By Sheryl Landrum
Mortgage Credit Problems Columnist

Home foreclosures have decimated property values and the toll on same goes deeper than making it tough to sell your home for a decent price. Under guidelines established by Fannie Mae and Freddie Mac, government agencies that buy mortgage loans from lenders who meet their guidelines, areas within the United States have been rated according to the strength of their housing markets. If your property is in a region rated as "soft" or "declining," the rules of the lending game have changed.

Foreclosure Proofing the Market?

A soft, declining, or distressed area is of concern to lenders -- especially those dealing with numerous home foreclosures on their books. In order to protect themselves from further foreclosures, lenders are dropping their maximum loan-to-value ratios in distressed markets. If you are trying to purchase a home or refinance an existing one in a distressed market you could probably have borrowed up to borrow 90% of the home's value a year ago. Today you will find that the lender only willing to lend you 85%. Does this really make a difference?

Homeowners Are More Likely to Go through a Mortgage Foreclosure When They Have Little or No Equity Left in Their Homes

Homeowners will work harder to keep homes that they have equity in. Unfortunately, one of the biggest reasons that home prices have dropped in California and elsewhere is that there are so many foreclosed properties. Homes in foreclosure are often sold below market value; homes facing a mortgage foreclosure are often sold below market as well. Too many homeowners are now finding that their home loan balances are at, or over, their home's current worth -- making it easier to walk away from their mortgages. By lowering the amount they will lend in markets where home prices are falling, lenders hope to protect themselves against future foreclosures.

The foreclosure cycle has created problems and issues not only within the mortgage industry, but in the economy as a whole. Lending practices and standards have changed drastically in the last year and more changes are likely to be on the way. One thing that homeowners can do to help prevent further foreclosures is to be smart about the mortgages that they get.

Work with a reputable lender and choose a loan program that is less risky in the event that you suffer a financial setback. Many loan programs today are offer safer ways to lower your monthly payment to make it affordable for you to purchase or refinance a home loan. 40 and 50 year amortized loans at fixed rates are available as well as loans with an interest-only period as well. These loans will not generate higher payments in a couple of years and will help to reduce your chance of a home loan foreclosure.

About the Author
Sheryl Landrum is a Loan Officer in San Diego, California and a freelance writer specializing in mortgage issues.

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