BluefoxToday blog : Esko Kiuru - Las Vegas NV Mortgage Consultant (FHA, VA, Conventional, Refinance, Jumbo)

Las Vegas homeowners should be mildly encouraged about the direction housing prices are going nowadays. Well, they aren't actually going much of anywhere, and that's what's good about it. They have put the breaks on the slide that seemed to go on forever and are seemingly stabilizing. Mortgage borrowers whose property is underwater can now hope that values will soon start heading in the other direction, up that is. And eventually lift them from the painful, wallet-busting submersion, whenever that'll be.

GLVAR, or Greater Las Vegas Association of Realtors, just released its latest stats for February to show that the median price stood at $135,694, a hard-fought $769 hike from January, or 0.6% improvement. The significance is that it's up at all. It's 12.8% below from February of 2009, though, a stark reminder of how tough the housing and mortgage markets have been, and still are.

Now, altogether 2,390 single-family homes were sold in February, mirroring an 8% drop from the month before. This has got to worry some Las Vegas real estate observers because it's a second consecutive month of decline. Winter season tends to be slower in the housing arena, true, and that might explain it.

The inventory of property for sale grew again over the 20,000 benchmark, registering 20,262 units listed. It's only about 500 higher than in February, so no one should lose sleep over that. Not yet anyway. The positive side here is that it's an 8.5% decrease from the same time last year.

Southern Nevada real estate continues to be embraced by investors, as a lofty 48.7% of sales were cash, when in December this number was "only" 40.4%. Who else can cruise into Sin City and plunk down still-warm greenbacks for houses? That's them. Even though mortgage money is superbly affordable these days, regular buyers looking to snap up property in the lower end of the market can expect to be outshined by these investors.

Las Vegas housing market has now caught a mild case of the flu, normal for winter they say. The figures for February were mixed, demonstrating that soft spots do remain, that a solid recovery is still months away.

The present housing and mortgage overload is by some estimates only halfway through its painful cycle, still desperately looking for traction to solve high mortgage foreclosure numbers, underwater homeowners by the millions, home loan providers with books still loaded with toxic paper and persistent oversupply. The complexity and severity of the collapse is testing the skills, creativity and persistence of the public and private sectors alike. Progress has been made on many fronts, but a lot more needs to be done.

While the focus now is largely on turning the pummeled housing and mortgage markets around, a new fee is quietly being introduced to be part of a real estate transaction. Here are the basics of it. Whenever a home sale is closed in the next 99 years, a 1% fee of the price is paid to the original developer or can be split between other parties and investors. The seller pays it to a third-party trustee, and if he doesn't do so, the deal is off. The reason is that a special lien is attached to the underlying land, called a private transfer fee covenant. It stays with any home tied to the program for the set period of time. It has nothing to do with a government transfer tax, HOA fee or environmental protection concerns.

If a home covered by this setup is sold 15 times during this 99 year run, the 1% transfer fee is paid 15 times. That of course generates an inspirational stream of income to the developers and investors at the receiving end. For what, some may ask? From the looks of it there is no economic benefit anywhere in the program, so the sole purpose seems to be to create a 99-year money machine for them. Many real estate industry experts are already calling it a scam or a fancy pyramid scheme. The program is promoted by Freehold Capital Partners out of New York who supposedly have a "patent pending" structure in the works. And its website declares that it has so far signed up partners with real estate projects worth about $488 billion on their drawing boards. That's very impressive, except that none of them are actually named.

The scary part is that Freehold is supposedly in talks with the investment community to securitize bundles of these transfer fees, in other words planning to turn out bonds backed by future cash streams that can be sold to investors. Does that smell like the chopped up subprime mortgage loans shaped into securities no one fully understood that just a few months ago wrecked the home loan industry? Very much so. A good-size red flag right there for the regulators.  

Many real estate trade groups, among them National Association of Realtors ( NAR ), National Association of Home Builders ( NAHB ) and American Land Title Association ( ALTA ), aren't convinced that this is the direction to take. There are many pitfalls in the program, besides the money grab. It complicates property transfers by making them uncertain and more costly. The title is clouded for long periods of time and to get releases from the original owners could be impossible. The American Law Institute claims that these transfer fees are "arbitrary, spiteful and capricious" and an "unreasonable restraint on alienation." That's of course lawyer speak. It lowers home prices due to the built-in feature of a fee encumbrance and making them harder to sell.

As of right now, the majority of states have no limits on these types of fees, so housing trade groups against the program are gearing up to spread the word nationwide and stifle its advance. Preferably bury it for good. Home buyers predictably are out of the loop and should be on the lookout for it, specifically asking whether there is a private transfer fee involved when contemplating a real estate purchase.

An eye-catching national housing market study was released in January 2006, right in the middle of the infamous bubble that when it deflated with a lot of noise it threw the country's economy into a tailspin that it is still trying to get out of. It explained that the most overvalued, yes overvalued, real estate then was largely concentrated in California and Florida. Small surprise there. Naples, FL, was crowned the leader in that, being a whopping 84% above what property actually ought to cost. It's anyone's guess how many people would've dared to buy a house there those days had they known, and believed, the overvaluation. Las Vegas is found at the 47^th spot, overvalued by 38%.

The report was prepared by IHS Global Insight, a financial information shop, and National City, a financial holding company, since bought out by PNC Financial Services. The research was based on an analysis of median home prices, population density, income levels, local mortgage interest rates and historic premiums or discounts. The numbers for 2006 can be checked out here.

That was then. Today's real estate market only four short years later looks drastically different. So different that modern English language really doesn't have a word for it. The same two financial and real estate research stores published their latest report the other day, using identical criteria as before. This time the focus is squarely on how undervalued, undervalued that is, most markets have become.

Las Vegas housing market has surged to the forefront of the most undervalued list, as many would expect it to do, knowing Sin City's soaring mortgage foreclosure rates, rampant overbuilding and high unemployment. According to this study, real estate in Southern Nevada now sells 41.4% under fair market value. It has swung from being overvalued by 38% to now being way below what it should be. Simply amazing. UNLV students, and others across the land, majoring in finance and real estate must find this development fertile ground for thesis material.

Chasing the Las Vegas housing market for the lead were Vero Beach, FL, at 39.8% undervaluation and Merced, CA, at 37.7%. The stats can be accessed here.

For Las Vegas real estate the bad news is that scores of existing homeowners have seen their equity vanish into thin air and often actually thrown them underwater - the mortgage balance is higher than the home is worth. This is going to have a painful impact on any future upswing as these people are in essence trapped in their homes and cannot be part of the demand side for a while. On a positive note, first-time buyers and real estate investors are happily finding bargains just about under every rock in the desert and are taking advantage of them, too. Affordable mortgage money is also a tempting incentive for those who need financing.

Home loan scams are really part of the real estate landscape in any market, but generally speaking affecting only a small percentage of consumers. Now, however, things are very different. This housing and mortgage meltdown ranks right up there among the worst ever to sweep across from coast to coast. It brings with it some juicy opportunities for the con men among us and are they ever trying to take advantage of it.

Many have zeroed in on the mortgage loan modification programs heavily promoted by the government, but only tepidly adopted by the private sector. That has left a huge void for them to slither in, to the detriment of unwary mortgage borrowers. The media continuously reports on the extent of the problem and new twists to the scammers' arsenal to sound the alarm, but the mayhem marches on. Distressed homeowners are promised lower monthly payments and stoppage to the foreclosure process and all sorts of other goodies, anything to make them take the bait. At the end of the day the scammer pulls a Houdini with a pocketful of money from the borrower.

HUD is now taking a tougher stance on the issue. It just unveiled a website www.preventloanscams.org to try to put a stop to this bloodletting. It's doing this together with the Loan Modification Scam Prevention Network, a national group of private and public entities tasked to power up efforts to fight these vultures on local, state and national levels. The network is run by the Lawyer's Committee for Civil Rights Under Law. The website is the go-to place for homeowners to report anything that smells like a scam and hopefully they'll start using it as needed.

Southern Nevada - including Las Vegas, Henderson, Mesquite, Summerlin, Anthem and Mountains Edge - mortgage borrowers and those in other hard-hit areas around the country are being relentlessly pursued by con artists working this angle. So far law enforcement has had only marginal success combating this scourge. The new website will give homeowners an easy access to a national complaint resource that is designed to expedite enforcement on the local level. It's a weapon that will help keep these scammers in check.   

Photo by tomsaint11

FHA-insured home loans have carved a large chunk of the market during this prolonged housing meltdown. Conventional mortgage lenders have withdrawn in large numbers into the shadows to get TLC from the government just to be able to survive. Many have plain vanished from the scene, generally swallowed by a little stronger bank.

FHA has become the favorite of first-time home buyers for its more lenient underwriting guidelines and lower down payment requirements. Its programs, however, are open to all applicants and many refinances have been done through it. Since FHA started gobbling up market share a couple of years ago, to some degree it stepped into the subprime vacuum left by conventional mortgage providers, real estate values have continued to lose ground in most areas of the country and that has caused scores of its insured home loans to go sour. Borrowers often found themselves upside down in a matter of months after closing if they only put down the minimum of 3.5% allowed by FHA and quickly became vulnerable to drawing a distressed status label.

Now HUD - US Department of Housing and Urban Development - has begun a review of mortgage lenders, actually already served them subpoenas for documents and information, who have a "significant" amount of claims against the FHA mortgage insurance program. HUD suspects there is more to the high default rates than just declining prices. It's looking closely at each mortgage lenders' underwriting practices to determine whether further action is needed. The list of the 15 home loan lenders receiving the subpoenas can be found here.

Climbing foreclosure numbers at FHA have forced HUD's hand. With these subpoenas it's looking into possible fraud as one of the reasons to FHA's problems. It is also determined to manage risk better from here on out. Its actions will obviously create a tighter mortgage approval regime, thus to some degree dampen demand, delaying any meaningful housing rebound. Yet, it's better to have a solvent FHA issuing mortgage insurance at a slower pace than none at all.

Underwater - or upside down - home ownership got worse as the past year wound down. First American CoreLogic published a new research paper on the issue stating that over 11.3 million homes were upside down at the end of 2009, meaning that 24% of all residential real estate with mortgages was carrying that unwelcome label. At the end of the third quarter of 2009 there were 10.7 million houses underwater, so in three months about 600,000 additional properties got whacked.

To stay with the statistics, First American CoreLogic further reports that 2.3 million more homes were heading towards the famous freezing submergence, these being units that had less than 5% equity cushion at year's end. Put together with those already underwater, the picture becomes increasingly bleak, because it now translates to roughly 29% of all mortgages holding that classification.

Nevada continues to top the list of states with the most underwater mortgages, coming in at 70%. Las Vegas area - with communities of Mountains Edge, Summerlin, Anthem, Henderson, Canyon Gate and Rhodes Ranch - predictably hoards the majority of those on account of being the population center.

Underwater mortgage in itself is a serious problem. The homeowner is trapped. He can't sell the property unless he brings hard-earned money to the table to close a deal. He can't refinance either, for the same reason. Generally, no one will do that. This effectively removes a large segment of current mortgage borrowers from the real estate market, putting a sizable dent on the demand side.

Secondly, upside down homeowners are more liable to default on their mortgages. The more they are in negative equity, the more likely it is that they'll lose the property, be it a short sale, foreclosure or deed in lieu. As their FICO scores get dinged badly, they'll be unable to get mortgage approvals for a few years, dealing another heavy blow to the demand function.

Simply looking at what underwater mortgage can do to demand sends shivers down the spine of policy makers, home loan providers, real estate experts and other interested parties. A major headache indeed. Or worse.

 Photo by krossbow

Mortgage foreclosure statistics of late are showing that the persistently upward trend seems to be waning, which is good news indeed. However, it is only part of the whole real estate picture. The economy remains weak and the stubbornly high unemployment level continues to worry many housing observers, suggesting that homeowners would still be vulnerable. So, how is it that home loan foreclosures are losing steam?

The answer to that interesting question appears to be that mortgage lenders are adjusting strategy to favor short sales over mortgage foreclosures. Campbell/ Inside Mortgage Finance survey just concluded supports that theory. It says that in January nationwide short sales added up to 15.9% of all home purchases while move-in-condition REOs - or real estate owned - clocked in at 13.8% and wrecked REOs held a 13.4% share of the housing market. As recently as in November of 2009 these same categories rode along neck and neck at around 12%. Clearly there is a shift.

First-time home buyers generally favor short sales, as they can still acquire property at low prices and get approved for affordable mortgage money, going either FHA or conventional. Although the short sale process can be agonizingly slow, a first-timer often is willing to put up with that, so long as it is a juicy deal. Why not? Anyway, that's their playground. They are often outmuscled from the REO arena by investors who usually show up with a fistful of dollars, paying cash in other words, and can close pronto. Mortgage banks, like all sellers, tend to give the cash buyer the inside track, to no one's surprise.

Southern Nevada - including communities like North Las Vegas, Silverstone Ranch, Anthem, Rhodes Ranch, Mountains Edge, Mesquite and Pahrump - property owners are certainly toasting the gradual change working its way into the distressed mortgage realm. Las Vegas does have its share of them already in the pipeline and many more to be entered in the coming months. Short sale is easier on the credit report, FICO really, damage than a foreclosure is and can also relieve the homeowner from a deficiency judgment, although to be safe the home loan provider should be asked to put that in writing in great bold letters. 

Short sales becoming a more popular avenue for mortgage providers in dealing with distressed borrowers will help solve the overall housing collapse. Give it some lift. It won't be a cure-all, though. It's just one part of the whole, but a positive one at that.

The current mortgage and housing meltdown has been particularly brutal to property owners here in Southern Nevada, home to communities like Henderson, Silverstone Ranch, Anthem, Summerlin, Southern Highlands and Mountains Edge. Nevada has held the lead in most foreclosures by any state for months and that statistic is heavily influenced by Las Vegas valley, the most populous area in the state. Many of those who are still in their homes are often in some stage of the foreclosures process, trying to do a loan modification or have started a short sale campaign. Scores of others are hanging in there, but are trapped because being underwater - the home's value is less than the underlying mortgage - prevents them from selling or even doing a refinance. No one could have imagined that things in the Vegas real estate market could get this severely tangled.

Washington has tried many remedies to help the national housing market, with less than stellar results. It just announced another effort in that regard, this time a more focused one. The new foreclosure-prevention program just announced by President Obama is giving money to the most-affected states - Nevada, Arizona, California, Florida and Michigan - to help them deal with the still roiling housing tsunami. The money, $1.5 billion, comes from the Troubled Asset Relief Program, or TARP, that is being phased out. The basic guidelines are to help homeowners who are either unemployed, are underwater or have second liens that prevent them from doing anything useful. Other than that, each recipient can shape up its own program, so it appears there aren't too many strings attached.  

At this point it's unknown how much of the largesse Nevada is going to get. Obviously the initiative isn't going to reach everyone who could use it, but it can make a rather substantial impact on the foreclosure front in the Las Vegas valley. Those mortgage borrowers who have already lost their homes are unhappy that they weren't offered anything like this. The ones that are now doing a short sale, a home loan modification or are in a pending foreclosure situation might qualify for this, although the specific guidelines have yet to be announced by the housing agency handling this program in Nevada. Still, it can help firm up the base for the state's real estate market and prepare it for a tentative recovery.

Some national housing reports lately have been cautiously positive. Prices have stabilized a bit in scattered real estate markets, a good example of that is Las Vegas. Sales have gone up here and there, spurred on by affordable mortgage money and of course record-low price levels. All this is still short of kicking off a full-blown recovery, but at least it's something to work with.

Despite that, TransUnion, one of the big three credit bureaus, now says that mortgage delinquencies of 60 or more days climbed to a new high of 6.89% in the fourth quarter of 2009, translating into a 12^thquarterly increase in a row. A year earlier, in Q408, the same number stood at 4.58%, so the annual jump amounts to around 50%. A major leap up. Nevada continues to lead the pack in most delinquencies at 16.19%, most of it coming from Las Vegas, and Florida follows close behind at 14.93%. On the other side of the equation, North Dakota topped the list of fewest delinquencies at 1.84%. One might ask, "Where have they been?"

At this stage in the economic cycle it appears that unemployment is the most weighted factor in determining mortgage delinquency levels. The jobless rate in Las Vegas, for instance, is well into double digits, pushing many borrowers - whose income sources fell from two to one or in worst case scenario from one to none - into home loan payment difficulties. Mortgage providers are surprisingly dormant in working with them to find common ground in efforts to keep them in their houses, adding to their woes. On top of that, scores of them are upside down - the mortgage balance is more than the home's value - by a wide margin, effectively preventing them from doing a refinance with today's low rates.

Housing will struggle for the foreseeable future, the only conclusion that can be drawn from TransUnion's research. Some regions with a better than average job growth will emerge from the swoon sooner than others. Southern Nevada - including Summerlin, Canyon Gate, Spanish Trail, Mountains Edge, Henderson and Anthem - appears to belong to the tail end of that, since there is a lot of ground to be covered before unemployment numbers sink to where they should be. Besides, mortgage lenders are still licking their wounds from the thorough whipping they just absorbed, have tightened underwriting guidelines as a result and that is another obstacle to a transition into a meaningful growth pattern.

Home loan modifications have the potential to remedy the housing market swoon currently severely affecting most of the nation. They have to be done right for them to work, though. Thus far the government has been the driving force behind loan mods, urgently pushing the private mortgage sector to follow its lead. But the response has been disturbingly lukewarm, so far.

Innovation in the home loan business has been robust in the past but somehow now that new ideas are desperately needed there isn't much to write home about. Option ARMs, Alt-As, NINA products and many others flooded the real estate market not so long ago and smoothly fueled a tremendous bubble. To be truthful, the subsequent Armageddon wasn't entirely their fault. These exotic programs were practical in certain niche situations, but were roundly abused and flat out over-hyped.

Now it appears that the mortgage industry is slowly getting into gear to find creative solutions to this meltdown. One idea to go along with loan mods is a shared-appreciation mortgage, or more affectionately SAM. In its present simple form it lowers the borrower's payments in exchange for a share of any future appreciation going to the lender, conditional on the home's value climbing over the existing balance. That's basically it. For the homeowner it would avert a foreclosure that has many undesirable side effects. The mortgage bank would sidestep high carrying costs and possibly pick up a slice of equity down the ways. And reap some goodwill, too. They sure haven't got much of that lately.

In Las Vegas valley - hosting communities like Spanish Trail, Mountains Edge, Rhodes Ranch, Summerlin, Henderson and Southern Highlands - it would probably find many takers as long as the mortgage lender would agree to a long-term contract that would allow the housing market to sufficiently recover to lift prices over loan balances. Homes built here in the last seven or so years ago were way overpriced and are now, today, desperately underwater, so to do a SAM on them would require a lot of patience. The home loan providers, for that reason, might for the most part shun Las Vegas. And some of the other harshly-clobbered areas as well, like Florida and California.

As a fresh idea from the private side to deal with this perilous mortgage market situation SAM is good news. This mess is not going get resolved solely by the government with its deep pockets, deep but not bottomless. Wall Street has to show that it can be a responsible partner in this, and act accordingly. SAM just needs other similar initiatives to complement what it aims to do.