Question: While I'm aware that its not possible to predict when home prices will be at its lowest, I also believe that there are trends that can be followed to make an educated prediction. Have we hit rock bottom in California? If not, what time frame are you predicting?

Answer: You can get different answers from just about everyone, but for what it may be worth I would say that as of late March we have not reached bottom. The reason? Millions of toxic loans remain outstanding and the more recent loans are performing worse than loans from 2004 and 2005, the loans which most commonly re-set in 2007.

"Roughly 190,000 foreclosures were started on these mortgages in the fourth quarter, up 11 percent from the previous quarter," says Federal Reserve Governor Randall S. Kroszner. "The significance of the problems with subprime loan performance is evident in the unusually high rate of defaults within a few months of loan origination, known as early payment defaults. In January 2008, nearly 9 percent of subprime ARMs originated in the previous six months were already ninety or more days delinquent, twice the rate of the year before and nearly four times the rate two years earlier."

In other words, even in 2007 lenders learned nothing and regulators did nothing despite the obvious signs of calamity which have been plainly visible.

Subprime loans, however, are just a part of the problem. There are also substantial and growing dislocations in other parts of the mortgage marketplace.

The result is that we will not reach bottom until the inventory of troubled loans returns to historic norms. Even when this happens we will also need a return to normalcy in the credit and securities market. Given that past claims of minor losses and damages on Wall Street have grossly understated actual results, it would be unwise to suggest when the last shoe will drop.

Question: We are in the process of purchasing homeowners insurance. My husband has good credit, however mine is not. What can we do?

Answer: Some in the insurance industry want to tie homeowners insurance to credit scores -- the better your score the lower your premium. However, consumer groups are generally opposed because credit information can be incorrect and because they see a clear relationship between the use of the credit reports and higher rates.

"Underwriting decisions can have a direct effect on insurance rates," say several Massachusetts consumer organizations. "Many insurers have multiple, affiliated companies that offer insurance coverage. If an insurer uses a consumer's credit information for underwriting purposes, then the insurer could turn down a consumer for coverage in one of its affiliates and refer the consumer to a separate affiliate that charges higher rates. This is a back door way of using credit information to determine consumers' rates.

"Insurers," they continue, "may not use consumers' credit information to set rates. Massachusetts law requires that insurance rates not be excessive, inadequate, or unfairly discriminatory. Since several studies indicate that insurance credit scoring may correlate with race and serve as proxy for other risk factors already considered by insurers, the use of credit information could produce excessive and unfairly discriminatory rates. The State should investigate how insurers' use of credit information for underwriting may be causing excessive or unfairly discriminatory rates."

You should speak with several local insurance brokers. Ask them specifically if the use of credit reports to determine rates is allowed in your state.

Question: I'm trying to buy a house which is being represented by a relocation company. I'm upset with my agent because I believe he revealed my ultimate bidding price to the listing agent when I wanted to offer less. Can I fire my agent and hire another one? Will my first agent still get the commission? I have not signed a buyer's contract and we not put any offers in writing.

Answer: Given that the agent has not been engaged as a buyer representative there is no one to fire. The agent, however, may have a claim to some of the commission if you ultimately purchase because he "introduced" you to the home and set in motion a series of events which lead to its purchase.

The best way to solve such allegations is to have a frank discussion with the agent. If that does not produce results, then speak with the agent's broker.

Such conversations most-likely will resolve the matter because neither the agent nor the broker will want to deal with a complaint to the state real estate commission or department. However, if the controversy remains in dispute then you should speak with a local real estate attorney before making an offer.

Question: We need to finance $840,000. Our builder's lender advised that we get two loans and buy with 20 percent down. I would get a $729,000 first mortgage and a $111,000 home equity line of credit. Together these two loans will equal 35 percent of my income. I have no other debt.

This will be our last house. Is this a good plan?

Answer: In a typical situation a lender might want a borrower to allocate no more than 28 percent of their income to mortgage costs and as much as 36 percent of their income to mortgage costs plus recurring monthly costs. In theory, if you have fewer car payments or credit card obligations you could spend more on housing expenses.

But are homeownership costs and monthly credit obligations equivalent expenses? For instance, you can cut monthly costs very quickly if required by selling off an expensive car for something cheaper and cutting various frills. That's not the case with a mortgage or housing costs.

You have to consider your level of personal financial comfort. Do you have sufficient reserves to make this work? What happens if your income declines? Some borrowers would be discomforted by such a high level of residential debt while other folks would jump right in.

At the very least, you should speak with several lenders before going further.

Question: Can you explain the difference between a short sale and a foreclosure?

Answer: In basic terms, a "foreclosure" is forced sale that results from the failure of the borrower to repay the mortgage. A "short sale" is an agreement between a borrower and a lender under which the lender accepts a loss on the loan which allows the owner to sell or refinance.

A foreclosure and a short sale are alike, however, when shown on a credit report. To lenders, either event is a red flag, evidence that a loan agreement was not properly completed.

Question: I hear about listings for "executive" homes. What is this?

Answer: I think of an "executive" home as a high-cost property which is being marketed with a certain social panache, an aura of exclusivity and an appeal to vanity -- both the buyer's and the seller's vanity.

The term "executive home" has no standard definition, it's simply an advertising and marketing device to sell a home. It means whatever anyone wants it to mean. As long as the expression is not associated with any form of discrimination, its use seems harmless, alluring or both, depending on your view.

Question: Is real estate always a good investment (given you aren't taking out a subprime loan)?

Answer: Subprime loans can be appropriate and non-predatory, high-cost financing which reflects the risks associated with weak credit. It is thus not fair to imply that subprime loans are always inappropriate, anymore than it's sensible to believe that all cars are lemons -- though plainly some are.

As to the matter of whether real estate is "always" a good investment, no stock or commodity is "always" a winner. Not only do values rise and fall, but the value of an investment must be compared to alternative investment options with similar risk. Something that goes up 10 percent may not be as good as an investment of equal risk that yields 15 percent.

Real estate for most people -- but not all -- has been a low-risk investment that has produced good results over time, plus the benefit of shelter and tax reductions. The view here is that selected real estate, even in today's tough times, remains an excellent investment vehicle for most owners.

Question: I saw a home on a nearby street for sale that I would like to buy. I don't want to work with an agent -- for my own personal reasons. Is there a certain form I need to make an offer. Or will any written offer be okay?

Answer: You are about to have a disaster. Real estate offers must be properly written and cover a large number of potential issues. For this reason you should only use a standardized form which is appropriate to your community -- and be aware that local requirements vary so the form that works in Idaho is unlikely to work in Virginia, and vice versa. If you do not want to use a broker then you should work with a local real estate attorney.

Question: Does making a larger downpayment really make sense? Or should I do less down and then pay off principle over the next few years?

Answer: A downpayment of 20 percent of more means that you will not be asked to carry private mortgage insurance and you may get a better interest rate because your loan will be seen as less risky than a mortgage with little or nothing down. However, you might want to put down less if you can find a better use for the money, a use with little risk and a better rate of return.

Have a real estate question? Send your inquiry to Ask RealtyTimes. Because of the volume of mail received, Mr. Miller cannot respond to questions individually or privately. Published letters may be edited for space and style. For comments regarding other Realty Times articles, please contact individual authors by pressing here.

This column is designed to provide accurate and authoritative information in regard to the subject matter covered. It is made available with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services. If legal services or other expert assistance is required, the services of a competent professional person should be sought.

Published: April 4, 2008

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Have a real estate question for Realty Times? Wondering about buying, selling, financing, refinancing or renting? Here's where you can send your question to Peter G. Miller, OurBroker®, a nationally-known columnist, author and reporter. Peter G. Miller has written six books -- including The Common-Sense Mortgage -- a guide with hundreds of thousands of copies in print. Miller was the original creator and host of America Online's Real Estate Center and joined Realty Times in 1998. Send your questions to . Because of the volume of mail received, individual questions cannot be answered privately and not all questions can be used. Published letters may be edited for space and style and all letters become the property of Realty Times upon receipt.