to defend the lawsuit and what to do to save their home for the long term.

When homeowners fall behind on their mortgage, the lender will eventually begin the process of foreclosing on the home. Depending on the state laws where the property is located, type of documents used in the loan, and the terms contained in the documents, banks may pursue a judicial or nonjudicial foreclosure process. Typically, if a mortgage is used to secure the lien on the property (as opposed to a deed of trust), judicial foreclosure will be used by the lender to take the property back.

In a judicial foreclosure, the first step usually involves the mortgage company sending a notice to the homeowners informing them of their delinquent mortgage payments and stating an intent to foreclose on the property. If the borrowers do not work out some arrangement with the bank (such as a mortgage modification or repayment plan ), refinance their home (with a foreclosure lender or hard money lender ), or sell in time, the bank will send the loan to its attorneys. These attorneys will be located in the state in which the property is located and they will file the initial lawsuit in the county court against the homeowners.

The complaint will almost always be served on the homeowners, either by personal service (dropped off by a sheriff's deputy, in most cases) or sent via certified mail and borrowers will have to go to the post office and sign for delivery. Once homeowners are served with the foreclosure complaint, they will usually be given twenty to thirty days to file their answer with the courts or file a Motion to Dismiss the case or a Motion for Extension of Time, if they need extra time to begin their defense. Banks rarely argue against a Motion for Extension of Time, as long as the additional time requested is reasonable.

Unfortunately, this is the time when most borrowers simply ignore the lawsuit and fail to file an answer. This is nearly always a mistake and borrowers may want to consult with a foreclosure attorney to prevent from losing an opportunity to defend their home.

Although most answers are filed in the form of a proper legal document, some courts will accept almost anything as an answer. This may even just involve a letter from the homeowners explaining why they are behind and requesting more time to work out a solution or hold off on a sheriff sale. But when homeowners do not file anything, the bank is able to get a default judgment and have the home listed for auction very quickly, with no involvement or protest by the owners of the house.

Borrowers who mount a defense to a foreclosure lawsuit can often receive several additional months to stay in their home mortgage free. After all, the burden of proof is on the bank to show that the homeowners are behind on payments and that the bank has the right to collect on the loan. Oftentimes, the borrowers have fallen behind, but the financial company suing them has no real legal right to the payments anyway, and the lawsuit can be thrown out or severely delayed, depending on the circumstances.

But most often, homeowners in foreclosure simply ignore the lawsuit and do not attempt to defend it in the courts. The bank wins a default judgment and a sheriff sale of the property is scheduled at the first available opportunity. Some states may have a redemption period after the judgment and before the sale, but many will simply hold the foreclosure auction a few weeks to a couple of months later. After this, the new owners will be able to begin an eviction lawsuit against the foreclosure victims and force them out of the house within weeks or a month.

The government and the President have a new plan to help homeowners out of foreclosure. We refer to it as the "Obama Plan". Many homeowners are hoping and praying for the best, but if history has shown us anything, we know it's always best to have a back up plan.

I am sure everyone remembers last years $320 Billion "Hope For Homeowners" program. This was the governments attempt to provide help then, which seems to have been a huge disaster. The plan was supposed to provide funds to help homeowners refinance and the money was supposed to help banks provide new loans. The program was touted as the savior for borrowers who were facing foreclosure.

The end product, according to Fox news, was one saved home. That's right...one single home. Don't get me wrong, I am, sure that one person is very grateful, but $320 Billion to save one home? How could this possibly happen!

My simple explanation for this is that the Washington bureaucrats know absolutely nothing about saving homes from foreclosure. In fact, I would be surprised if anyone who played a part in that bill ever saved a single home from foreclosure, prior to that one.

Now, the latest "Obama Plan" fiasco:

Obviously, after this last experience with the governments "bailout plans" we didn't have high hopes for this one either. And it's not just us; according to the Wall Street Journal headline article of April 15th 2009, GMAC mortgage now estimates that only ten percent of borrowers in trouble will be helped by the Obama plan. Wait just a second! What happened to the 4 million loans that were supposed to be helped, as claimed by the Obama administration? The Wall Street Journal is a pretty respectable newspaper and GMAC is a huge lender, so I tend to take what they say pretty seriously, but that's just the beginning.

MSNBC talkshows last week decided to do their own undercover work and find out how helpful this new bailout plan would actually be. One of their commentators actually tried to find help under the new Obama Plan.

These where his unfortunate and scary results:

1. In the majority of instances, he could not reach a loan servicer to provide any help at all, and

2. Where he did actually reach someone, not a single person could explain if he would qualify for the Obama plan, or even provide much further assistance about finding out how to qualify.

3. Other not-for-profit companies were not any better.

It seems, as usual, no one really understands what's going on and no one wants to make any changes to make it easier for the homeowners facing foreclosure.

When it comes right down to it, an experienced (for profit) company, operating legally, will have an infinitely better chance of helping you with a loan modifications when you are facing foreclosure. Lenders and not-for-profit companies simply don't have the finances, experience, or the manpower to help the number of people facing foreclosure.

Another big part of the picture is incentive. What incentive does a not-for-profit have for helping you? They get paid either way and they don't get paid much, so they can't afford to hire someone experienced enough to get the best plan for you. A for-profit company only gets paid on a successful modification, so they have a huge incentive to get you an affordable loan mod and to do it quickly.

As for the government plan; congratulations to the 10% who qualify, but the rest of you better start making plans to save your home yourself, or find someone else who can do it for you.

Ultimately, it's not possible to think that one government plan can save every house across America. Foreclosures will never come with a one size fits all "government" solution. Each case needs to be handled individually and they almost never fit into an exact mold.

As always, we recommend choosing three possible solutions to stop foreclosure. Never rely on one option and never, never, never, rely on the government to bail you out, just feel very happy and very lucky if they do!

The Boston Federal Reserve Bank has examined two of the leading causes of foreclosures across the nation, and neither of these causes are the often-cited "unaffordable mortgage payments" due to adjustable rate loans. The two main causes of the high foreclosure rate and failure of loan modification programs are declines in home values and job loss.

The real estate bubble encouraged speculation and buying of homes (or second and third homes) as investments. Now that prices have fallen in the most inflated markets, homeowners are more than willing to walk away from a losing investment than to keep making payments, whether they can afford them or not.

The fall in prices has always been a drawback of government plans to address the foreclosure crisis. Many of these plans have required banks to mark down mortgages to be in line with current property values, forcing the banks to recognize huge losses just to unload a home that may face foreclosure. But the banks have been unwilling to acknowledge these losses, opting for foreclosure and bailouts instead.

Also, the government plans to help borrowers can not address the problem of speculators who took out mortgages hoping for 20 or 30% price increases in a year who never had any intention of living in or improving the property. Homes were seen as little more than expensive, low risk, high reward stocks, and now these investors are just walking away from losers.

Without the huge appreciation rates experienced during the boom, these homeowners do not want to keep paying for their properties. A loan modification to a lower monthly payment will not change the fact that the value of the property has fallen and that it will be difficult, if not impossible, to sell it for a reasonable price. Walking away is seen as a better, quicker option.

The issue of job losses due to the economic recession is also a change in a family's financial situation that may lead to a foreclosure that mortgage modification will not help with. Banks are notoriously difficult to negotiate with for a reasonable modification, and a significant change in income is almost a guaranteed way to get turned down without professional help.

Unfortunately, the redefault rate on government assisted modification programs is extraordinarily high. This may be due to the fact that the programs are meant to address "unaffordable mortgages," but are being used by borrowers to stay in their properties for a few extra months before falling behind or deciding to walk away.

Real estate speculators may be able to obtain a modification from their bank in the hopes of the market improving over the next few months. When property values remain stable or decline even further, continuing to pay for the overvalued property (even with the payment lowered) is still a losing option for investors.

For homeowners who have experienced a job loss but qualify to modify their loan, they may discover that they can not keep up with the payment because their income has dropped too far. In fact, selling the home at a short sale and renting may be a better option at this point, instead of throwing scarce money at an expensive negotiation plan.

While rate adjustments have caused serious harm to homeowners, it is not the main cause of the foreclosure crisis. The fall in housing values and the recession are taking more out of borrowers than a subprime mortgage. Thus, the plan to address the foreclosure rate by modifying "unaffordable" loans will not be nearly as effective as politicians seem to believe.

Many homeowners facing foreclosure but who have nowhere else to go if they lose the house tend to take any solution that presents itself. The latest popular alternative to foreclosure is the loan modification, an agreement where the bank and borrowers reduce the cost of the loan for a period of time to allow payments to be made on time.

While this seems like a good idea for a large number of borrowers, some may not be in a financial position where changing the terms of the mortgage makes sense. Although the government has created several programs to encourage more lenders and borrowers to engage in modification programs, the redefault rates are surprisingly high.

In fact, nearly half of the homeowners who utilize government services to work out mortgage modifications with their banks fall behind once again, with even fewer options to save the home than before. And without a reduction in the principal amount of the loan, once borrowers default again, selling is not even an option.

Obviously, loan modification is not a panacea to the foreclosure crisis and, for a disturbingly large number of homeowners, it is not even much of a temporary alternative to losing the house. And the main reason that the modification programs tend to fail is that borrowers are caught in longer term financial hardships caused by the recession.

For people who are laid off or have their hours reduced, they may be able to qualify for a loan modification based on their decreased income, but it is not a sustainable financial plan. One large financial setback that occurs after a reduction in income, without an emergency fund to cover it, can push the borrowers right back into default.

An unaffordable mortgage due to an adjustable interest rate rest is far different from an unaffordable mortgage due to a significant change in a homeowner's financial position. With the former, a modification of the payments may help keep the borrowers out of foreclosure. With the latter, it may only prolong the inevitable.

Economic reality is fighting with the government's program to modify millions of mortgages for people who may not be able to afford the payments for the long run. And the more money that is allocated to helping borrowers who will ultimately fall into foreclosure anyway, the longer the recession will be drawn out.

Unfortunately, because the politicians embarked on the path of bailing out financial institutions instead of refusing to give them money and creating the incentive to work with borrowers to avoid foreclosure, now everyone wants a federal bailout, banks and owners alike. But this political course is only causing the depression to worsen.

New government programs are not working to help stem the foreclosure tide, and even old government programs are just exacerbating it. Nearly 10% of FHA loans made in the first quarter of 2008, even after the initial declines in real estate prices and collapse of the subprime mortgage market, are already in default by the tenth month of payment.

Having 10% of a government insured mortgage market in default will just contribute further to the stagnant economy. Home prices will be lowered and borrowers will be kicked out of properties -- unless they obtain a government mortgage modification, of course. As far back as August of 2008, the FHA was indicating it may need its own bailout due to bad loans.

Can this really go on any longer? Can we expect the government to determine which borrowers should get loans and then determine which defaulted borrowers should get loan modifications? So far, it seems that bureaucrats have done a terrible job of it. Can we really expect politicians and lawyers to solve such a serious economic problem?

A growing trend during the current recession is squatters moving into foreclosed homes and living in them rent and mortgage free. Although this seems surprising, with the inflated real estate bubble not yet completely burst, banks reluctant to recognize losses on such properties, and so many empty homes available, it was a likely result of the collapse.

With home builders having constructed far more properties than could ever have been sold, real homelessness does not have to be an option for foreclosed homeowners or laid-off workers. Instead, they can often just move into an empty property and take further advantage of the boom in real estate building.

Rents and selling prices in many areas of the country will still need to come down to reflect a return to more reasonable real estate values. But banks, which were too willing to lend 100% of the value of an inflated property, are now reluctant to acknowledge their mistakes and allow homeowners to sell for less than the total amount owed on the mortgage.

Banks' unwillingness to allow short sales is forcing selling prices higher than the market value of properties, especially properties in distress. In some areas of the country, a large number of homes are selling for $300,000 to $1 million, but rentals are available for $600 to $1,200. Landlords must be losing significant amounts of money every month.

Lenders are also reluctant to help homeowners stay in their houses by modifying mortgages or offering other realistic solutions to help avoid foreclosure. This makes it almost inevitable that borrowers will have to sell, but then they run into the problem of getting a short sale approved by their mortgage company.

So real estate prices are still too high compared to the rents that properties are generating, and foreclosure rates are higher than they would otherwise be if banks voluntarily worked with homeowners. In a freer market than we have now, banks would have an incentive to work with homeowners to stop foreclosure if there was a realistic expectation of having the loan paid back in time.

For example, banks charging 6% interest on a mortgage may lower the rate temporarily to 4% or less to assist homeowners who demonstrate a long-term ability to keep their loan current. While this may be a temporary loss to the lender, it will not be a total loss, as is the case with many foreclosures. And this agreement could be worked out between the owners and bank voluntarily, which foreclosure as the last resort.

But right now, banks have every incentive not to dedicate extra resources to helping borrowers. Instead, they can let homes go into foreclosure and try to keep real estate prices artificially high. When this plan fails and they are forced to recognize total losses on loans, they simply blackmail or threaten legislators into handing over billions of dollars to paper over losses.

This keeps foreclosure rates high and pushes homeowners out of properties, all the while forcing them to contribute to the bailing out of the mortgage lenders. Obviously, the banks feel entitled to looting taxpayers for trillions of dollars and Congress and the Federal Reserve acquiesce to such demands time and time again.

Thus, who can blame foreclosure victims or the unemployed for feeling as if they are entitled to share in the bank's wealth (i.e., the taxpayers' wealth) and take over a bank-owned foreclosed properties? People are being forced to bail out financial institutions, so they force their own way into a piece of the bailouts by squatting and living rent free.

Either the bailouts need to stop for everyone, or everyone should get a free home. Over $10 trillion has been appropriated by Congress and the Fed for solving the financial crisis so far, which amounts to over $33,000 for every person in America. That should be enough to allow people to live mortgage and conscience free inside an empty house for a long time.

Squatting in an abandoned or foreclosed home is clearly wrong (at least morally, since legal determinations mean little these days), and not an activity anyone should engage in. But banks squatting in the American economy, threatening destruction of the entire financial system, and living parasitically off of the productive is wrong on an even bigger scale. Putting an end to the latter may put an end to the former.

While many homeowners who read this article would ideally want to save their home from foreclosure, this may not always be the best solution to a financial problem. But too often, the emotional attachment that owners have to a property is strong enough that they would like to keep the house, even if the plan they use to save it is not reasonable for the long term.

Most borrowers should utilize various options to stop foreclosure, but even before deciding on a plan of action, they should decide whether the house is worth saving or not. Depending on the answer to that question, their plans to deal with the property and the foreclosing lender will be drastically different.

The first consideration that homeowners should have is for the equity in the property. If there is a large amount of equity, it may be worth finding a solution to foreclosure and holding onto the property. Of course, with property values in decline in many parts of the country, many fewer owners have any equity at all than did just a few years ago.

Secondly, homeowners facing foreclosure should decide if there are any other economic reasons to keep the house besides just the equity in the property. For instance, if there is a second mortgage that may sue after a foreclosure sale, then it may make more sense to negotiate with both lenders to find a way to get the loans back on track.

A third consideration in deciding whether to keep or give up a house due to foreclosure is the emotional value the home has for the owners. A brand new home built a few years ago will have different sentimental value than the property one of the owners grew up in. If the house does have this type of emotional content, then it may be important for the owners to try to save, regardless of the amount of equity.

A further consideration should be whether the owners believe they will be able to make reasonable mortgage payments over the long term. A temporary financial setback can be overcome and the creditors negotiated with. A longer term financial change, however, may make it impossible to save the home, and other solutions should be pursued in such cases.

Finally, homeowners facing foreclosure should attempt to work with their bank even if it is just for more time to sell or move out. But their negotiations with the lender over small issues will help them determine how easy it would be to deal with the bank for more substantive changes to the loan. If the bank is unwilling to work with borrowers, it may not make sense to pursue many options to avoid foreclosure.

Borrowers should decide whether their home is worth keeping even before they begin negotiate with their lender for solutions to foreclosure. What they negotiate for, whether more time to sell, a short sale, or a mortgage modification, will all depend on whether or not the home is even worth saving in the first place.

One of the mistakes that many homeowners facing a financial hardship often make is failing to prioritize their bills. Even after they fall behind on one or two monthly bills or debt payments, instead of abandoning the least important ones, they typically try to keep on top or just a little late with them all. This can often be a mistake.

Prioritizing bills and eliminating the least important ones is the first step that borrowers should take when they experience a medical catastrophe or a job loss. If they will not be able to pay all of their bills on time during the duration of the financial hardship, then some will have to be set aside while the most important are paid first.

Obviously, keeping food on the table and the lights on are the most important bills. Payments for basic necessities like groceries and utilities can often be lowered during a hardship, but no family can survive long without food, heat in the winter, and electricity.

Second in importance will usually be any bills the homeowners have that involve their job or business. Car maintenance and repair expenses along with gas to get to and from work are both important to keep up on. As well, if the borrowers operate their own business and are still receiving meaningful income from it, these bills may take priority over others.

In terms of debt payments, then, the mortgage and any car loans should be prioritized. Of course, this does not mean that homeowners should keep an expensive car or overvalued home if they can trade in either for a used but paid-off car or go from owning a home to renting, if the financial situation calls for such sacrifices.

Most borrowers will not want to take scarce resources away from their mortgage to pay credit cards, other unsecured debts, or low priority bills. In fact, many bills can be eliminated during a financial hardship, such as cable television, movie rentals, or gym memberships. Credit cards that go into default can be much easier to negotiate down than mortgage balances, as well.

Of course, one of the easiest ways to reduce both priority and unimportant bills to try attempt to negotiate them down. Cable companies may be able to offer introductory rates to current customers, while mortgage companies can provide borrowers with loan modification plans. Homeowners should take advantage of these opportunities to try to work out a solution to foreclosure before it becomes a problem.

Any family soon to be facing foreclosure should immediately begin to prioritize their bills, paying attention to the ones most important and which ones can be reduced or eliminated. It also makes sense to begin negotiating with every company to reduce rates or payments, even temporarily, which can help borrowers avoid foreclosure, bankruptcy, and a whole list of other financial troubles.

Remember the so-called bank stress tests? They were part of the US Treasury Department's newest plan to stabilize the economy, reintroduce confidence into the market, and provide a whole list of other benefits to investors. The idea was to take taxpayer money (billions of dollars of it) and use it to test large bank's abilities to handle even worse economic times.

Now that the tests have been completed for the 19 largest banks in the country, the Treasury Department is trying to decide exactly what to do with the results. It realizes that releasing the results may set off a panic in the economy and cause damage to weak banks' stock prices. So it is delaying releasing any results.

In fact, if the government releases the results of the stress tests at all, it may not do so on an individual bank basis. Instead, the results would be released as a summary.

This would give the Treasury cover for having performed the tests while not giving any useful information to the public. The tests are administered by the banks and the government with the results interpreted and summarized by the banks and the government to give investors the confidence they are looking for to keep investing in these banks.

Investors and actual bank customers, of course, can not be trusted to read and interpret the results of these stress tests on their own. After all, if they realized that a bank was insolvent and could not pay them back, they might take their money out of that particular bank.

It would be far better for the government just to tell everyone that, while there are still weaknesses with the banks, as a whole they may be able to weather the tough economy. No need to panic -- the banks will survive another day and come back as strong as ever to make bad loans to borrowers with no ability to pay them off.

But seriously, the very fact that the Treasury Department is contemplating not releasing the results of the stress tests on an individual-bank basis should be enough cause for concern in the markets.

No one really knows how much trouble these large financial institutions are really experiencing. The government proposed the stress tests as a means of determining the risk of large banks having to declare bankruptcy. If the test results are so bad that they can only be released as a summary, it is safe to assume that every one of the banks is insolvent.

After all, if the banks were really healthy and had passed the test and had enough capital to face a temporary uncertainty in the stock market, they should be proud of the results and want them released on an individual basis. The fact that this is not being done should be a grave cause for concern.

If the point of the stress tests was not to give valuable information to the public about the health of the banks that they were investing in or depositing their money into, what was it? Were the tests just to use government regulators to cover up the bankruptcy of individual big banks but declare them healthy as a whole?

The Treasury will eventually decide whether or not to release the individual results of the bank stress tests. There are only a limited number of options the government will rely on.

First, the Treasury may just release the numbers as a summary, as it is contemplating doing. This will cause more uncertainty than it will reduce, as investors will not know which banks were deemed healthier than the others.

Second, the Treasury may release individual results after massaging the numbers some more. It can manipulate the numbers, pick out a couple of scapegoat corporations to shut down, and declare the rest healthy enough to survive. Score a victory for one government program!

Third, the government can just release the individual test results without massaging the numbers. Of course, if the real health of the banks is what everyone expects it to be (bankrupt without bailouts), then a run on the worst performing banks may commence.

A run on an unhealthy bank is what the government and the banks are trying to prevent with the release of stress test results, but failed institutions that wasted depositor money should not be allowed to stay in business. The fear of a run on a bank keeps the managers more honest than if they know the government will step in and rescue depositors.

With the federal government appropriating over a trillion dollars to spending and stimulus programs and the Federal Reserve private bank system pumping into the markets close to $10 trillion in liquidity, can there really be a liquidity crisis anymore? And if so, how many more trillions of dollars of liquidity will be needed to solve the problem?

It should be obvious by now to anyone paying attention that the markets are not in need of more liquidity. Through the initial $300 billion Troubled Assets Relief Program (TARP), the US Treasury invested in banks and bought special classes of preferred stock. In response, the banks receiving TARP money essentially stuffed it in the mattress.

The real problem is that the value of many of the assets that once backed up the debt securities held by these banks have fallen so dramatically. This was bound to happen when the banks started taking advantage of the Federal Reserve's artificially low interest rates to start giving loans to people who would never be able to pay them back.

Values were inflated by everyone involved in the real estate transaction and everyone went along with the myth. Borrowers wanted to get in on a bubble economy and were willing to finance 100% of the purchase price, knowing they could just sell in a year or two and make a huge profit.

Real estate agents knew that the value of the home and its sales price would determine their commission.

Mortgage brokers knew that their pay (through commissions, fees, yield spread interest) would be based on the loan amount.

Appraisers knew that if they failed to appraise a home for the maximum marginally-plausible amount, they would get no further business from banks or mortgage brokers.

Banks knew that the larger the mortgage, the more the debt security would be worth. And they also knew that, if the owners fell behind on their loan they could just refinance or sell and take their profits. And even if they did not sell, the bank could foreclose and sell it later on and take the profits of the inflating bubble for themselves.

When defaults began to rise and values started to fall, the dodgy debts became entirely worthless. People who can not pay a mortgage on a property with an inflated value can sell. People who can not pay a mortgage on a property that is underwater are forced into foreclosure unless they can work with their lender.

Values have fallen in real estate, but sellers can not list their properties for sale when the mortgage is 150% of the current market value of the home. If they want to try to sell to stop foreclosure at all, they need to sell for a high enough price to pay off the mortgage company. And no one is buying at those prices anymore.

They need a short sale to be approved by the bank in order to sell for a reasonable price. But the banks are notoriously difficult to work with negotiating for short sales. If they ever acknowledge receiving the offer at all, it is too often turned down.

Then, a few months later, the bank forecloses and lists the property on the market for even less than the original short sale offer. The homeowners were not allowed to sell for a higher price to avoid foreclosure than the banks sometimes list the properties for after they take them back!

Currently, the banks are shooting themselves, homeowners, and home buyers in the foot in not accepting that real estate values have fallen. But the banks also have very little incentive to acknowledge falling home prices.

First of all, if home values were accepted to be lower than they were in 2006, this would instantly discount the value of the mortgage securities. Many banks that invested heavily in CDOs, MBSs, ABSs, and the rest would have to face that they are already insolvent.

Second, banks are doing just fine in receiving money from the government to continue operations without having to acknowledge any of the mistakes of the past. Congressional tongue-lashings have been the worst most banks have had to deal with, and their reward for such public spectacles is usually billions, if not tens or hundreds of billions, of dollars.

Third, the government has stepped in to make it easier for banks to hide their losses on mortgage securities by pressuring the accounting world to relax mark-to-market rules. This makes it easier for the banks to keep inflated values of these assets on the books while their borrowers have to deal with actual falling home prices in the real world.

So a bank is able to keep a mortgage on its books valued higher than any rational buyer would ever pay for a particular home. The homeowners are facing foreclosure and would just like to sell for the market value and put the entire experience behind them.

But the banks and the government have facilitated a business environment where it is a better deal for the banks to avoid recognizing falling home values and simply decline short sales. Homeowners are forced to try to sell for what they know to be unreasonable prices.

Thus, the government allows housing prices to be propped up and gives banks incentives not to work with borrowers to sell properties. As a result, foreclosures increase, the banks declare the problem to be bad borrowers and "liquidity," and come hat in hand to the government. The government hands them more money and gives them more advantages to prop up housing prices.

Does anyone remember Enron? The energy company that collapsed in 2001 because of massive fraud, capitalizing on government regulation to manipulate energy markets, and hiding its enormous debt load by creating securities and then creating buyers for those securities at fabricated overvalued prices?

Enron relied on the mark-to-market accounting rules to securitize its own debt, create the buyers for the debt, and then market the debt securities to a wholly Enron-created market. Since Enron was both the seller and buyer, it was able to unload its debt and count it as an asset at a price that the company negotiated with itself.

It sounds fraudulent and it is. Mark-to-market was also known as mark to myth at the time of the Enron dealings and collapse. The rule's few restrictions, which numbered a few created by the accounting professionals, were almost entirely ignored by the energy company. But even the deals which were mostly legal were still mostly fraudulent.

The politicians in 2009, however, have decided that Enron-style fraud is not such a bad thing after all. Just this past Friday, April 3, 2009, the Financial Accounting Standards Board, under heavy pressure from Congress and other banking interests relaxed mark to market rules to make it easier to hide the true value of toxic mortgage assets.

The banks were suffering under the rules because they were being forced to value their mortgage securities and other toxic assets at their current market values. Their excuse for relaxing the rules is that "markets are frozen," and that the assets are actually worth a lot more than the pennies on the dollar that investors are willing to pay for them right now.

But seriously, how much is a mortgage loan that is in default on an overvalued property really worth? It will be almost impossible for lenders to collect on some of these loans, and the banks are not even all that willing to work with homeowners to turn bad loans into performing ones again.

Instead of negotiating with borrowers to reduce mortgage balances and interest rates to a more reasonable level, people are just walking away from their homes and banks are just crying to the government for free money. But this is the reason these mortgage assets are currently worthless. And everyone wants to unload them.

The more the banks are bailed out with taxpayer money and the more they are allowed to hide their insolvencies, the longer the economic recovery will take.

All of this money is being taken away from viable businesses that could provide real jobs to homeowners and other consumers. But instead, it is taken from these businesses and given to failing corporations to keep the bubble-era party going, even if the executives and politicians have to party on the graves of American workers.

So money is taken away from people to give to banks. Businesses can not afford to hire or expand production to provide new jobs to these workers. The government sucks resources out of the private market. The private market can not recover.

Why shouldn't homeowners just walk away from their homes in such an economic climate? Most people who have a $400,000 mortgage on a $200,000 property will probably rightly assume that their lender has received a significant portion of the $400,000 from the federal government.

Is there any reason the homeowners, if they experience a financial hardship due to government manipulation of the economy, should keep paying the mortgage? Especially when their bank, which received money from those homeowners in their role as taxpayers, will not even return their phone calls to negotiate an alternative to foreclosure?

But now that market-to-market accounting rules have been relaxed, banks will be able to inflate the values of worthless mortgage and debt securities. So the crisis should be solved, right? Mark-to-market has been replaced with mark-to-trust-us, or mark-to-continued-fraud.

With the covering up of the low values of these assets, the bank's balance sheet problems are solved, right? No more capital injections, liquidity injections, or TARPs will be needed, right? Now that the banks can take the bad assets and say their worth more than they really are, they will need no more bailouts from the federal government, right? Right...?

Since part of President Obama's latest housing market bailout plan involves giving $200 billion more dollars to mortgage giants Fannie Mae and Freddie Mac, it make sense to examine what exactly these two companies have provided for the good of Americans. Especially since they are declaring further losses every quarter, despite government bailouts, can they really be that indispensable?

In 1998, after the collapse of economies in Southeast Asia and the Long-Term Capital Management hedge fund, the first downturn came in the subprime mortgage market. Since there was no real estate bubble by then, however, the collapse was not nearly as destructive to the economy. Government policy at that point was not to encourage people who could not afford homes to buy them.

But in September of 1999, Fannie Mae began easing credit requirements for the mortgages it bought and guaranteed. As the Government Sponsored Enterprises (GSEs), as Fannie and Freddie are known as, began easing lending requirements, more buyers were able to purchase homes without positive credit histories. Fannie began this policy under pressure by the federal government.

Because the two mortgage giants guarantee nearly half of the American mortgage market, their easing of credit standards created huge new markets for lenders to expand into. And they wasted little time in beginning to lend to borrowers who were more risky.

With the government enterprises guaranteeing the mortgages, few lenders really cared all that much if many of the loans later went into default. And with home values increasing by 10 or 20% every year, the homeowners could just sell the property for a profit if they ever got into trouble actually making the monthly payments.

So it was no wonder that lenders made riskier and riskier loans. The Federal Reserve reduced interest rates to 1% after the 2001 recession, and investors were looking for assets that produced a better yield than Treasury bonds. Mortgage-backed securities were seen as just as safe as Treasury securities, but with higher interest rates.

Unfortunately, with so many borrowers who would not have qualified for loans under stricter guidelines now being given mortgages, the assets were far riskier than anyone wanted to acknowledge. The entire subprime mortgage market was based on the assumption of constantly rising home values.

Another assumption was that, even if home values began to decline, the government would step in and rescue Fannie Mae and Freddie Mac. Of course, even the GSEs prospectuses for investors stated the mortgage securities were specifically NOT guaranteed by the federal government. But it was always implicitly assumed that the government would step in if there was trouble.

The entire mortgage market was loaded so full of risk and based on so many false assumptions that, as soon as home prices stopped increasing, problems almost immediately arose. By September of 2008, the government had stepped in to take over Fannie Mae and Freddie Mac. The era of giant company bailouts had begun in Washington.

Now, with the GSEs being essentially run by the government, failure and loss only increases the amount of money that they are given by the American taxpayers. Fannie announced a third quarter of 2008 loss of $29 billion. The natural reaction would be to declare bankruptcy after so many disasters. But the government has recently given the companies an additional $200 billion.

The current financial crisis is being used as an opportunity by these corporations and the government to reward risk and enrich the people who created the disaster. As well, the crisis is being used to give more power to the very people who destroyed their firms, all in the name of helping to restore stability.

But how can the same people who created the environment in which a crisis would inevitably occur, did not see the crisis coming, and denied it was a crisis, ever be trusted to rescue the economy from that collapse?

Since the first Wall Street bailout during the current economic crisis, that of Bear Stearns in March 2008, the government has handed out trillions of dollars to companies. Some were failing, some were healthy but the feds wanted control of the corporation in order to dictate how the business operated.

In addition, there have been several "stimulus" packages designed to put more money into the hands of the people of the country. Tax rebates were sent out during spring and summer 2008, and one of President Obama's first acts upon coming into office was passing a $780 billion economic stimulus and spending bill.

And to address the housing crisis, the government has created numerous new programs designed to assist borrowers with stopping foreclosure. Hope Now, Project Lifeline, Hope for Homeowners, Making Home Affordable -- all designed to keep people in their homes and help them get loans guaranteed by the government or negotiate better terms with their current lenders.

So what has the government to show for a whole year's worth of bailouts, handouts, stimulus, and spending? More unemployment, more failed businesses, more foreclosures, more declines in property values, and more resources siphoned off from the productive to reward the unproductive. And what are we promised in the future? More of the same.

Bailing out one failed company after another has turned the federal government into a beggar's alley for corporate CEOs that now have no incentive not to loot their companies and drive them into the ground. Especially if the corporation can become enormous through credit, it will stand a better chance of being deemed "too big to fail."

The so-called stimulus packages have been meant to put people back to work and get people spending again. But just the opposite has happened -- people are saving more and unemployment is rising. Of course, it is only logical in an uncertain economic time that people would save their money or pay down debt if they were worried about being laid off or having their company taken over by the government.

And the housing programs designed to fix the foreclosure crisis and prop up home values? All failures, with the Hope for Homeowners program being the worst so far, having earmarked $300 billion and helped only on borrower. This is $300 billion in taxes, borrowing, and inflation that will have to be paid by every other person in the country to help that one other homeowner.

Aren't we sill expecting too much of the government and how effectively politicians, lawyers, and bureaucrats can run the US economy? More laws, more statutes, more stimulus, more counterfeit money -- none of it will help the economy until the weaknesses are worked out. And as long as strong parts of the economy are forced to prop up weaker companies, the recession will go on.

For homeowners who have a mortgage through the Department of Housing and Urban Development (HUD) insured by the Federal Housing Administration (FHA), there may be additional options to obtain a deed in lieu of foreclosure to avoid the worst consequences of losing a home. The requirements for this program and how homeowners can find out if they qualify are surprisingly simple in theory.

All homeowners who have their loan insured by the FHA are able to contact HUD at the first sign of falling behind in payments. HUD provides various services to borrowers who are in danger of defaulting on a mortgage, such as free counseling and assistance with negotiating with a bank for a short sale. The deed in lieu program, although lesser-known, is another option.

The assistance that HUD provides in these cases is encouraging a mortgage company to accept a deed in lieu. But homeowners are not just able to call and have HUD automatically help them. There are three main requirements that homeowners facing foreclosure must meet in order for HUD to encourage the lender the accept the proposed deed.

First, borrowers must have become late on their mortgage due to no fault of their own. This may be from a job loss or transfer, serious illness, death in the family, or other involuntary financial hardship. Most homeowners will be able to meet this requirement quite easily in the current economic climate, but this is also designed to prevent against fraud or abuse of the system.

The second requirement homeowners must meet is that they will be unlikely to recover financially to the point of being able to make the mortgage payment again. Even with payment assistance or a forbearance agreement, some borrowers would be unable just to pay the regular monthly bill. A deed in lieu of foreclosure may definitely be appropriate in such cases.

The last requirement is the most difficult for borrowers to meet. It states that no junior liens may be present on the property or that the homeowners must pay them off within twenty (20) days of the request for the deed in lieu. For many borrowers with 80/20 loans or Home Equity Lines of Credit (HELOCs), a deed in lieu with HUD's assistance may be impossible to qualify for under this condition.

For every other borrower with a loan through the FHA who can meet these three requirements and desires government assistance with a deed in lieu of foreclosure, they can contact HUD directly. Of course, they will also want to work on other solutions to foreclosure, because HUD will only encourage the bank to accept the deed in lieu -- they will not force the lender to accept it.

A deed in lieu is usually a last resort for homeowners who can not save their homes any other way but do not just want to abandon it. Banks are not usually very open to this option, but with the encouragement of HUD and the persistence of the borrowers, they may decide it is in the best interests of everyone involved to end the foreclosure early and accept the deed in lieu of foreclosure.

Usually, homeowners do not just want to give up on their home when they begin missing payments. If there is any way to negotiate with the bank or refinance with a new lender, they often take it. But it is when they realize that there is little chance of recovering enough to save the home that borrowers will consider giving the bank a deed in lieu or just walking away.

A deed in lieu of foreclosure allows homeowners to give their property back to the bank in fulfillment of their loan obligation. The bank accepts the property back and the homeowners are off the hook for paying the mortgage any longer. As well, any foreclosure procedures that have been initiated in the court system or with a trustee are canceled.

For borrowers who have no other option to save the home and begin making monthly payments again, a deed in lieu of foreclosure is often their last resort before just abandoning the house. Of course, this option is not for every homeowner, but there are at least four reasons to consider a deed in lieu instead of just walking away.

First, if homeowners have tried to sell their property on the open market for a period of months but have just not found a buyer, it may be worth considering just giving the property back to the bank. Mortgage companies do not always want to own foreclosed homes, but if it realizes it will end up with the home anyway through a sheriff sale, it may be quicker and cheaper to accept the deed in lieu.

Second, if the owners have little or no ability to pay the mortgage, they can consider giving the property back to the bank. This is often the case when there is a permanent change in the borrowers' financial situation and a once affordable home is now too expensive. Instead of going through a lengthy foreclosure process, the bank may understand that they will not be paid back and it is better to take the property back.

Next, if homeowners have no equity in their home, their options are extremely limited for working out a solution to foreclosure. Refinancing is usually out of the question, even with hard money lenders, and negative equity will make selling the home very difficult. As well, the owners may just not even want to keep a home that is severely upside down, so offering a deed in lieu to the bank may be the best option.

Finally, many borrowers wish to preserve their credit scores as much as possible, and having a deed in lieu appear on their credit report instead of a full foreclosure will help with this. Also, they will be able to avoid some of the late payments by giving the property back to the bank quickly. While this is often a minor concern to many homeowners just trying to get out from under a house, it is another good reason to consider a deed in lieu.

While it is not always easy to convince a bank to accept a deed in lieu, it is not much more difficult than negotiating for a mortgage modification or other foreclosure help program the lender may offer. Homeowners should focus on working with a company or individual who can help explain the process and help them put together a proposal to the bank, and then be persistent in following up with the deed in lieu of foreclosure.