The mortgage crisis has been a nationwide problem for the last couple years. However, some states have been hit harder with others due to unemployment, cost of living and other factors. In California, the housing crisis has created a problem in which millions of homes are valued less than they were when the homeowner signed up for the mortgage loan. Michigan is dealing with the same problem on top of the loss of manufacturing and factory jobs, which is what the state has built its economy on for several decades.

Between 2005 and 2008, the number of people who have walked away from their homes and left them up to foreclosure has tripled. In 2005, about 5,100 people walked away from their mortgage repayment responsibility. In 2008, about 17,250 people did the same thing. Those numbers come from a report released by Experian-Oliver Wyman. Mark Zandi, an analyst for Moody’s Economy.com, said the problem will probably get worse, too. He told the Detroit Free Press that more and more people will make the decision to just “walk away” in the near future because it just “doesn’t make sense” to keep making payment while trying to make ends meet.

Michigan ranks fourth in the country when it comes to underwater mortgages. About 39 percent of the Michigan homeowners are in that type of situation, which equals more than 532,700 homeowners. While people who plan to stay in their homes continue to pay their mortgage payments, this problem is greatly affecting the ones who want to move somewhere else where they can find a job or people who want to downsize their home so they can afford the lower payments. Most of the homeowners who find themselves in this dilemma only walk away after they try to get a loan modification and cannot come to an agreement with the banks or lenders.

Another contributing factor to the number of people walking away from their mortgages is their self-image. With the economic problems and the huge number of foreclosures in recent years, it is becoming less of a stigma to walk away from your mortgage if you can no longer afford the payments. According to John E. Jacobs, a real estate attorney in Southfield, Michigan, your moral compass changes when financial times get really bad. The things you say you would not normally do begin to change when you have to decide between making your mortgage payment for the month and putting food on the table for your kids. Priorities change and you have to do what you have to do in order to survive.
One Michigan homeowner – Sondra Malone, 35 – is just one of the hundreds of thousands of people who have had to make the difficult decision to walk away from their home and mortgage responsibility. In 2005, she purchased a home in Eastpointe, a suburb of Detroit. She signed up for an adjustable-rate mortgage and had a $1,200 payment each month. Combined with high heating bills, a car payment and other major expenses, it was not long before she found herself underneath a mountain of debt. To add on to that problem, when she decided to sell her home in 2007, she still owed $116,000 on it but it only listed for $99,000.

That is when she decided to walk away from her home. She tried to negotiate lower payments with the lender but that did not work. She tried selling her house but that did not work either. She eventually found herself renting a condo and leaving her home behind soon after.

Malone, a social worker in Michigan, said she did not know what else to do. She was embarrassed for not following through with her financial obligation, but she had no other choice. But her story is not uncommon in Michigan or in other states where the economy has gone downhill quickly in the last couple years. The number of vacant homes is on the rise and the falling property values are not helping the problem either. These vacant homes are compounding the problem because they are causing the dropping home values which is also leading to fewer jobs because people are leaving the areas. This reduces the tax dollars for that local area and cities and counties are forced to lay off workers as a result.

Jim Fouts, the mayor of Warren, says that there is no easy solution to this problem. In fact, things may even get worse in his city as there is a proposal on the table to cut the pay for the union workers by as much as 20 percent. Warren’s home prices fell by nearly 10 percent last year and this proposal probably is not going to make things any better.

Analysts are worried that the rate at which people are walking away from their mortgages will start to affect how mortgage rates and prices are calculated. According to Charles Ed Haldeman, Jr. of Freddie Mac, if the problem becomes much worse, the mortgage prices are going to be higher in order to help these lenders recoup some of the money they are continuing to lose. This may also lead to a stricter mortgage process in which fewer potential home buyers will be approved for a loan.

Is this a problem that will just have to solve itself or do you think there are solutions to what is happening? Let us know your thoughts below.

Earlier this week, Fannie Mae announced that it was planning to purchase between 150,000 and 200,000 delinquent mortgage loans in March from single-family mortgage-backed security trusts. The loans targeted by this buyout are the ones which are at least 120 behind in payment. The organization also plans to purchase thousands more loans over the course of several months until the number of delinquent mortgage loans has been “substantially reduced.” Fannie Mae has not released any numbers referring to subsequent months after March. However, according to Barclays Capital, the number of delinquent mortgage loans could be reduced by as much as 30 percent if the mortgage lender continues the pace that is already planned for March.

At the end of 2009, Fannie Mae reported that it had about $127 billion in mortgage loans that were at least 120 days delinquent. However, the company also plans to include the loans that have become 120 days or more delinquent since the beginning of 2010 as well. Officials at Fannie Mae say that it is cheaper to hold the loans than to keep making payments on defaulted loans.

Fannie Mae also said it would give priority to mortgage borrowers who have modified loans and two-year delinquencies. The lender will also give special consideration to the loans with the highest unpaid principal balances and those with the highest pass-through rates. Researchers at Barclay Capital said that the list of priorities for Fannie Mae shows that they are trying to clean out the higher-priced loans before moving on to the lower-priced ones. The research also states that Fannie Mae will need to come up with about $100 billion over the next three months just to carry out its buyout plan.

Freddie Mac also announced recently that it would be buying many delinquent mortgages backed by its company. Freddie has about $70 billion in delinquent MBS loans as of the end of 2009. However, Freddie Mac plans to have its purchases completed by the end of March.

The delinquency rates for Fannie Mae have outpaced the delinquencies of Freddie Mac loans in recent months. That’s why in September of 2008, Fannie Mae was placed under conservatorship. This most recent announcement comes just weeks after the two giants – Freddie Mac and Fannie Mae – announced that they could join forces and purchase about $200 billion of mortgage loans which are delinquent.

Refinancing your home often has many advantages. You can take advantage of lower mortgage rates, pay less on your overall loan and put more money back into your pocket each month. Here are five awesome reasons why you should refinance now.

Lower Monthly Payments
Unless you plan on moving to a new home sometime soon, refinancing your mortgage loan can lower your monthly payments. Chances are that you are in a better financial situation now than you were when you bought the house unless you have had financial difficulties recently. If you have been able to pay your bills on time and have not had any major financial catastrophe, you can often get a better rate which leads to lower payments. You will pay some upfront costs for the refinancing, but you will soon recover those costs if you stay in the home for a few more years.

Switching between Mortgages
If you signed up for an adjustable-rate mortgage or some other type of mortgage besides a fixed-rate, refinancing your loan will give you the opportunity to switch. Adjustable-rate mortgages are always uncertain because you never know how much you will pay from month to month because the interest rate is always fluctuating. Other types of mortgages are also less than ideal. If you have anything but a fixed-rate mortgage, consider switching to one once you do your refinance.

Get Rid of Your PMI
Private Mortgage Insurance, or PMI, allows you to purchase a home if you are unable to put at least 20 percent down. This insurance helps ensure the lender will get their money if you default. However, when you refinance, you can get rid of this extra payment as you pay down your mortgage. Check with your lender to see if you are eligible to go without PMI before you stop paying it.

Tapping Into Your Home’s Equity
If you have been paying on your home for several years, chances are that you may have some equity built up in it. When you refinance at lower mortgage rates, you can tap into that equity and use some of it for home improvements, paying down debt or taking that much needed vacation you have been putting off for years. In some cases, the money you receive after refinancing can even be tax deductible!

Get Out of a Balloon Payment
Balloon payments often sound like a good idea at the beginning of a mortgage, but they can be disastrous later on. At the end of the loan term, you will be responsible for paying the entire balance of the loan or risk losing your home. Instead, choose to refinance and get into a fixed-rate mortgage so you can pay the same payment every month until your home is paid off.

The average rate on a 30-year fixed rate mortgage continued to see-saw around the 5% range, dropping by 8 basis points from 5.05% to 4.97% after rising 12 basis points last week (a basis point is one one hundredth of a percent). The BestCashCow averages also dropped, with the average 30-year fixed rate mortgage moving from 5.042% to 5.015%.

Averages though won't get you a mortgage and I like to check and see what rate is actually available. Since I live in Massachusetts I checked Massachusetts mortgage rates. Below I compared the best rate I could find on a $200,000 30-year fixed rate mortgage with 0 points:

This Week Last Week

Rate: 4.750% 4.750%

Points: 0 0

Fees: $1,995 $1,995

AimLoan.com continues to offer the best 30-year fixed rate mortgage in Massachusetts according to the BestCashCow rate tables at 4.750%. It has remained at this rate for 5 out of the last 6 weeks.

The 15-year FRM this week averaged 4.33 percent, down from last week when it averaged 4.40 percent. The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.11 versus last week's 4.16 percent. The 1-year Treasury-indexed ARM rose significantly again from 4.16% to 4.27%.

Here's what Freddie Mac had to say about the rate situation:

"30-year fixed mortgages fell below 5 percent to match levels seen two weeks ago and are helping to maintain affordable home-purchase conditions," said Frank Nothaft, Freddie Mac vice president and chief economist. "In fact, monthly principal and interest mortgage payments for a typical family buying a median-priced home of $163,800 were just $709 in January, the lowest amount since February 1998, according to the National Association of Realtors® . For first-time homebuyers, the fourth quarter of 2009 was the third most affordable quarter since 1981 behind the first and second quarter of 2009."

Mortgage rates remain in a tight range. As the chart shows, they've gone mostly sidways since September of 2009. Many analysts are predicting rates will rise, but weak economic data as well as testimony from Fed Chairman Bernanke show the economy is still far from recovered. Even with the Fed ending its purchase of MBS, it's possible rates may stay well below 6% for some time.

The rates above are just averages. Use the BestCashCow rate tables to find the best mortgage rates in your area.

In 2004, while the housing market was going strong and Wall Street was churning out mortgage backed securities, a former Dr. and now hedge fund manager named Michael Burry began to take big bets against the housing market. He did this by essentially picking up cheap insurance on sub-prime bonds that no one on Wall Street wanted.

In an excerpt in Vanity Fair from his soon-to-be-released book The Big Short: Inside the Doomsday Machine, Michael Lewis chronicles how Burry went from being a Doctor to a savvy investor who identified the housing and credit bubble and then figured out a way to bet against it. I've always enjojed Michael Lewis's articles and books. Amongst the books he has written are: Liar’s Poker, The New New Thing, Moneyball, The Blind Side, Panic, Home Game and The Big Short,

The article itself is fascinating. Once again, it shows how many smart investors were either clueless about what was happening with housing or simply didn't want to believe the good times would ever end. Here's one excerpt:

"Once again they shocked and delighted him: Goldman Sachs e-mailed him a great long list of crappy mortgage bonds to choose from. “This was shocking to me, actually,” he says. “They were all priced according to the lowest rating from one of the big-three ratings agencies.” He could pick from the list without alerting them to the depth of his knowledge. It was as if you could buy flood insurance on the house in the valley for the same price as flood insurance on the house on the mountaintop."

In essence, the big Wall Street firms and their investors had no idea that the subprime market or the housing market were going to unravel. Burry new and didn't believe that bubbles could only spotted in hindsight.

"“It is ludicrous to believe that asset bubbles can only be recognized in hindsight,” he wrote. “There are specific identifiers that are entirely recognizable during the bubble’s inflation. One hallmark of mania is the rapid rise in the incidence and complexity of fraud.… The FBI reports mortgage-related fraud is up fivefold since 2000.” Bad behavior was no longer on the fringes of an otherwise sound economy; it was its central feature."

The article also provides some insight into the paralysis that gripped Wall Street as the housing market began to collapse. When he tried to get in touch with his contacts at the major banks, they were all either sick, or having computer problems, or experiencing some other cataclysm which prevented them from helping hiim. "“This is a recurrent theme whenever the market moves our way,” wrote Burry. “People get sick, people are off for unspecified reasons.”

Part of the article details Burry's discovery that he has Asperger's syndome. Asperger's is on the Autism spectrum. He is uncomfortable around people, and prefers working alone. The article makes the case that his syndome helped him see what many others didn't. It also gave him the focus and patience to pour over bond filings and read into the minutae of how individual sub-prime bonds worked.

For me, the bottom line of the article is that bubbles can be spotted if is willing to take a contrarian viewpoint. Not only that, but a lot of smart people often bet very wrong. Burry was just smarter than the rest of them.

I now look forward to reading the book.

The housing crisis has become a major problem in the United States. There is no arguing that point. As a result of the problem, however, many homeowners have walked away from their homes and let the banks regain control of the property without paying for their obligations. This is happening because of two things: the job market has made it so people can no longer pay their mortgage payments and because many homes are more now than what they were worth when they bought the homes.

Another phenomenon that involves people just walking away from their mortgage is called “buy and bail.” In this situation, the person who is considering walking away from their mortgage gets another loan and convinces the lender that they plan to rent out their current home. The money they get from the rental will be enough to cover the mortgage payments on their second home. The only problem is that once they get approved for the second mortgage, they walk away from their first one and leave it up to the bank to clean up the mess. Because of the lower mortgage rates, they often get lower payments on their new home.

Walking away from a mortgage might seem easy, but there are some tough consequences to making this decision. The most obvious of the consequences is the credit problems that the person will incur after walking away from their loan. But there are more consequences as well. The one who bails out will also be responsible for tax penalties and they may also go through some jail time as well because they could be considered perpetrating a fraud. Because of the number of people going through this, some banks have decided to sue those borrowers for their personal assets in order to repay some of the money that is owed to them.

Borrowers who have just “walked away” from their mortgages, however, are the minority of people who get in trouble with their mortgage debt according to Kurt Eggert, a professor at Chapman University Law School in California. He says that the bankers are trying to shift some of the blame for the crisis on the borrowers in order to get the focus off of their responsibility for the escalating problem.

Another problem is that many of the walkaways are actually investors who own several houses rather than actual owners who occupy the homes. Between 2006 and 2007, 66 percent of the homes that were just left behind were owned by people who bought homes in hopes of fixing them up and selling them for a profit.

Do you know anybody who is walking away from their mortgage or considering it? What is their story? Did they just fall on some hard times or were there some other factors that contributed to the defaulted mortgage?

Average CD rates showed upward movement this week.

The average 1-year CD rate remained steady at 1.84% APY. The top rate remains at 2% APY but it is now offered by First City Bank. First City is offering a great rate but be sure to stay under FDIC insurance limits - it is rated as 0 stars according to Bauer Financial for its safety and soundness.

The average 3-year CD rate rose by 2 basis points from 2.62% APY to 2.64% APY. The top rate last week was Hudson City Bank with a 2.8% APY CD. That rate remains good but USAA Federal Savings Bank is offering a 2.81% APY 3-year CD. The minimum deposit to get that rate is $175,000. While you need a military connection to quality for their loan and insurance products, you do not need one to take advantage of USAA deposit products. In the banking world, USAA is highly regarded for its banking products and services.

The average 5-year CD rebounded from its drop last week, rising from 3.30% APY to 3.34% APY. The top rate dropped even as the average rose. The top rate last week was iGOBankings's 3.55% APY CD. This week it's Bank United with a 3.50% APY 3-year CD and Acacia Federal Savings Bank with a 3.50% APY 5-year IRA only CD paying. These top three rates have remained steady.

The chart below shows that CD rates have largely stabilized although there is still a slight drift down in short term rates and savings accounts.

If we zoom in a bit we can see what this looks like over the past 14 months.

With savings and short-term CDs drifting down and longer maturity deposits firming, we're continuing to see the savings/cd spread remain near record highs. What does that mean? It means as a depositor, you are being compensated more highly for putting your money into a longer-term deposit account then you were even a year ago. This isn't a suprise as savings rates and short term cd rates have collapsed while longer-term CD rates have come down much more gradually.

As we've discussed in the past, the elevated ratio means it may be worth taking a look at a longer-term CD, especially one that doesn't have an onerous early-withdrawal penalty. You can now earn 1.5 percentage points more by opening a 5 year CD versus a 1-year CD. If interest rates stay low for the next couple of years, as is possible, then perhaps this elevated spread makes opening the account worth it.

Regardless of this analysis, CD laddering may be a good way to smooth out the return you receive from your CD portfolio.