Housing gloom could be with us a while longer - Mortgage applications drop

When the government introduced the first-time home buyer tax credit program - later it included move-up buyers as well - many real estate and mortgage movers and shakers blessed it with applause. Others weren't so sure it would work that well. The Housing research firms are predictably right now working on overdrive to put their data together and announce soon what they found out as to the initiative's effectiveness. One thing is for sure, though; it did add a respectable dose of demand to the otherwise lethargic real estate arena. It concentrated largely on the lower half of the market, Las Vegas being a good example of that, but in this uncertain environment any demand is peachy.

Mortgage Bankers Association provides an early indicator on this intriguing issue. In the first week after the tax break closed out mortgage applications dropped 14% and to make matters worse, in the second week they nosedived 27%. Reuters came out to call these declines the worst since 1997.

The significance here is that this is happening in the middle of the traditional spring buying season. Sellers and buyers of course are not looking at a standard real estate market where to conduct business. These figures, though, seem to show that obviously the tax credit did play a big role in generating sales the way it did over the past year or so. Mortgage money also remains surprisingly affordable, supposedly drawing applicants in droves to go for it. But the numbers from the last two weeks prove otherwise. Home loan underwriting guidelines are stricter now which does leave some borrowers out of the hunt.

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Las Vegas standard home sales draw top dollar - short sales and REOs lag

The current real estate chaos has introduced even the timid to the exotic avenues of unloading a home. Before, the industry experts were usually the only ones well-versed on REOs and foreclosure and short sales and even auctions. This generation of mortgage borrowers and homeowners has been, whether they liked it or not, put through a crash course on various "creative" methods of selling a property. Some have been personally involved in the paperwork-laden processes when delinquency was knocking on the door, while others have followed from the sidelines through media the often hair-raising developments. It has been for everyone a unique learning experience hard to forget anytime soon.

Southern Nevada - home to Summerlin, Mountains Edge, Spanish Trail, Henderson, North Las Vegas and Silverstone Ranch - is undeniably at the epicenter of the unusual sales method. What's intriguing about it all is how prices differ among them, as was reported by SalesTraq, a real estate information boutique.

In April SalesTraq counted 4,323 existing home closings in the Las Vegas housing market. Regular owner-initiated sales drew a median price of $135,000 on a volume of 1,383 units. REOs, or real estate owned by banks, brought $125,000 per home with 1,636 sales. Short sales, on the other hand, garnered the lowest median price at $122,000, with 969 closings. Based on these figures REOs, or mortgage lender foreclosures, and short sales in Southern Nevada lag about 8-10% behind the standard, untainted home sale.

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Home loan applicant treats - Las Vegas mortgage borrowers beware

When a consumer fills out a mortgage application to purchase a home, or do a refinance, it means that obtaining his credit report will follow. It's part of the process and readily accepted. Something else may also happen, though, that can cause bewilderment in the home loan applicant, maybe even anger of various decibels.

This action actually permits credit bureaus - Equifax, Experian, Innovis and TransUnion - to peddle the mortgage borrower's information to third party vendors, among which can be other home loan providers. The phone at the consumer's pad can start ringing with unwanted solicitations that probably were not penciled in on his calendar. If so, the mortgage broker who took the original application likely will receive heated questions about it, giving his otherwise ordinary day a new twist. Sometimes a brief, to-the-point explanation will suffice, sometimes the matter will spiral in a new, unwanted direction from which recovery can take time.

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Las Vegas resale stats all over the map for April

If the median price of a single-family house is used as a sole indicator for the health of a real estate market, then Sin City would be hailed as being on the mend. According to GLVAR, or Greater Las Vegas Association of Realtors, Southern Nevada's median price grew to $142,000 in April, a strong 4.4% improvement from March. Not only that, it also is 0.2% higher from the same month last year, for the first time the year-over-year number is positive since 2007. Single-family house prices peaked in Las Vegas in February of 2007 at $310,000. The slide without a doubt has been blood-thinning.

That, however, is only part of the monthly housing picture here in Southern Nevada.

Single-family house sales tallied up 2,951 units in April, a surprising decline of 224 closings from March. Adding to the weakness in this category is the fact that it's also a 7.7% setback from last year. March showed solid strength and it was widely believed in Las Vegas real estate circles April would follow along those lines, supported by inexpensive mortgage money. But that didn't happen. Puzzlement is painted across faces of everyone who has a stake in the local housing market.

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Mortgage fraud on the rise despite new HVCC rules - Nevada way down sin list

When the real estate chaos engulfed the nation one of the alleged causes to it was how mortgage brokers were pushing appraisers around to "hit the number." Home loan professionals were smooth-talking them - in some cases supposedly being even rather loud about it - to value a property at what their contract said it should be. In those go-go years it commonly meant many appraisals came in high. This practice, in some shape or form fraud, had to be put under a large microscope the big mortgage banks were telling everybody who would listen and eventually were able to convince the government it all really was true and should be remedied yesterday. The rumor has it Wall Street does have some pull in Washington.

As a result the HVCC was born. The Home Valuation Code of Conduct, which Fannie Mae and Freddie Mac embraced last year. It bans mortgage brokers and loan officers from picking appraisers and basically handed the valuation process to appraisal management companies. The birth wasn't all that joyous, however. It instantly drew a lot of sharp flak from mortgage brokers, real estate agents, appraisers themselves and the home building industry, undisputed key elements in the real estate realm.

How is the HVCC doing nowadays?

MARI, or Mortgage Asset Research Institute, a LexisNexis shop, sheds quite a bit of light on this. According to its research - using data gathered from over 600 mortgage wholesalers - the number one fraud generator remains the mortgage borrower who supplies bad data - for instance on income, assets and employment - on the application. This amounts to 59% of all reported mortgage fraud cases in 2009, easily the dominant category.

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Strategic mortgage defaults growing - Las Vegas mortgage borrowers tempted

Despite sporadic indications that the real estate market is settling down homeowners still feel antsy. They are now considering a strategic default - a tactic generally used when the home loan balance is higher than the property's value - more often than before. This is being done even when they can afford the payments.

University of Chicago's Booth School of Business and Northwestern University's Kellogg School of Management conducted a study on strategic mortgage defaults and the numbers they arrived at are harsh. In March roughly 31% of foreclosures were labeled strategic, up 9% from March of 2009. So, now about one third of them dominate the foreclosure talk in the banking industry and among policy makers in Washington, a scary trend.

One major reason to the increase is that mortgage borrowers in general believe lenders wouldn't track them down for what they are owed. Whether they will or will not depends on many variables, among them state laws, their own policies and the spread between outstanding balance and home value. Regardless, 56% of homeowners are betting that it's safe to do, according to the universities' research.

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Southern Nevada housing may not be as affordable today as it seems

The real estate market bust in Las Vegas valley - home to communities like Summerlin, Silverstone Ranch, Henderson, Mountains Edge, North Las Vegas and Rhodes Ranch - has taken down with it homeowners, mortgage lenders, real estate agents and builders, and a host of others closely tied to the industry. It has been as brutal a segment collapse as any in history. One of the most plundered victims has been the price. Homes in some of the newer subdivisions have lost as much as 60% of their value in just a few years.

To scores of once-happy and optimistic homeowners the word underwater has suddenly become a hot topic, as their property value now is much less than the underlying mortgage. On the other side of the coin are first-time buyers who are drooling over the current housing affordability in Las Vegas, seeing a unique opportunity to grab a home for mere pennies, it seems. A nice home in a solid neighborhood can be purchased for under $150,000, essentially at a price from 10 years and beyond ago.

NAR, or National Association of Realtors, national affordability index bravely backs the trend and soared to a record territory in 2009, reaching 171.6. A household with a median income thus had 171.6% of the income to be approved for a home loan on a median-priced property. This puts it way above what is required. In comparison, the same index stood at 115.4 in 2007, making home buying those days a fair contest.

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White House solicits ideas for mortgage finance reform

The home loan market has evolved over the decades into a colossal and thoroughly complicated system that is so hard to get one's arms around with any authority. One of the latest additions to it were the otherworldly subprime mortgages and their subsequent securitization that eventually grew so tricky that few, if anyone for that matter, can today decipher what they actually look like. A fair part of the blame for the current real estate collapse can be squarely allocated to this out-of-control creativity.

The White House put forth seven questions for public comment in its quest to overhaul the mortgage finance system and it has to be commended for seeking ideas from the trenches. A bunch of sharp minds earn their living in there and can truly bring valuable mortgage input to the table. How much do their opinions matter at the end of the day is a different argument. Anyhow, these questions are rather academic-sounding - perhaps shaped by some Harvard PhDs on a mission - and cover a wide range of territory, essentially the whole industry, it seems. Does the entire system need to be overhauled? Not really. Many sectors in it work rather well, maybe needing just some updating to meet today's rapidly-shifting mortgage landscape.

Let's give it a go then.

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Photo by jdiggans.