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.
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Mortgage foreclosure statistics of late are showing that the persistently increasing 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 attention-grabbing question appears to be that mortgage banks are changing 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.
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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.
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Southern Nevada - including Summerlin, Rhodes Ranch, Anthem, Southern Highlands, Mountains Edge and Spanish Trail - housing market has shown some stability over the last several months, essentially all through last fall and in December. The important numbers cautiously moved in the right direction, or at least didn't get much worse. Appealing mortgage rates continue to excite buyers, as do enticing prices especially in the lower half of the Las Vegas real estate spectrum. The new year started a little bit on an iffy note, though.
There were 2,608 existing single-family homes sold in January, 864 less than in December, adding up to an almost 25% drop, so reports GLVAR, or Greater Las Vegas Association of Realtors. That has got the attention of everyone who follows the housing market here. It could be just an odd departure from the generally positive direction of late. Hopefully so. On the other hand, these resales were a respectable 17.3% higher from the same month a year ago.
The single-family median price gave ground to the tune of 0.8% from December, settling in at $134,925. Nothing major here. It has actually been bouncing for months between a narrow range, and is obviously trying to set the true bottom, which might be within sight. However, this does signify a 15.7% decrease from January of 2009.
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