Last year I touched on what an Option ARM is (also referred to as Neg-Am [Negative Amortization]) and how millions may lose their homes as a result of them being pushed on those who already cannot afford a home. If you look at the video below, you’ll see how sneaky Option ARM’s can be and how easy it is to be fooled by the fine print.

Now, I’ve never been one to promote Countrywide or even pretend that they are anything but criminals based on how they prey one people looking to buy a home. When insiders and former employees confess that “the company’s (Countrywide) commission structure rewarded sales representatives for making risky, high-cost loans”, it’s easy enough to let the facts speak for themselves.

Here’s a quick video from armcrash about how Option ARMs can be devastating for the unsuspecting:

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Around town, new home builders tend to raise incentives before dropping price. After all, they report the full sales price, so dropping prices for them is a slippery slope of loss. With incentives, they can give deep “discounts” to buyers, while artificially inflating the price so that their other communities can sell higher.

However, it seems that buyers are finally realizing that although house prices are getting lower, this is far from an ideal buyer’s market. The credit crunch has hit everyone from those with credit cards in their pockets to those with 401ks and other investments in the bank.

As a result, it appears that home builders are being forced to find other ways to sell their new homes:

Home builders in Arizona, whose lavish incentives haven’t attracted buyers in the slumping market, are turning to the auction block as a last resort to sell empty houses.

Scottsdale-based Cachet Homes is auctioning 28 of its luxury homes on Sunday in the West Valley, some once priced at more than $750,000.

Bids start at about half of the homes’ original prices. Most properties will have no minimum reserve. The developer is following a national trend of builders’ letting home buyers set their own prices.

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The US Treasury Department has announced a measure that they hope will save homeowners from foreclosure. Dubbed “Project Lifeline”, it hopes to give folks a chance to find new mortgage options and offers a delay in foreclosure for 30 days.

Having come close to it personally (my short sale story), and having met hundreds of friends and readers going through it, I don’t personally believe that this will offer much in the way of help for those facing foreclosure. Although the HOPE NOW alliance sounds good in person, this is not one of those problems that can be fixed by throwing money at it.

Today, six of the largest servicers, who represent 50 percent of the mortgage market, are announcing Project Lifeline, a targeted outreach to homeowners’ 90-days or more delinquent that may lead to a “pause” in the foreclosure process. This is an important new initiative, targeted to reach not only subprime borrowers, but all 90-day delinquent homeowners nationwide with a step-by-step approach to find individual solutions to individual problems. We encourage all HOPE NOW servicers to adopt this new program.

Project Lifeline is aimed at homeowners who face a real risk of losing their home, but have not yet addressed the problem. Perhaps they are hoping to find a way to get current on their mortgage payments, or perhaps they don’t think any solution is possible. For whatever reason they have not yet taken action; our hope is that today’s announcement will reach them, and they will reach out immediately for help – especially now that the foreclosure process is upon them.

Of course, there will be homeowners who still take no action, and some will simply walk away from their mortgage – particularly those borrowers who put little or no money down and whose mortgage exceeds their home value. No program can bring every struggling borrower into the counseling and evaluation process, and we cannot help those who choose not to honor their obligations. But Project Lifeline has the potential to offer new solutions to responsible, able homeowners who want to keep their homes.

So essentially, six major lenders are offering to delay some foreclosures for 30 days to try to work out a more affordable mortgage for those delinquent on their mortgage payments for more than 90 days.

Bank of America, Citigroup, Countrywide Financial, JP Morgan Chase, Washington Mutual, and Wells Fargo are participating lenders.

Now, why won’t this work? For a couple key reasons.

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With all the talk about the housing bubble and ways to help fix the situation, it seems that for every solution, two more problems pop up. We saw housing prices fall in the last couple months, but then we hear that the inflation rate in 2007 went up 6.3%, the largest increase in 17 years.

Now an approved stimulus package has been aimed at the struggling lower and middle classes by giving them checks ranging from $600 to $1,200. However, many homeowners know that the sad truth is that the money that the government hopes will fuel retail purchases and the economy, will likely just be used to help folks stay in their homes one more month while they try to avoid foreclosure.

The House, seizing a rare moment of bipartisanship to respond to the economy’s slump, overwhelmingly passed a $146 billion aid package Tuesday that would speed rebates of $600-$1,200 to most taxpayers.

…

The measure would send rebates to some 111 million people, including roughly 35 million families who don’t make enough to pay income taxes. Individuals with adjusted gross income of $75,000 and couples making $150,000 would get rebates equal to the taxes they paid, up to $600 for individuals and $1,200 for couples. Those making more than that would see their rebate go down by 5 percent of every dollar of income over the limits.

Taxpayers would get at least $300, even if they paid less than that in taxes — or $600 for couples. That’s also the case for those who don’t pay income taxes but earn at least $3,000.

All eligible people would get an additional $300 per child.

Despite these glimmers of hope though, it seems that affordable real estate still eludes the grasp of many buyers.

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Now, the cynical may ask: in a year when people who bought new homes with great incentives and discounts are now being undercut by the new home builders who sold them their homes… What job was performed? Are Kaufman & Broad Homes (KB Homes) saying that essentially defrauding new home buyers and artificially inflating home sale prices marks a bonus-worthy achievement?

I don’t want to put words into anyone’s mouth. But I must say that this appears to be the case for many of us.

If that isn’t enough, how about the fact that KB Homes posted some of their largest losses as a company in the fourth quarter of 2007? Or that their shares plummeted more than 9 percent as a result. If a publicly held company’s goal is to provide profits for the shareholders, one might assume that if the shareholders lose money, if the owners of KB Homes’ new home construction properties lose money, that the CEO may not deserve a multi-million dollar bonus.

But then, the laymen is probably just not educated in the complexities of such.

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