BluefoxToday blog : April 2008

Las Vegas downtown is okay, that's about the best way to describe it and still be respectful. The Fremont Street Experience, the very core of it, is surrounded by a string of colorful gambling establishments and that is the backbone of the area. But right outside that district things get rather spotty. The City, with the optimistic Mayor Oscar Goodman at the helm, has done a lot to get new development to come there and some success is evident. The road ahead is still long and winding, though.

Union Park is supposed to transform downtown in a big way. And it likely will. It's a 61-acre parcel of land southwest from downtown, a large vacant lot currently considered more an eyesore than anything else. The City has burned plenty of midnight oil to get something meaningful started there, yet so far steady success has been elusive.

A major step in the right direction saw daylight the other day when a ground-breaking for the beginning of infrastructure construction there was observed by local luminaries. Although infrastructure assembly is much less glamorous than kicking off the building of a high-rise luxury condominium tower, the City of Las Vegas and its development partner Newland Communities were really happy to be around to witness it. It meant progress. Isn't it true that every little bit counts.

The current blueprint for the site includes The Lou Ruvo Brain Institute designed by Frank Ghery which is already under construction, the Smith Center for the Performing Arts, a Charlie Palmer's boutique hotel and restaurant, another hotel with a surgical training facility, obviously several buildings with condos and retail and office space and one more hotel with a casino. Some like to call the whole package a "city within a city". And why not? It obviously has a lot of variety going for it.

Once it gets built up it'll definitely change the flavor of downtown for much better.

Station Casinos runs a host of successful gambling halls in Las Vegas for the local clientele and is continually building new ones in strategic locations. The Aliante Station in North Las Vegas is the next property to open its doors, scheduled to do so late this year. The company is also set to break ground on another gaming facility up in the northwest section of the valley, at Durango and 95. And they have more land in Southern Nevada to do more of the same when they find the time is right.

It seems to be right for the Viva, a tentative name for a huge project Station Casinos is planning to develop at Tropicana and I-15, in the northwest corner of the intersection. The land parcel measures 110 acres in all, so it can accommodate quite a few buildings and facilities. It's probably going to take a few years before construction begins, but a lot of time nowadays is being spent on it.

As of now, the plan calls for the first stage to include three hotels with 5,200 rooms and a big casino to go with them. In some ways, according to Station Casinos, the project will resemble the now under-construction MGM Mirage's CityCenter across the freeway, a hint of what is to come. Not only in size, but also in cost, which could go as high as $10 billion if the entire plan is carried out.

It's supposed to be a mixed-use enterprise, so it's fair to expect that there will be condominiums either as part of these three hotels in phase one or then at some point in their own towers. Upscale condo sales can nicely cover a large chunk of the construction costs of a multi-billion dollar development like that. The presently difficult Las Vegas real estate and mortgage markets don't favor this right now, but down the road things can, and most likely will, be much different.

Viva would also be the third large resort project on the west side of the freeway, joining the nearby Rio and Palms just a stone's throw north. Panorama Towers, a luxury condominium destination, already sits between these two points, between Flamingo and Tropicana, on Dean Martin Drive and it appears that the somewhat obscure street is about to become even more famous. It could one day turn into a second Strip. Viva will certainly draw other similar development to the area and push away the rest of the retail and warehouse element.

The current crunch that descended on the Southern Nevada housing market is slowly working on what it is designed to do. It was invited to the valley by stark economic realities that had learned the bazaar had grown overheated and was actually about to spiral out of control. Home prices were zooming, builders were putting up way more houses than was needed and the mortgage money was cheap and accessible to just about anybody.

The crunch watched the frantic housing activity for a stretch and then saw it best to intervene, swooping in to save the day. And its actions are finally starting to produce results.

Home values here have been retreating steadily and are seemingly nearing the bottom. It's one of the three main segments in the overall market that went out of whack. The other two were anemic sales and the excess supply of new and resale houses, or the inventory.

It wasn't too long ago when local homeowners and investors were beginning to wave goodbye to the house that would cost under $100 per square foot. But thanks to the crunch and the sagging demand it brought along, things are changing. Heading in the right direction. Valley builders are nowadays offering about 100 new models in their subdivisions marked under $100 per sq. ft., reports Larry Murphy from SalesTraq. Richmond American for instance lists a 3,839 sq. ft. house at Vienna for $319,990 that comes to about $83 a sq. ft. That's the good old times right there. And something that can be sustained.

As the price levels drop, homes become more affordable again and that puts a smile on the faces of home buyers, refinance candidates and anyone in the industry. Median household incomes in Las Vegas generally had fallen way behind what it took to purchase a standard home and that's one large reason why the bazaar stalled. People simply couldn't afford to acquire property any more. Family incomes and housing prices have to bounce within a certain workable range for ongoing market stability and these two forces are approaching that now, being led by the falling price structure.

Freddie Mac is one of the big players in the secondary mortgage market, buying conforming loans there to add liquidity to the vast home finance system. The current conforming loan limit is $417,000 and anything above that is called jumbo and interest rates at that altitude generally hover as much as 1.00% higher than for the conforming money. A significant disadvantage to homeowners who wish to refinance or buyers looking to bankroll a purchase. But the Economic Stimulus Act of 2008 changed the loan limit and it can now go up to $729,750 in designated expensive areas. The change is good only until the end of this year, but can be extended by Congress.  

Since the new legislation was approved Freddie Mac has negotiated with Chase, CitiMortgage, WaMU and Wells Fargo, the fearsome foursome, to purchase loans from them originated in 224 high-priced markets where median home values top the $417,000 ceiling. The firm predicts the volume of the new conforming jumbo mortgages it'll buy will be worth between $10 and $15 billion this year. It also is conducting discussions with other large lenders to do the same with them.

The expected interest rates for these fresh conforming jumbos should be about .50% below the regular jumbos in these markets, but still about .50% higher than for loans under the $417,000 limit. So, they'll fall somewhere right in between the two.

While each lender will determine its own specific loan portfolio, Freddie Mac is committed to buying the following loan products; 15-, 20-, 30- and 40- year fixed-rate programs, 30-year fixed-rate loans with 10-year interest-only period, fully-amortized 5/1 ARMs and 5/1 ARMs with 10-year interest-only time frame. Cash-out refinance up to $100,000 is also available to qualified homeowners.

This certainly will add liquidity to the marketplace and with it comes a more stable lending environment, a critical component that has been shaken badly in the last year or so.

Mortgage foreclosure is something that isn't advantageous to have glaring at you from a credit report. It has a large negative impact on FICO's computations and can make future credit very costly to obtain, if it's available at all. Before a distressed homeowner resorts to that route, another option has increasingly made its way into the realm of possible solutions.

A short sale. Under this arrangement the homeowner sells the house for less than the mortgage balance, with the lender's full blessing. At first sight it seems to be the ideal way to go. The borrower, or homeowner, is clear of his unmanageable obligation, the lender avoids a costly foreclosure and the property's buyer is likely to get a nice deal on the home.

But the reality can be much different. Many participants, real estate agents, sellers, buyers, lenders and others, can testify to that. The conditions that allow a short sale to proceed are varied and need to be met.

The borrower must prove that he honestly cannot make the required mortgage payments. The house's value is critical to the lender's assessment whether the sale is approved. The loan servicer, or lender, wants to assure the deal is "arm's length" and not something done between friends or relatives at discounted pricing and soft terms. Does the new buyer qualify for a mortgage to make the purchase stick? Another condition there. If a second mortgage or a home equity line of credit is involved, will its holder go along? There is more. The investor who has the home loan in its portfolio has to be convinced that a short sale is in its best interest.

These are some of the more obvious reasons complicating and slowing down the process. And then there is the one that makes you scratch behind your left ear. Many lenders are just plain short-staffed to handle the current work load.

According to the assessment of Molly Kay Hamrick at Coldwell Banker Premier Realty in Las Vegas merely about 20% of short-sale bids in town will end up closing and funded. And to get all the way to the end takes a long time.

The tough real estate market gripping large sections of the country has incubated multiple trends and one of the more noteworthy of them is the mortgage walkaway. This is where a distressed homeowner or an out-of-luck investor decides to cease loan payments and at some point later on hands in the house keys to the lender. Many of them believe that the action will just like that solve their mortgage payment problems and they will be able to start anew somewhere else. 

It's not that easy, however. Fannie Mae, the mammoth buyer of mortgages on the secondary market, issued new guidelines to banks regarding walkaways and several other foreclosure scenarios. Foreclosed borrowers won't be approved for loans it purchases for five years. The only exception is if there are "documented extenuating circumstances" and then the ban is only three years.

There is more to it than that. After the five years the previously foreclosed applicant has to have a FICO score of 680 and up and needs to put down a minimum of 10%. On the surface these terms don't look like much, but in reality they do have a fair amount of bite to them. This matter has become especially acute in the former boom states of California, Florida and Nevada.

Freddie Mac, Fannie Mae's sister shop in the secondary market, has similar tougher guidelines while its buying moratorium is even longer, seven years.

Foreclosure of course is a serious issue and FICO truly takes that into account. Damaged credit score can affect the consumer in many other ways, too. FICO plays a critical role in the approval process for car loans, student loans and credit cards and its negative effects can taint an employment application and also an insurance request. Walking away is easy, yet dealing with the potential consequences is anything but.

And then there are the helpful Internet websites that cater to walkaways and others in the same league. They make all sorts of promises that sound exciting. They range from the ban period possibly being reduced to two years to perhaps allowing the homeowner to stay in the house without making any payments as long as twelve months. The fees they charge for their counsel, kits and plans are up front. Due diligence here is advisable.

Walkaways will find the road ahead rather bumpy.

This is the fifth year the master-planned community presents Summerlin Earthfaire, Las Vegas valley's largest Earth Day observance. It'll take place this Saturday, April 19, from 10 a.m. to 4 p.m. at Summerlin Centre Community Park on Town Center Drive. It is free to the public. More info at summerlin.com.

Howard Hughes Corp. is the developer of Summerlin and is also the event's main organizer. Sponsors for it are Republic Services, Mix 94.1, Channel 13 Action News, Home News - Community Newspapers of Nevada, Cox Communications, Shark Reef Aquarium and Boston Cleaners. Over 50 environmental groups will be present to dispense information about what they do and offer ideas on energy savings, recycling and interactive "green" education.

The exhibitors around the park include The Nature Conservancy, Friends of Red Rock Canyon, Southern Nevada Water Authority, The Sierra Club and City of Las Vegas Environmental Division. The Nature Conservancy has worked over the years very closely with the Summerlin developer to protect the environment in the western valley and it will proudly discuss its past successes and what projects it is involved in now in Nevada.

Summerlin has been from day one a trailblazer in environmentally-conscious development and is carrying on the tradition by hosting this celebration. It was the first major master-planned community to implement low-use irrigation methods in public areas, according to the developer. It has also helped popularize desert landscaping in Southern Nevada, once considered way out of line and outright unsightly by local homeowners.

The Palazzo resort, a recently-opened Las Vegas Sands creation on the Strip, is much more than a deluxe all-suite hotel tower, large casino, upscale shops and several gourmet dining spots under one roof. A few know that it is also in the forefront of eco-friendly design not only in town but also internationally.

The U.S. Green Building Council just labeled it the largest LEED, or Leadership in Energy and Environmental Design, certified building in the whole world. It earned the institute's silver certificate with its energy-saving design, construction and everyday technologies. To incorporate all that into a 50-story structure with 3,000 plus rooms requires a major commitment and lots of intricate planning and knowledge-based work. But they did it and deserve a congratulatory pat on the back.

During construction the structural steel used was about 95% recycled content and concrete had roughly 26% of the same and the developer recycled 42,000 of building materials. That's just to get started with the examples that earned the Palazzo the LEED.

A solar heating system keeps the property's pools comfortable year round and in the summer the extra solar energy collected is diverted to help its hot water network. Out in the landscaped areas moisture sensors control irrigation and produce about a 75% cutback in water usage. Southern Nevada is currently under a drought watch and this type of conservation measure is critical to combat its effects.

The suites have an AC control system that automatically dials the temperature higher when the guests are out and will reset to normal when they come back, hopefully still having some of the money they left with in their pockets.

Overall, these design and conservation steps taken are estimated to account for 30-40% in energy savings and over 50% in water savings. In the long term the extra cost will pay for itself, and then some.

Now that the mortgage and housing markets are together going through tough times scam artists have come out to sniff for opportunity under just about every rock. They are shamelessly preying on the unaware. The numbers alone tell the story, as FBI's Financial Crimes Enforcement Network, or FinCEN, registered almost 15,000 SARs, or suspicious activity reports, in the first fiscal quarter of 2008 and plans on getting over 60,000 of them for the entire year. Fiscal 2007 had 46,700 and 2006 35,600. That makes for quite an upward curve for the last three years.

And those figures are only part of the story. Banks under federal scrutiny are the only ones required to record SARs while those home loan lenders who fall outside the reporting regimen make up a good majority of the total loan activity. The problem, therefore, is much larger than what these FBI statistics reveal and the current regulatory structure appears to be unable to stop it.

One of the all-time favorite scams is the one where the villain approaches a homeowner under threat of a foreclosure, sweet-talks him into deeding the home over to the villain with the promise that he'll get it back when his finances are again in order. In the meantime the homeowner is asked to make his mortgage payments to the scammer who swears he'll forward them to the lender. Well, of course, he never does. He pockets all the moneys and let's the house eventually slide into foreclosure.  

But that's not all. Some of today's villains have pioneered an extra twist to this one. They are now selling the property to an anxious buyer, understandably hungry for a foreclosure deal, who is using a different mortgage lender. This way the scammer is making money on two fronts, collecting mortgage payments for a few months and also pocketing the profit from the sale of the hustled house when it closes.

Where does it hurt? Actually everywhere. Homeowners, lenders, investors, they all pay for this at some point.