Among those who see improvement in the 2010 market is Lawrence Yun, chief economist for the National Association of Realtors (NAR). Yun hopes that the extension of the first-time homebuyer tax credit will provide a new pool of buyers to absorb the additional foreclosures that will hit the market this year.

He expects existing-home sales to rise 13.6 percent in 2010; home prices should go up 3 to 5 percent, with wide geographic differences. The average rate on 30-year fixed mortgages will range from 5.3 percent in the first quarter to 5.8 percent by year end. This forecast assumes there will be no major economic surprises. The weak job market remains a concern.

The Mortgage Bankers Association (MBA) has a slightly different take on the 2010 housing market. MBA predicts existing-home sales will increase approximately 11.2 percent. Interest rates should be about 5.6 percent by the end of 2010. The unemployment rate is expected to peak at 10.2 percent and gradually decline in 2011. National average home prices should stop sliding during the first part of the year and stabilize, depending on area and price range.

The November 2009 Economic and Housing Market Outlook from Freddie Mae expects there will be an increase in foreclosures and short sales this year, even though foreclosures declined significantly in some of the worst foreclosure markets (like Las Vegas) at the end of last year. RealtyTrac reported that foreclosures nationwide decreased 8 percent in November 2009.

Zillow.com, an online real estate marketplace, reported in December 2009 that stabilization and increased home prices were found in 48 of the 154 markets tracked. However, Zillow forecasts a decline in demand as interest rates rise. Foreclosures are expected to stay high and could challenge recent stabilization.

Some economists think prices will continue to decline in some areas through this year. Others feel that at best, the economic and housing recovery will be a bumpy ride. And, we could bounce along the bottom for some time. Few expect home prices to rebound quickly.

HOUSE HUNTING TIP: There will be significant variation from one market to the next. Areas that have a good diversified economic base and limited inventory of homes for sale could stabilize in 2010 and see an improvement in home prices. Areas that are bloated with foreclosure and short-sale inventory and have a weak local economy probably won’t see a turnaround this year.

Credit tightening would put a damper on the market. On Dec. 12, 2009, Fannie Mae took steps to make mortgage qualification more difficult. A significant change is that the maximum allowable debt-to-income ratio is being lowered to 45 percent from up to 64 percent. This means that the housing cost plus all other debt can’t exceed 45 percent of the borrower’s income. Buyers with strong credit and assets have a chance of approval with a debt-to-income ratio of 50 percent.

2010 is not expected to be a banner year for housing. But it could be a year of improvement for some niche markets and some price ranges. Expect to see more purchase offers made contingent on the sale of the buyers’ home. Credit tightening has made it impossible for most buyers to qualify to own two homes at once.

There will likely be an increase in short-sale listings. Buyers have shied away from these listings in the past because they took so long to process, and were often denied by the lender. Lenders are now more open to approving short sales than they were a year ago.

Hopefully, they’ll improve their performance in 2010.

There were so many unfinished developments of one size or another that the buying spree lurched along in starts and stops through this year with another great push at the end of 2009.

Some cities have been scraped almost clean of unsold finished lots, but, again, there were so many sites slated for residential development over the past decade that it’s been hard to get to them all. Yet, the economics of investing in finished lots is so darn attractive it’s worth hunting them down.

Typically, the cost of a lot is about 25 percent of the finished house price. So, if a home sold for $800,000, it probably cost the developer $200,000 just to buy and prepare the lot, getting it graded and then hooked into water, utilities, and assorted street and drainage lines. The latter expenses usually run about $50,000.

During the past decade, builders could usually tap their lenders to the tune of $100,000 per finished lot, says Scott Clark, president of San Ramon, Calif.-based Americap Development Partners, which has been aggressively pursuing finished-lot deals since 2004, acquiring thousands across the West.

Most of the housing development volume was the result of aggressive construction practices by regional and publicly traded national builders. Now the regionals are bankrupt and out-of-business, while the nationals were punished by investors for the vast inventory of non-revenue-producing land held on their books. This was raw land and finished lots that would not be utilized in the near future because the lengthy recession had pummeled housing markets making new development very risky.

As a result, finished lots are being dumped back into the market at 50 cents on the dollar — or much, much less — by builders and banks, which took back the properties due to loan defaults.

In bigger developments, investors have been buying these lots at 30 cents on the dollar, notes Nate Nathan, president of Scottsdale, Ariz.-based Nathan & Associates. In fact, well-funded investor groups have been sweeping up these long rows of unfinished lots by the dirtful leaving individual investors with no other option than to haunt smaller projects. And that, too, has been a worthwhile use of time and resources because, as Nathan points out, customized lots are selling for 10 cents to 20 cents on the dollar.

Think of it this way, lots are being acquired below finishing costs, which if new construction proceeds means the land cost is negligible, if not zero-valued.

“I love this space,” chortles Clark. “About 80 percent of what we are doing is finished-lot investing. We are concentrating on buying at below finishing costs, leaving virtually no land cost whatsoever.”

Americap “has scraped everything in Northern California” and is starting to work the Phoenix market. It is also looking closely at Southern California, the Inland Empire (Riverside and San Bernardino, Calif.), Las Vegas, Denver and Salt Lake City.

As of the beginning of 2009, Riverside and San Bernardino counties contained almost 30,500 lots ready for construction, reported The Press-Enterprise newspaper in Riverside.

“If you take multifamily out of the equation, there is probably about 40,000 unfinished lots of standard, single-family size (40 feet by 90 feet) in the Phoenix market,” says Nathan. In November 2009, Nathan brokered the sale of 7,000 finished, partly finished and plotted lots dropped into the market by two major homebuilders.

Currently, so-called “money partners” are buying the lots and then doing off-balance-sheet, rolling options with builders. That’s because, for the publicly traded homebuilders, an extensive inventory of lots is considered bad business. “It’s what got them into trouble three years ago,” says Clark.

Americap, as an example, is acquiring a residential project in El Sobrante, Calif. The lots are being purchased at about $50,000 a pop in a community where the houses are selling for an average of $350,000.

For individual investors, the most important point to realize about finished lots is that these investments, unlike a downtrodden single-family home that can be quickly reconstructed to market veneer, generally can’t be flipped.

“In a typical cycle, we hold the finished lots for anywhere between 12 months and 36 months depending on location,” says Clark.

“Investors are underwriting to hold unfinished lots for three to four years,” Nathan confirms.

By one estimate, most cities across the American West have about a two- to three-year supply of lots. By the time house prices recover, which optimistically could be as early as 2011 or 2012, developers will need to start building again.

By then the existing overhang of finished lots would have been consumed, and because developers over this period hadn’t been buying land, they are going to suddenly wake up to the fact they need lots and at that point they will be paying a premium. At least that’s the scenario most investor groups are counting on.

“The country needs 1.2 million new units for the next 10 years just because of population growth,” says Clark. “We built about 500,000 units in 2009 and 600,000 units in 2008, so there eventually will be pent-up demand. We want to get as many of those finished lots as we can because as demand begins to rise, the need for housing will become painfully obvious. The delta (ratio of change to value of underlying asset) in this investment will be significant.”

For reasons not clear to me, reverse mortgages are being badmouthed by an unlikely source: consumer groups who are supposed to represent the interest of consumers in general, and perhaps seniors in particular.

Reverse mortgages have always been a tough sell. Potential clients are elderly, who tend to be cautious, especially in connection with their right to continue living in their home. Fears about losing that right were aggravated by some early reverse mortgage programs, which did allow a lender under certain conditions to force the owner out of his or her house.

These are reasons why, until recently, reverse mortgages never caught on.

In 1988, however, Congress created a new type of reverse mortgage called the Home Equity Conversion Mortgage (HECM), which completely protects the borrower’s tenure in his or her house. So long as he/she pays the property taxes, maintains the property and doesn’t change the names on the deed, he/she can remain in the house forever.

Furthermore, if the reverse mortgage lender fails, any unmet payment obligation to the borrower is assumed by the Federal Housing Administration (FHA).

The HECM program was slow to catch on, but has been growing rapidly in recent years. In 2009, about 130,000 HECMs were written. Feedback from borrowers has been largely positive. In a 2006 survey of borrowers by AARP, 93 percent said that their reverse mortgage had had a mostly positive effect on their lives, compared with 3 percent who said the effect was mostly negative.

Some 93 percent of borrowers reported that they were satisfied with their experiences with lenders, and 95 percent reported that they were satisfied with their counselors. (Note: All HECM borrowers must undergo counseling prior to the deal.)

But while all is well for almost all HECM borrowers, some of their advocates in consumer organizations, alarmed by the program’s growth, are badmouthing it. I hasten to add that there is a major difference between badmouthing and educating.

Legitimate issues exist regarding when and who should take a HECM, and seniors also face hazards in this market, as in many others. Advice and warnings to seniors from authoritative sources on issues such as these are useful. I try to provide useful advice and warnings myself.

What is not useful is needlessly and gratuitously fanning the flames of senior anxiety about losing their homes. In its September 2009 issue of Consumer Reports, Consumers Union warned of “The Next Financial Fiasco? It Could Be Reverse Mortgages.” The centerpiece of their story is a homeowner who is “likely to be evicted” because of a HECM loan balance he can’t pay off. How is that possible?

It was his wife’s HECM, not his, and when she died, ownership of the house reverted to the lender because the husband was not an owner. At the outset of the HECM transaction, he was too young to qualify so he had his name removed from the deed so that his wife could qualify on her own. She could have lived in the house forever, but as a roomer in her house, he had no right to remain.

This is painted as a reverse mortgage horror story, but it is nothing of the sort. HECMs are for owner-occupants, not roomers, which is what the husband had made himself into. The correct moral is that the program should not be misused.

Even less useful are spurious claims that growth of the reverse mortgage market has major similarities to the growth of the subprime market, and could lead to the same kind of “financial fiasco.” The major source of this nonsense is an October 2009 monograph by Tara Twomey of the National Consumer Law Center entitled “Subprime Revisited: How Reverse Mortgage Lenders Put Older Homeowners’ Equity at Risk.”

In fact, the two programs could hardly be more different, and there is no chance of a similar fiasco.

Subprime loans imposed repayment obligations on borrowers, many of whom were woefully unprepared to assume them, and which tended to rise over time. The financial crisis actually began with the increasing inability of subprime borrowers to make their payments, with the result that defaults and foreclosures ballooned to unprecedented heights.

In contrast, reverse mortgage borrowers assume no repayment obligation at all. Their only obligation is to maintain their property and pay their property taxes, which they have to do as owners whether they take out a reverse mortgage or not.

They cannot default on their mortgage because the obligation to make payments under a HECM is the lender’s, not the borrower’s. There are no reverse mortgage foreclosures.

Subprime foreclosures imposed heavy losses on lenders and on investors in mortgage securities issued against subprime mortgages. Such securities were widely held by investors, which included Fannie Mae and Freddie Mac. Losses by the agencies on their subprime securities played a major role in their insolvency.

In contrast, no lenders have suffered or will suffer losses on HECMs because they are insured against loss by FHA. FHA assumes the losses when HECM loan balances grow to the point where they exceed property values. However, this is an expected contingency against which FHA maintains a reserve account supported by insurance premiums paid by borrowers.

It is true that the unprecedented decline in property values over the last few years has increased losses and eaten into FHA’s reserves. But FHA has responded to that by reducing the percentage of home values that seniors can access. According to a recent study by New View Advisors, who are seasoned experts on HECMs, this should allow FHA to break even over the long run.

In sum, the current state of the HECM market has no resemblance whatsoever to the conditions in the subprime market that led to disaster.

For example, I was recently contacted by a couple who are three years into an interest-only, adjustable-rate mortgage (ARM) that has its interest rate fixed for the first 10 years. The loan carries a prepayment penalty if the couple were to refinance the loan within the first five years of its term.

The prepayment addendum, known in the loan industry as a “soft” prepay because no penalty is assessed if the couple sells the home, stipulates that a refinance could cost an amount equal to six months of interest payments.

While the couple (let’s call them Couple No. 1) understood the agreement when they signed it, they did not anticipate other borrowers with inferior credit and poor payment histories (let’s call them couple No. 2) getting a better deal. It seems that lenders — or the institution that now owns the loan — are willing to help only when they fear they will be taking on a negative-equity situation and end up receiving less than what the home is worth.

For example, Couple No. 1 has a loan of $440,000 at an interest-only rate of 6 percent. Their intent was to refinance to a 30-year fixed-rate loan at 5 percent or a 15-year fixed-rate loan at 4.75 percent. They did not want to take any more additional “cash back” or increase the loan size in any way. They simply wanted to get out of the interest-only loan, begin an amortizing loan and perhaps lower their monthly payments.

Their lender, with whom they hold three checking and savings accounts, said the new payments on the amortizing loan would be more than the current payment. However, there was no way that the investor that bought the mortgage (Bank of New York) would be willing to waive the prepayment penalty.

The reason given was that there was no incentive to do so — the home had plenty of equity and if the borrower defaulted, the bank could sell the home and be repaid all of the outstanding mortgage, plus fees and expenses.

Conversely, Couple No. 2 had a loan balance of $285,000 on an option ARM. They had made minimum payments on the loan, meaning the amount they had paid had not covered the interest portion of the loan. They already owed more money than they had borrowed (also known as negative amortization).

In addition, they had missed three payments in the past 24 months. When the couple applied for a refinance, the lender agreed to waive the prepayment penalty because the bank did not want to take the house back in the event the couple defaulted.

The concept of “fair” is off the table — and has been for a long time. The question now becomes: What will lenders do to retain good customers? For example, when the prepayment penalty period comes to an end, why would Couple No. 1 choose to return to the same lender for another loan? What did this lender actually do to keep these terrific customers from going to another lender on the street?

A year ago, the National Association of Realtors, the largest trade group in the world with 1.2 million members, offered a solution to the housing dilemma. NAR presented Congress with a Four-Point Housing Stimulus Plan to help stabilize the housing and mortgage markets. The crux of the package suggests using $130 billion of the $700 billion federal bailout funds on housing, specifically earmarked for an interest-rate buydown and more tax credits.

That buydown would be a one-percentage-point interest-rate buydown on fixed-rate loans for all buyers. The reduction reportedly would have resulted in approximately 840,000 additional home sales and reduced the inventory of homes by as much as 20 percent. The buydown offer would be available for a specific time period.

The incentives that became reality were an $8,000 first-time homebuyer tax credit and a new existing homeowner tax credit of $6,500. As previously stated, the amount of the “existing homeowner” credit equals the lesser of: (1) $6,500, or (2) 10 percent of the price of the replacement home, or (3) $3,250 for a buyer who uses married-filing-separate status.

To qualify, the buyer must have owned and used the same home as a principal residence for at least five consecutive years during the eight-year period ending on the purchase date for the replacement principal residence. If married, the spouse also must pass the consecutive-year test. Homes valued at $800,000 or more do not qualify.

Still, foreclosures are expected at a record pace. Why not slow the foreclosures, curtail high inventories and make more mortgage money available? Lenders can do that by offering good customers a buydown in interest rates, keeping them in their homes.

By most measures, REO activity was fairly steady in 2009 compared to 2008, said Jackson, speaking during a discussion on “Breaking into the REO Club” at the Real Estate Connect conference in New York City last week.

And while some analysts have tossed out staggering numbers about the so-called “shadow inventory” of foreclosing and foreclosed homes that will hit the market, he said he expects a continuing steady flow rather than a tidal wave.

That’s because there are government programs that are intended to check a rush of new foreclosures, he said. Also, as noted by speakers in an earlier conference session, financial companies would prefer not to take a hit on their balance sheets all at once by releasing a flood of distressed properties to market.

FirstAmerican CoreLogic, for example, has estimated a “shadow inventory” of 1.7 million homes at the close of September 2009, a rise from 1.1 million at the same time in the previous year, while the “visible inventory” dropped from 4.7 million at the end of September 2008 to 3.8 million at the close of September 2009.

There will be opportunities for real estate professionals to work with distressed properties for some time, Jackson noted.

“For those of you looking to get into the space, now is a pretty good time,” he said. “REOs and forelcosures are now an organic part of the real estate market — they’re no longer a niche.”

Of course, that doesn’t mean it will be easy. Jackson and other panelists noted that it takes a lot of time, effort and organization to deal with distressed properties. And the rules are changing.

Broker price opinions (BPOs) — which are valuations of properties by real estate agents or brokers that are ordered by lenders and loss mitigation companies when an appraisal is deemed unnecessary — are not necessarily a gateway for real estate professionals to get REO listings these days, for example, said Jackson.

And brokerage companies may find that it’s better to have separate, specialized departments to handle BPOs, REOs and short sales these days, as each requires a particular skill set.

Panelists also noted the alphabet soup of companies offering foreclosure certifications and training and conferences and the difficulty in breaking in with lenders and servicers in the first place. They cited RealEstateEducate.com as a provider of a distressed-property training that is required by several major servicers.

Panelists noted that it can take a heavy investment — perhaps $5,000 per property — to handle all of the tasks associated with REO properties when serving as a listing agent.

Marie Chung, director of REO and foreclosure services for REO Modern Realty Corp., that offers brokerage and other services, emphasized the importance of a subtle and persistent approach to getting a slice of action in distressed properties — being overly pushy in your networking approach can backfire, she said.

“This is not a science — it really is an art. Breaking into this business is networking, persistence, and once you’re in it’s all about keeping the business.”

Networking means “truly understanding the REO industry itself,” she said. “You need to understand how it works and who the players are.”

Companies will likely have different processes and points of contact for agents, she noted, and that requires some homework on the agent’s part. Agents may be in contact with asset managers, pre-marketing representatives and closing coordinators at various companies for various aspects of the transaction, for example.

Chung’s company has 18 people on payroll, and its operations differ from that of a typical real estate brokerage company. The deals may not be as lucrative as standard transactions, she noted, and those who list REOs must bring a lot of money and expertise to the table.

In some cases, Chung and other panelists said, reimbursement for some of the many tasks performed in selling distressed properties may be delayed … or it may never come. And delayed utility bills that show up late in the sales process are a definite problem, she said.

Beth Butler, a panelist who is owner and consultant for Bigmouth Consulting, a real estate consulting firm based in Miami, said that it’s inevitable if you work with REOs that “you will end up out money, but sooner or later hopefully you’re making enough to cover” those expenses.

Jackson said real estate professionals who work with REOs are expected to be more hands-on with properties these days, too, and must identify and manage needed repairs, for example, while handling occupancy issues and filing regular reports with the servicer.

“(Servicers) are looking for agents who can bring more to the table than just (the basic) criteria,” Jackson said, which means community involvement and specific knowledge of local codes and ordinances can give agents a leg up on their competition.

“You are their local representative in their market. Someone who is connected to that city, knows what is happening in that city and has a civic-minded mindset,” he said.

Chung also stressed the importance for agents and brokers handling REO properties to be the steward for all actions related to that property.

“You are ultimately responsibility for the property. This is your asset, so treat it like your own,” she said.

In an earlier conference session focused on foreclosures, participants noted delays in banks bringing distressed properties to market and signing off on short sales.

Rick Sharga, senior vice president for RealtyTrac, a distressed-property data provider, said that “one of the fallacies of short sales … (they) force the bank to take a loss today.”

That panel’s moderator, Jonathan Miller, president of Miller Samuel Inc., a New York City real estate appraisal firm, said such deferred losses on bad or souring loans is sometimes referred to as “extend and pretend,” delay and pray” or even, “a rolling loan gathers no loss.”

Short-sale expert Philip Tesoriero of Gelip Inc. Consulting, during a separate conference session, hammered home the need for agents to have a compile a comprehensive package of documents in getting short sales closed.

Many agents have complained that short sales too often lead to delays and failure, and Tesoriero said that common reasons for rejection: the purchase offers are far too low, sellers fail to qualify to engage in a short sale, and the paperwork may be insufficient.

He recommends that agents prepare a list of materials to help close the deal, including a hardship letter, sales contract, tax return form, proof of finances for buyer and proof of income and assets for the seller, among other documentation. A written offer letter, a broker’s price opinion, a “carry cost analysis” that compares the costs associated with a short sale versus the cost of allowing the property to foreclose, and a 4506 T form — a tax form that is useful for gauging a borrower’s creditworthiness — can also be beneficial in seeking short-sale approval, he said.

“I’ve got to assume that there’s a human being on the other side. I try to send them a very detailed cover letter that explains the hardship, explains that these people are very motivated,” he said.

Characteristics of Seniors Who Should Look Into HECMs: They must be 62 or older and occupy the home as their permanent residence.

They have significant equity in their homes, meaning that their mortgage is either paid off or is small relative to the value of their property, but their income and financial assets are not large enough to meet all their needs.

They either intend to stay in their current home indefinitely, or they want to move to a different home immediately, using a reverse mortgage in the process, and remain there indefinitely. (Note: HECMs that terminate within a few years are very costly).

They are not uncomfortable about leaving their heirs with less (or no) equity in their homes.

A Simple Shopping Rule: Shopping for a HECM can be very difficult, or very easy. If you shop in the conventional way of compiling all the price components for each lender, the process is tedious and prone to error. Interest rates, origination fees, servicing fees and third-party charges are all costs to the borrower that can vary from deal to deal.

But there is a shopping shortcut that is close to foolproof. You shop for the largest amount of cash you can draw at the outset, which is called the “Net Principal Limit,” or NPL. The NPL is the bottom line because it is reduced by higher interest rates, origination fees, third-party charges, and servicing fees. I gave an example of an NPL in last week’s column.

Just make sure that when you shop NPLs among different lenders, you give them all the same property value, age and existing debt, because these also affect the NPL. If you tell lender A that you are 72, for example, and only remember that you have a spouse of 68 when you get to lender B, you will be comparing apples and oranges.

The fact that you shop for the largest NPL does not mean that you must draw that amount. On a fixed-rate mortgage (FRM), you must draw the full amount, but on an adjustable-rate mortgage (ARM) you can draw any part of it at the outset, including none, retaining the remainder as a credit line. Or you can use all or part of it to purchase a term or life annuity.

HECM Rates: A HECM has two interest rates. The expected rate is used to calculate the future growth of the borrower’s loan balance, which affects the NPL. The note rate is the actual rate the borrower pays. The two are the same on a FRM, but on an ARM, the note rate changes every month with changes in the rate index.

Locking: Locking the terms of a HECM is easier than locking the terms of a forward mortgage. The expected rate used in calculating the NPL is locked at application with a “float-down” for 120 days. If the rate declines before the loan is closed, the borrower gets the benefit of it. On an ARM, however, the note rate is reset every week and is not locked. This has caused a problem only once, in March, when Fannie Mae increased the ARM margin by a large amount, catching both borrowers and lenders by surprise.

Appraising the Property: When you apply for a HECM, the lender will order an appraisal. The NPL is not finalized until the appraisal is accepted. However, any difference between the final NPL and a preliminary NPL based on a different property value should be exactly proportionate to the difference in values. For example, if you estimate your house value at $400,000 and the appraisal comes in at $396,000, a decline of 1 percent, the NPL should be lower by 1 percent as well.

Selecting a Lender: I recommend going to www.reversemortgage.org, which lists reverse mortgage lenders by state and has links to all their Web sites. Narrow your choice to those who provide calculators that you can use anonymously to find their NPLs for both the adjustable-rate and fixed-rate HECMs.

As a test case, I recently did this for Pennsylvania where I live. Of the 22 lenders listed in the state, six had anonymous calculators. That’s enough. The six included three national lenders that would come up in all other states. Two other lenders in Pennsylvania had calculators on their sites but to use them you have to provide contact information. There is no need to expose yourself to solicitations.

What Not to Do: Under no circumstances allow yourself to be solicited by a loan provider, which requires that your name not appear on lists of reverse mortgage leads. Compiling leads and selling them to lenders is a thriving business. You avoid becoming a lead by not responding to teaser ads, such as “Great New Government Program, See How Much You Qualify to Receive.”

It is very hard to get into trouble if you initiate the HECM. When someone else initiates it and you go along with the solicitation, the likelihood of a bad deal for you escalates dramatically. If the soliciting party ties the HECM to an annuity or house purchase, you are almost certainly going to be scammed.

The number of temporary loan modifications that were made permanent had more than doubled to 66,465 as of Dec. 30, the Treasury Department said.

In addition, 46,056 three-month trial mortgage modifications were approved and awaiting only the homeowner signatures before they were made permanent as well.

As of Nov. 30, only 31,382 mortgages had been permanently modified.

California led the nation with 13,353 permanent modifications as of the end of last month and 158,935 active trial modifications.

Mortgage servicers have been slow to turn the three-month trial modifications into permanent ones amid complaints from homeowners of lost paperwork and other bureaucratic problems.

Although the pace picked up in December after the administration increased scrutiny and threatened banks with fines, the number of permanent modifications was still low compared with the trials started.

As of Dec. 30, there were 697,026 active trial modifications. To be eligible, homeowners must be at least two months behind on their payments.

But with 2.8 million foreclosures last year, according to RealtyTrac, and filings in December up 14% from the previous month, the administration’s Home Affordable Mortgage Program isn’t doing enough to stem foreclosures, critics said. The program provides incentives to mortgage servicers to reduce monthly payments for struggling homeowners.

“Serious people inside and outside the administration have thought this through, and we all understand that a more substantial response is needed,” said John Taylor, president of the National Community Reinvestment Coalition. “The question is: Does the political will exist to force the banks to modify loans?”

Administration officials said that they realized more needed to be done but that the program was on pace to meet its target of 3 million to 4 million modifications by 2012.

“We believe there is much, much more work to be done to make sure the program is running right and stabilize our housing market and the broader economy, but we’re encouraged very much by the efforts we’ve seen to date,” said Michael S. Barr, assistant Treasury secretary for financial institutions.

Overall, 25% of eligible homeowners had trial or permanent modifications, the Treasury Department said.

Some large mortgage servicers such as JPMorgan Chase & Co., Citigroup Inc.’s CitiMortgage and Wells Fargo & Co. had extended trial or permanent modifications to at least a third of eligible homeowners as of Dec. 30.

But Bank of America Corp., which serviced the most eligible mortgages — about 1.1 million — was only at 19%. The bank had permanently modified just 2,737 loans as of the end of last month.

“You have some banks that really did step up to the plate quickly . . . and others whose results were disappointing and need to do much better,” Barr said.

BofA tried to get ahead of the news Wednesday by noting its improvement, saying it began 34,000 trial modifications in December and had more than 200,000 customers overall who had started trial modifications.

Rob…The “series LLC” is a new, untested concept. Oversimplified, it is a “master” limited liability company, composed of two or more limited liability companies.

I have always recommended that real estate investors put their property into an LLC. But if you own two properties, each should be titled in the name of a separate LLC. Why? Because if a tenant in one of your properties decides to sue you — and you do not have adequate insurance coverage, or if the lawsuit is based on a matter that is excluded from your coverage — you could lose all of the assets in that LLC. So if you have two properties in the same LLC, both properties could be sold to satisfy any judgment against you.

On the other hand, if you have only one property in the LLC, the court — and the creditors — cannot go after those other properties. Of course, if you do not carefully follow all of the LLC rules (i.e., commingle funds, or sign legal documents in your name and not as “manager” or “member” of the LLC), then you potentially are exposing all of your assets.

Enter the series LLC. The concept began in Delaware, and to my knowledge, only seven other states currently allow the creation of such a legal entity. Those states are Illinois, Iowa, Nevada, Oklahoma, Tennessee, Utah and Texas.

In a series LLC, although each separate LLC (often referred to as “cells”) can have separate assets, different members and managers, the series (or master) pays only one filing fee and files only one income tax return.

While this column cannot provide a complete summary of the pros and cons to this concept, you can get a lot more information on the Internet by searching for “series LLCs.” But the most important questions are:

1. Will a state that does not authorize the series allow an entity that is legally formed in another state to be recognized and authorized to do business in that state? Recently, California has said “yes.” However, California is still going to require filing fees and taxes to be paid by each of the various cells in that master.

2. Is it absolutely certain that the assets of each cell are individually protected in the event of a lawsuit against one of the individual LLCs? Recently, the American Bar Association issued a report questioning the viability of this entity. One of the ABA’s concerns is whether the so-called “internal liability shield” would be recognized in those states that have not formally authorized series LLCs.

This is a new animal, and while intriguing, leaves a lot of questions unanswered. If you are an investor, discuss your situation with your attorney and your financial advisors before going down this uncertain path.

1. Change the batteries on your smoke detectors
Rather than waiting for your smoke detector to go off in the middle of the night when the battery goes out, get in the habit of replacing the batteries the first weekend of each year. If you have a fireplace or gas appliances, it would also be wise to install a carbon monoxide detector to avoid deadly leaks.

2. Update your insurance policies
Many people buy new items over the course of the year, especially at the holidays. If you have purchased a new computer, jewelry, art, or other major item, check with your insurance company to determine whether you need to increase your insurance. Review your policy to determine if you have “full replacement value” coverage. If your policy doesn’t have this coverage and you experience a major loss, the insurance company can give you the pro-rated value of your appliances and other items. The net effect is that you will lack the funds necessary to restore your home to its original state prior to the loss.

3. Take pictures and/or video
If you haven’t done so already, take pictures and/or video of every nook and cranny in your home. Store this in a safe deposit box away from the property. (It’s also smart to save it online). If you do experience a major disaster, you have proof of the quality and the condition of your home prior to your loss.

4. Eliminate toxic cleaning materials
You can clean most of your house with vinegar, water, baking soda, and a microfiber cloth, according to the Spring Cleaning Guide at HouseLogic.com. The orange-based cleaners also work well. Use microfiber on your stainless steel appliances to make them shine. Best of all, not only will you save money, you will avoid mixing your food with toxic chemicals.

5. Change the filters on your heating/air conditioning systems
During the winter, we generally don’t have the luxury of leaving our windows open to air out our homes. Changing your filters not only helps your system work more efficiently, it also reduces allergens and other irritants.

6. Check your emergency preparedness
If you live in an area where you may experience an extended power outage from an earthquake, hurricane, snowstorm, tornado or even a terrorist attack, make sure that you have sufficient amounts of water, food, a generator, and propane or charcoal for cooking during an emergency. The usual guidelines are to have at least one week’s worth of everything you need. This includes medications. You may want to consider purchasing some of the wilderness supply products including a solar generator that fits in a backpack.

7. Don’t just vacuum your carpets
The next time you vacuum, be sure to also get your refrigerator coils, the lint filter in your dryer, and your tiled surfaces. Apparently, water helps small particles bind to the grout rather than washing them away. If you vacuum before you wash the tile surfaces, you will prevent grime buildup in your grout.

8. Check your chimney and/or wood stove
Chimneys are designed to carry toxic fumes away from your living area. Many people believe that chimneys are maintenance-free. They are not. Check your flue to make sure it’s operating properly. Also, depending on how much wood your burn, you should have your chimney cleaned on an annual basis. If you’re burning more than four cords per year, it’s advisable to have your chimney cleaned twice a year. There are more than 25,000 chimney fires every year. For additional prevention information on chimney maintenance, visit the Chimney Safety Institute of America.

9. Check for air leaks
A cold, windy day is a great time to discover where your house is not properly sealed. In many cases, all you need to repair the leak is some caulking. If your windows need replacing, research what types of rebates are available for installing energy-efficient windows. There are also energy rebates for insulation and for radiant barriers for your attic. A radiant barrier prevents heat loss during the winter and keeps heat out during the summer.

10. Kill dust mites
Like the other flat surfaces in your home, dust accumulates on your bedspreads, drapes and other fabric surfaces. If you’re not ready to haul these to the cleaners, many experts suggest running them through your dryer. (Caveat: Some fabrics such as rayon may melt in your dryer, so check the labels.) A different option is to vacuum and then steam the fabrics using a portable steamer.

While this list is by no means comprehensive, it is an excellent way to make your house more livable throughout the upcoming year.

Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

“The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”

Mr. Katari contends that banks have been using temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books. Only after banks are forced to acknowledge losses and the real estate market absorbs a now pent-up surge of foreclosed properties will housing prices drop to levels at which enough Americans can afford to buy, he argues.

“Then the carpenters can go back to work,” Mr. Katari said. “The roofers can go back to work, and we start building housing again. If this drips out over the next few years, that whole sector of the economy isn’t going to recover.”

The Treasury Department publicly maintains that its program is on track. “The program is meeting its intended goal of providing immediate relief to homeowners across the country,” a department spokeswoman, Meg Reilly, wrote in an e-mail message.

But behind the scenes, Treasury officials appear to have concluded that growing numbers of delinquent borrowers simply lack enough income to afford their homes and must be eased out.

In late November, with scant public disclosure, the Treasury Department started the Foreclosure Alternatives Program, through which it will encourage arrangements that result in distressed borrowers surrendering their homes. The program will pay incentives to mortgage companies that allow homeowners to sell properties for less than they owe on their mortgages — short sales, in real estate parlance. The government will also pay incentives to mortgage companies that allow delinquent borrowers to hand over their deeds in lieu of foreclosing.

Ms. Reilly, the Treasury spokeswoman, said the foreclosure alternatives program did not represent a new policy. “We have said from the start that modifications will not be the solution for all homeowners and will not solve the housing crisis alone,” Ms. Reilly said by e-mail. “This has always been a multi-pronged effort.”

Whatever the merits of its plans, the administration has clearly failed to reverse the foreclosure crisis.

In 2008, more than 1.7 million homes were “lost” through foreclosures, short sales or deeds in lieu of foreclosure, according to Moody’s Economy.com. Last year, more than two million homes were lost, and Economy.com expects that this year’s number will swell to 2.4 million.

“I don’t think there’s any way for Treasury to tweak their plan, or to cajole, pressure or entice servicers to do more to address the crisis,” said Mark Zandi, chief economist at Moody’s Economy.com. “For some folks, it is doing more harm than good, because ultimately, at the end of the day, they are going back into the foreclosure morass.”

Mr. Zandi argues that the administration needs a new initiative that attacks a primary source of foreclosures: the roughly 15 million American homeowners who are underwater, meaning they owe the bank more than their home is worth.

Increasingly, such borrowers are inclined to walk away and accept foreclosure, rather than continuing to make payments on properties in which they own no equity.  A paper by researchers at the Amherst Securities Group suggests that being underwater “is a far more important predictor of defaults than unemployment.”

From its inception, the Obama plan has drawn criticism for failing to compel banks to write down the size of outstanding mortgage balances, which would restore equity for underwater borrowers, giving them greater incentive to make payments. A vast majority of modifications merely decrease monthly payments by lowering the interest rate.

Mr. Zandi proposes that the Treasury Department push banks to write down some loan balances by reimbursing the companies for their losses. He pointedly rejects the notion that government ought to get out of the way and let foreclosures work their way through the market, saying that course risks a surge of foreclosures and declining house prices that could pull the economy back into recession.

“We want to overwhelm this problem,” he said. “If we do go back into recession, it will be very difficult to get out.”

Under the current program, the government provides cash incentives to mortgage companies that lower monthly payments for borrowers facing hardships. The Treasury Department set a goal of three to four million permanent loan modifications by 2012.

“That’s overly optimistic at this stage,” said Richard H. Neiman, the superintendent of banks for New York State and an appointee to the Congressional Oversight Panel, a body created to keep tabs on taxpayer bailout funds. “There’s a great deal of frustration and disappointment.”

As of mid-December, some 759,000 homeowners had received loan modifications on a trial basis typically lasting three to five months. But only about 31,000 had received permanent modifications — a step that requires borrowers to make timely trial payments and submit paperwork verifying their financial situation.

The government has pressured mortgage companies to move faster. Still, it argues that trial modifications are themselves a considerable help.

“Almost three-quarters of a million Americans now are benefiting from modification programs that reduce their monthly payments dramatically, on average $550 a month,” Treasury Secretary Timothy F. Geithner said last month at a hearing before the Congressional Oversight Panel. “That is a meaningful amount of support.”

But mortgage experts and lawyers who represent borrowers facing foreclosure argue that recipients of trial loan modifications often wind up worse off.

In Lakeland, Fla., Jaimie S. Smith, 29, called her mortgage company, then Washington Mutual, in October 2008, when she realized she would get a smaller bonus from her employer, a furniture company, threatening her ability to continue the $1,250 monthly mortgage payments on her three-bedroom house.

In April, Chase, which had taken over Washington Mutual, lowered her payment to $1,033.62 in a trial that was supposed to last three months.

Ms. Smith made all three payments on time and submitted required documents, Chase confirms. She called the bank almost weekly to inquire about a permanent loan modification. Each time, she says, Chase told her to continue making trial payments and await word on a permanent modification.

Then, in October, a startling legal notice arrived in the mail: Chase had foreclosed on her house and sold it at auction for $100. (The purchaser? Chase.)

“I cried,” she said. “I was hysterical. I bawled my eyes out.”

Later that week came another letter from Chase: “Congratulations on qualifying for a Making Home Affordable loan modification!”

When Ms. Smith frantically called the bank to try to overturn the sale, she was told that the house was no longer hers. Chase would not tell her how long she could remain there, she says. She feared the sheriff would show up at her door with eviction papers, or that she would return home to find her belongings piled on the curb. So Ms. Smith anxiously set about looking for a new place to live.

She had been planning to continue an online graduate school program in supply chain management, and she had about $4,000 in borrowed funds to pay tuition. She scrapped her studies and used the money to pay the security deposit and first month’s rent on an apartment.

Later, she hired a lawyer, who is seeking compensation from Chase. A judge later vacated the sale. Chase is still offering to make her loan modification permanent, but Ms. Smith has already moved out and is conflicted about what to do.

“I could have just walked away,” said Ms. Smith. “If they had said, ‘We can’t work with you,’ I’d have said: ‘What are my options? Short sale?’ None of this would have happened. God knows, I never would have wanted to go through this. I’d still be in grad school. I would not have paid all that money to them. I could have saved that money.”

A Chase spokeswoman, Christine Holevas, confirmed that the bank mistakenly foreclosed on Ms. Smith’s house and sold it at the same time it was extending the loan modification offer.

“There was a systems glitch,” Ms. Holevas said. “We are sorry that an error happened. We’re trying very hard to do what we can to keep folks in their homes. We are dealing with many, many individuals.”

Many borrowers complain they were told by mortgage companies their credit would not be damaged by accepting a loan modification, only to discover otherwise.

In a telephone conference with reporters, Jack Schakett, Bank of America’s credit loss mitigation executive, confirmed that even borrowers who were current before agreeing to loan modifications and who then made timely payments were reported to credit rating agencies as making only partial payments.

The biggest source of concern remains the growing numbers of underwater borrowers — now about one-third of all American homeowners with mortgages, according to Economy.com. The Obama administration clearly grasped the threat as it created its program, yet opted not to focus on writing down loan balances.

“This is a conscious choice we made, not to start with principal reduction,” Mr. Geithner told the Congressional Oversight Panel. “We thought it would be dramatically more expensive for the American taxpayer, harder to justify, create much greater risk of unfairness.”

Mr. Geithner’s explanation did not satisfy the panel’s chairwoman, Elizabeth Warren.

“Are we creating a program in which we’re talking about potentially spending $75 billion to try to modify people into mortgages that will reduce the number of foreclosures in the short term, but just kick the can down the road?” she asked, raising the prospect “that we’ll be looking at an economy with elevated mortgage foreclosures not just for a year or two, but for many years. How do you deal with that problem, Mr. Secretary?”

A good question, Mr. Geithner conceded.  “What to do about it,” he said. “That’s a hard thing.”