Short Refi's

On January 19Th 2008 I read an article written by Jeff Lazerson founder and president of an on line brokerage Mortgage Grader on BankRate.com .  I have put off writing anything about it in hopes that more people would be talking about it.  I have been talking to other Realtors® about this for at least 6 months.  As prices keep going down in the Las Vegas area, my heart aches for the people who are going to lose their homes and because they are behind in their payments, their credit is in the toilet and they can not get refinanced because of that.
In Mr. Lazerson's scenario lenders would refi what the house is worth now forgiving the difference.  The only question I have is what price drops would they use?

I have some clients that paid $790K for a beautiful home.  I ran comparatives for them yesterday and that Max comparison is $649K which is down $141K.  But the median is $550K which is a whopping $240K difference.  WOW.  So what price would the lenders use to refi? If my clients could refi at say 6% for $550,000 they could make the payments and not lose their homes.  If something like this does not happen for them they will lose their home. 

Wait though, are you thinking about the counseling and offers to freeze rates at an introductory rate for 5 years?  Why would anyone do that when their homes are not worth what they paid for them.  Sure real estate has always had their ups and down but $240,000 drop in a year?

Who is to blame for all this?  Greedy lenders?  Builders creating scarcity?  Investors driving up prices?  I really hated that period when a home would only be on the market 5 minutes.  I had to beg a seller once to let us come and look at his house at 7am in the morning and stand in his kitchen to write the offer. 

Even after the foreclosures stop appraised values are going to take many years to go back to where the value is back in these homes.

Read the BankRate.com article and give me your thoughts.