I got this email today (a good one) from a reader wanting to know who we should hold responsible for the mortgage "crisis."

Q: David: Can we hold our political leaders responsible for the financial crisis comprising misrepresented mortgage-based financial vehicles, like CDOs, derivatives, and other mortgage portfolio "packages" or is this so-called crisis just the by-product of a "natural" inclination of the mortgage market to correct itself in accord with principles of supply and demand? In other words, is there a specific group of humans culpable for this crisis?

A: Good question. Here's my answer.

The old adage, if 10 years ago makes for an adage, was to monitor your credit and close down any unused credit accounts. Before the advent of "instant" mortgage approvals and automated underwriting systems, loans were actually evaluated completely by a living, breathing human being: an underwriter.

When a borrower would make an application for a home loan, an underwriter would look at other credit accounts. Some that had a credit limit with a low or zero balance. If the potential borrower had any past history of running up his credit line to or beyond his credit limit, it would make an underwriter nervous. What if a borrower who was pushing his debt ratios to qualify for a home loan would suddenly go out and buy a boat, a new car and take a trip to Cozumel right after he closed on his mortgage loan? Suddenly that new homeowner might not have the ability to pay his brand new mortgage.

From another prudent point of view, having old, unused credit accounts simply should be canceled should anyone ever attempt to steal an identify or otherwise charge something on an old card. But that's old school. Here's the new school.

Many moons ago, we in the mortgage business would sometimes hear the phrase, "I've got terrible credit but my Uncle said he would co-sign for me" and we would put together a financing package that would allow the nice Uncle to appear on the loan with the person who had the bad credit.

Lenders understood that, just like other consumer loans, if something went awry with the mortgage loan they could come after the Uncle for payment. But not anymore and it's been that way for quite some time. Unfortunately, many consumers aren't aware of this lending rule.

Lenders will use the lower of the middle scores for each borrower. If the three credit bureaus report your scores as 589, 550 and 545, then the lender will the middle score for underwriting purposes. If the Uncle's three scores were 810, 779 and 766 the score for underwriting purposes would be 779. That's a great score. But there are some misconceptions about these scores, that lenders average them together or they use the highest one or they use the one who makes the most money and so on. The lender will use the lowest of the middle scores and if 550 is too low for an approval, then no-can-do. Misconceptions can cause a lot of heartache. What do do?

The first choice would be simply to wait, repair the negative credit items and wait for your credit scores to heal. Or second, the Uncle could buy the property as an investment home with you being on title. You don't have to be on a mortgage in order to be legally recorded as an owner of the property. Your name along with your Uncle's name will appear on the title report for all future generations to see.

Real estate finance expert David Reed is president of CD REED Mortgage Bankers in Austin, TX and author of Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You and Mortgages 101: Quick Answers to over 250 Critical Questions About Your Home Loan.

Late last year, the Fed approved some new mortgage guidelines as part of a broad effort to fix the housing woes. These guidelines, aimed at the sub prime mortgage industry:

• Requires lenders to determine the borrower's ability to repay a mortgage loan by using the highest potential mortgage payment during the first seven years of the loan.
• Ban "no verification" loans -- meaning lenders must now verify both income as well as assets.
• Ban prepayment penalties if the payment could change any time during the first four years of the new loan.
• Require insurance and tax escrow accounts, called "impound" accounts in many parts of the country.

There. That will fix those mean old sub prime lenders. No more sub prime lenders making bad loans to people who can't afford them. Yeah, that'll teach 'em. The problem is, just exactly who will these new rules apply to, hmmm? I don't see any sub prime lenders, they're all out of business. Went away last year. Can anyone say, "too little, too late?"

Mortgage expert David Reed invites WalletPop readers to ask him questions about real estate financing. Leave your questions in the comment section of this post.

Who cares that you got rid of that old, beer-drinking, half-shaven unemployed couch potato five years ago? And why exactly would a lender want to look at a copy of your old divorce decree, if you could find one, that is? Do divorced people have higher default rates on mortgages?

Lenders want to see divorce decrees because that's the only way to determine if there are any support payments between the two former lovebirds. Credit reports only show consumer payments such as automobile loans, credit cards and student loans. Alimony payments only show up in divorce papers and if someone has a $1,000 a month support obligation that could seriously affect the ability to make house payments.

But how would a lender even know if you got divorced five years ago? A couple of ways. One, on the loan application there are questions that ask you if you're obligated to pay child support or alimony and also if you've ever obtained credit under any other name. Women who take the husband's last name at marriage then later get divorced will find that their credit report might show different last names. That's always a signal to a lender of a possible divorce in the background. And they'll ask for that decree.

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.

The Annual Percentage Rate, or APR, is perhaps one of the most abused and misunderstood numbers when applying for a mortgage loan. Enacted years ago as part of the Federal Truth in Lending Act of 1968, this well-intentioned government consumer protection statute (goodness, how many of those do we have?) did many things but mostly it confused everybody. Most loan officers will tell you that the APR is a meaningless number so don't pay any attention to it when what they really mean is they have no clue as to how it's calculated or why it's even there.

What it's supposed to do is allow consumers to easily compare mortgage rate quotes from one lender to another by comparing the APR number. The APR is correctly defined as the cost of money borrowed expressed as an annual rate. When you get a mortgage you get an interest rate to go along with it but typically the lender has other fees it wants to charge so those fees need to be factored into the mortgage rate to come up with an APR.

The larger the variance between your mortgage rate -- the rate your payments are actually based on -- and the APR means one lender has more "junk" fees than it's competitor and will show a higher APR. Or at least that's the theory.

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.

Rates over the past few months have been volatile, to say the least. I recall one day where mortgage rates on a 30-year fixed rate loan went up nearly 1/2% in one day. That's a rare occurrence, but not unheard of. Rates can move throughout the day based upon a variety of economic or political factors but the fact that they do move requires a portion of prudence when it comes to qualifying.

Realtors, lenders, even your beer buddies acknowledge the importance of getting pre-approved by a lender before you go shopping for a home. When you do so you can shop in confidence. That is unless you were pushing debt ratios to begin with while mortgage rates hovered near 5 1/2%, like they did last March. Now, rates are closer to 6% and if you got pre-approved for a home loan a couple of months ago and are still shopping you might want to contact your lender and make sure you can still qualify.

This is especially true for those who might have been pre-approved for a mortgage to buy a brand new house but the builder isn't finished with your new abode. A lot can happen over several weeks, shoot, a lot can happen in the course of a business day. If you're pre-approved, it pays to contact your lender to find out how high rates can go and still keep your pre-approval. If you make an offer on a house and rates have gone up, you might be in for a sad surprise.

Real estate finance expert David Reed is president of CD REED Mortgage Bankers in Austin, TX and author of Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You and Mortgages 101: Quick Answers to over 250 Critical Questions About Your Home Loan.

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.

Okay, I admit. There are those who will vehemently disagree with the premise of not paying down debt, I'm among them, but there are times when not paying down debt makes perfect sense when considering buying real estate and obtaining a mortgage. On the other side of that very same coin, it also makes sense to pay down debt for the very same reason: to help qualify for a home loan. What's up with that?

When debt-to-income ratios are too high for a particular loan program, then getting rid of some of that debt to help qualify is in order. But which debt? Revolving balances on credit cards do very little unless you substantially pay down a credit card balance, from say $10,000 to $5,000, but simply paying $1,000 or so will do very little to reduce the minimum monthly payment on that revolving account. That means the debt to income ratio will barely be affected.

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.

Q: David- I have a 3-1 arm. Every 6 months the payment goes up. I need to refi and lock in lower payment but I now live in a "decreasing" neighborhood. My credit is excellent but nobody wants to refi me. I have no money to bring to closing!!! H-E-L-P!!!!!! -Groovner

A: Groovner: It's not a situation of a lender wanting to refi you, they certainly do, but only under underwriting guidelines that include a consideration of living in a "declining market." When an appraiser appraises a property, she must check a box that states if the market is stable or declining. Other lenders and mortgage insurers have identified various counties throughout the United States as "declining." When a property is in a declining market, lenders will require a lower loan amount compared to the current appraised value, typically 5% lower than normally required.

Perhaps you can save some money by taking a higher fixed rate in exchange for a lender paying some of your closing costs, but other than that all I can suggest would be to wait it out. One good point is that adjustable rates have been on a downward trend as of late and it's likely your next adjustment will be down, not up. -- David

Real estate finance expert David Reed is president of CD REED Mortgage Bankers in Austin, TX and author of Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You and Mortgages 101: Quick Answers to over 250 Critical Questions About Your Home Loan.

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.

Q: David -- I've been asked by Freepoint to refinance with them. This company claims that I would build up wealth by investing the difference in my equity with them, getting an interest only loan. They state that having equity in your home is not good because someone can sue you and have a claim on your equity. After several years, one would have enough money to pay off their mortgage if they desired. I would like to get advice on this. They said the higher interest would be a tax write off and I would be investing the equity and getting a higher return. Please advise. Thank you. - Helen

A: Helen -- Don't return their phone calls. I don't know who that company is, and while I'm sure they're a fine organization, I'm not comfortable. I see three big problems with this "pitch" which used to be very popular among mortgage loan officers yet seems to be falling by the wayside.

1. Build wealth by investing the different in equity with them
2. Having equity in your home isn't good because someone can sue you
3. The higher interest would be a tax write off

Sheesh. And I thought loan officers like that were out of business or selling cars or something.

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.

Q: The Fed has reduced rates by three full percentage points since last September. I have been following long term mortgage rates for quite some time. 15 and 30 year fixed rate mortgages are only .25% lower than they were last September. No one I ask seems to know why mortgage rates are still so high and happen to be rising as I write this. The current yield on the 10 year bond is 3.83, up from 3.47 early last week. My question is this. Do you think we will see lower mortgage rates in the future? - Carl

A: Carl -- good question. No, I really don't see lower rates in the future, certainly not anything like three percentage points. If 30-year and 15-year fixed rates do fall they might go down another 1/4 to 1/2% but nothing near to what the Fed has done with the Fed Funds Rate.

The fact is that the Fed has very little to do with fixed mortgage rates. Surprised?

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.

Let's do a flip on a previous post where we talked about how to lower your mortgage rate by 1/4% by paying one discount point. Lenders can lower your mortgage rate for you if you decide you want to pay them for the privilege. On a $250,000 note, two points would lower your rate by about 1/2% but it would cost you $5,000 to do so. What if you didn't have $5,000 for points? Well, then you'd get the mortgage rate offered at zero points. But what if you were also short on closing costs and didn't have the money for things such as an appraisal, title insurance or attorney fees? Again, look to your rate.

Just as lenders may reduce your rate by 1/4% by paying a point, they can also increase your rate by that same 1/4% and give you a point that you can use at closing to help offset closing costs. Does that make sense? Of course it does.

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.

Q: Unfortunately, I had no choice but to file bankruptcy to save my home from foreclosure. Countrywide initially said it would modify my loan to bring it to a more reasonable rate, but then declined at the last moment. Are banks working with people like myself who have had to file bankruptcy to modify home loans?

A: Only the servicing lender can modify a note, in your instance it would be Countrywide. If another lender replaced your current note with Countrywide it would then be considered a refinance and not a note modification. Conventional loans ask that two years elapse before entertaining a refinance. I would suggest that you keep trying with Countrywide to see if they'll budge. I don't know all the specifics about your situation but you might also want to explore the FHASecure program from an FHA lender to see if you qualify for this new rescue program.- David

Real estate finance expert David Reed is president of CD REED Mortgage Bankers in Austin, TX and author of Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You and Mortgages 101: Quick Answers to over 250 Critical Questions About Your Home Loan.

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.

Discount Points, or simply "points," is another of the slough of terms rarely heard outside the home loan process. Do you think lenders just make up all those foreign terms to try and confuse us? Possibly. Even so, this particular term deserves some attention because it affects what your monthly payments will be on your new mortgage.

A point represents 1% of your loan amount. For a loan amount of $250,000 one point would equal $2,500. A point is sometimes called a discount point because the point is used to discount your interest rate that you use to calculate your mortgage payment. How much does it discount your rate?

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.

Q: I have only one question to you to ask: I am kind of confused about ARM and FRM. Could you please tell which one more safer? -- Adam

A: Adam: ARM stands for Adjustable Rate Mortgage and FRM stands for Fixed Rate Mortgage. An ARM can fluctuate in rate throughout the course of a loan term while a fixed rate never changes. That said, a FRM is the safer bet. -- David

Real estate finance expert David Reed is president of CD REED Mortgage Bankers in Austin, TX and author of Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You and Mortgages 101: Quick Answers to over 250 Critical Questions About Your Home Loan.