This is not for the faint of heart. As the housing market collapsed and home prices plummeted, Americans lost vast amounts of wealth. Homeowners in some cities were hit particularly hard - Las Vegas and Orlando, Fla., are now effectively "underwater," with more mortgage debt than property value over all. It is a graph showing the ratio of total mortgage debt to property value in areas around the US. NYTimes.

Here's one editorial plan to halt the fall in house prices. "The government should reduce mortgage principal when it exceeds 110 percent of the home value. About 11 million of the nearly 15 million homes that are 'underwater' are in this category. If everyone eligible participated, the one-time cost would be under $350 billion: WhatAboutTheInvestors?

“We regret to inform you...” Nobody applying for a new mortgage or a refinancing wants to see or hear these words. But last year more than two million people were turned down for home loans, according to federal data, often because they didn’t meet certain lender requirements or because their applications were incomplete or otherwise problematic.

And that number, from the Federal Financial Institutions Examination Council, doesn’t even include those who abandon the often-complicated mortgage qualification process. The Mortgage Bankers Association estimates that about half of those who try to refinance and 30 percent of buyers are either denied or drop out.

“A lot of people have credit banged up,” said Michael Fratantoni, the association’s vice president for research and economics.

Lenders’ underwriting criteria have become more rigorous in recent years; some banks have tightened up beyond federal requirements. Here are the six biggest triggers for rejection, according to industry experts.

INSUFFICIENT INCOME Lenders want to make sure you can afford to make the mortgage payments. Someone who earns, say, $40,000 a year need not bid on a $750,000 apartment, unless there’s a trust fund with quarterly payouts or other money available. Also, lenders typically look for at least a two-year track record of income, which could hurt those who may have switched jobs recently. It’s common to get turned down if you have a gap in employment history over the last two years.

CLOUDY FINANCIAL PICTURE Generally, total debt payments, including the mortgage, cannot exceed 45 to 50 percent of your adjusted gross monthly income. Borrowers may be surprised at what counts and what doesn’t. Overtime and bonuses are included only if you’ve worked for the same employer at least two years, and have a history of receiving them. Lenders may also disallow rental income from a property you own, unless you have at least 30 percent equity in it.

BAD CREDIT Lenders typically reject applicants with a FICO score below 620. Some lenders would draw the line a little higher, closer to 660, citing Zillow data that show about a third of Americans have credit scores so low they are unlikely to obtain any mortgage. Failing to pay your mortgage on time affects your score. If you have late payments within the last 24 months onhe likelihood of getting another mortgage is less.”

LOW APPRAISAL You may think the home you’re refinancing or buying is worth around $800,000, but the appraiser says it’s closer to $700,000. Suddenly your new mortgage is in jeopardy. This is the predominant reason people are denied home loans today, according to industry experts.

PROPERTY PROBLEMS Sometimes, issues turn up within a building, apartment unit or house, like a major repair or safety problem that needs to be addressed before an application can be approved. Other times it may be financial woes within a condominium or co-op, like having a large number of owners delinquent on their fees, or unfinished common areas or amenities.

INFORMATION MIX-UPS About 12 percent of new mortgage applications were denied because of unverifiable information or incomplete credit applications, according to the Federal Financial Institutions Examination Council. This also may include misinformation: If you’re renting out the property that you want to refinance, your application for an owner-occupied loan can be rejected.

An expanded initiative to help underwater borrowers was revealed this week by the Obama Administration. The Home Affordable Refinance Program (HARP) will soon be available for borrowers more deeply underwater, with fewer fees, less documentation and hopefully greater success. 

Expanding the HARP program to encompass more borrowers may be a key element in boosting the economy. The program was originally expected to help millions of homeowners refinance, but poor implementation and incentives by stakeholders to participate produced an underwhelming response. To date, only about 900,000 HARP refinances have occurred, and only about 75,000 of those were written to borrowers underwater by more than 5%. Lenders were rightfully reluctant to re-write loans that they might be forced to buy back in the future should a "defect" in the process be revealed, and mortgage insurers have also not been very interested in writing policies against homes where a serious lack of equity might leave them losing considerable money in the event of a failure.

Indemnifying lenders and investors against these "put backs" is the key provision in the expansion of HARP. However, hard details of the program won't be released until next month, so it is not yet clear how enthusiastic lenders will be about the program. Borrowers may be somewhat more interested, especially since the program is expected to feature reduced closing costs, possibly fewer risk-based pricing adjustments (which together have made refinancing expensive and less valuable even when it was available to an underwater homeowner) and importantly require only proof of employment (and not verification of income strength) as a criteria for writing the loan. Theoretically, a borrower who is managing to make his or her payments at a higher interest rate will be even better equipped to do so at a lower payment, regardless of the impact of the recession on the income of the household.

Will it work better than the old program? While hard details won't come for a few weeks yet, there is a chance that a greater level of success can be expected, provided A) the word gets out there; B) lenders are prepared, and a good "buzz" that successful refinancings are happening begins to develop and C) homeowners are not so soured on the mortgage process that even saving a hundred dollars (or more) isn't a compelling enough reason to want to put themselves through the ringer just to get there. 

The economic news of late has been somewhat better, allaying concerns that a new recession might be forming. That, coupled with what seems to be at least an outline to address the European sovereign debt crisis has cheered stock markets and lent a little enthusiasm about the prospects for future domestic and international growth just ahead. While there are still plenty of risks to the economy from both domestic and international issues, the first estimate of third quarter GDP growth in the US revealed a 2.5% growth rate for the period, up from 1.3% in the second quarter (and an even weaker 0.4% gain in the first). To be sure, 2.5% growth is an insufficient pace to feel much like an expansion, let alone be able to make much of a dent in the high rate of unemployment, but is a far cry from an economy sinking into a new abyss.

In a few weeks time, we'll get some clarity on the expanded HARP program and will revisit it. We did note a few weeks ago that we thought the Fed's move back into the MBS arena might be to have a ready buyer in the market for new securities should investors start to turn up their noses at them, especially new securities comprised of refinanced and rebundled underwater mortgages. That may yet turn out to be the case. In the meanwhile, their influence should help to keep mortgage rates lower than they otherwise might be, given any growing optimism about the economy or worries about price pressures. Growing optimism and a pretty fair stock rally over the last few weeks are pressuring rates higher, and mortgage shoppers should be glad to see the steadying and tempering influence of the Fed in play.

Still, the increase in the influential 10-year Treasury this week to levels last seen in August suggest that there may be a little in mortgage rates rise yet to come next week, Fed or no Fed. Poor economic news or a new rift among bailout partners overseas might prevent that, but planning for a few basis point rise in rates next week is probably a good idea.

Top 10 Rules for Halloween for seniors. You know you are too old to Trick or Treat when:
10. You keep knocking on your own front door.
9. You remove your false teeth to change your appearance.
8. You ask for soft high fiber candy only.
7. When someone drops a candy bar in your bag, and you lose your balance and fall over.
6. People say: 'Great Boris Karloff Mask,' and you're not wearing a mask.
5. When the door opens you yell, 'Trick or...' and you can't remember the rest.
4. By the end of the night, you have a bag full of restraining orders.
3. You have to carefully choose a costume that doesn't dislodge your hairpiece.
2. You're the only Power Ranger in the neighborhood with a walker.
And the number one reason seniors should not go
Trick or Treating...
1. You keep having to go home to piddle.