Nevada Real Estate >> Las Vegas Real Estate Specialist: Esko Kiuru

According to Census Bureau statistics the U.S. homeownership rate remained at 66.9% in the 3^rd quarter of this year. It is actually at the lowest point since the end of 1999, the decline predictably brought on by the severe real estate turbulence that continues to roil the market to this day. For the last year the drop has been 0.7%. Interestingly, the West had the lowest percentage at 61.3 while the Midwest exhibited the highest at 71.1%.  

It could lose more ground in the coming months since mortgage foreclosures seemingly are not abating, banks are still repossessing houses by the thousands and the weak economy waters down consumer interest in buying homes. Moreover, the government currently is heavily subsidizing housing, pushing the idea that every American should make an effort to own a home. But some real estate observers are beginning to argue that the subsidies should be curtailed. Homeownership isn't for everyone, they add. And they have a valid point by just pointing at today's high mortgage foreclosure numbers. Therefore, should Washington remove some of the subsidies, it would further erode the homeownership rate.

Now, let's consider something else that may happen. 

The fact is that the deep mortgage finance and housing recession has dramatically scaled back prices, often more in the hardest-hit states like Nevada, California, Arizona and Florida than in some other parts of the country. In some newer Las Vegas suburbs values have crashed up to 60%, dragging them way down to levels last seen in the 90's. Understandably this kind of correction will put a smile on faces of many aspiring home buyers. What it does is bring the price structure to a level where consumers who couldn't afford to purchase a property a few years ago can now start looking. So long as they have confidence in the real estate market and can meet the current more stringent mortgage qualifying guidelines.  

The reworked price framework could actually keep the homeownership rate pretty much where it now is, or perhaps even nudge it upward.

MERS is hardly a household name to many homeowners but the company now finds itself tossed right in the middle of the latest and rapidly-heating home loan challenge. It stands for Mortgage Electronic Registration System and the name pretty much says what it does. It records electronically, in proprietary software, mortgages that have been originated throughout the country, having currently over 65 million of them in its books, or better said in its servers.

The standard practice still is that local clerks record all mortgages and when ownership changes a new paper-based entry is created and notarized. Of course, all this is time-consuming, and this is how MERS came into being. Over ten years ago mortgage securitization took its first baby steps and quickly grew into a vibrant business model on the international securities arena. Large mortgage lenders, big banks and servicers were bothered, though, by the slow turnaround time of the local clerks, so they helped form MERS that could transfer information electronically. And really fast. And highly profitably. Bank of America, AIG's United Guaranty Corp., GMAC, Wells Fargo, Freddie Mac and Fannie Mae are a few of its prominent shareholders.

However, MERS has also blurred the real ownership of the mortgages it has in its system. Mortgage-backed securities with MERS ties were traded globally and supposedly the ownership of them was properly transferred with each trade. Or was it? There is no paper trail now to back anything up. As homeowners began struggling with payments in the collapsing real estate scene, lenders and servicers were promptly foreclosing on them using seemingly unreliable ownership chain.

And this is now the hot topic.

Increasingly, homeowners are challenging foreclosure action based on lack of clear ownership of the mortgages in MERS. And courts are starting to find that there indeed is a problem and have ruled several times already that MERS cannot foreclose because it does not own the mortgages. Class action lawsuits are underway in Nevada, California and Arizona - some of the hardest-hit states - against MERS over its lack of a legal standing to foreclose. JPMorgan Chase just announced that it will no longer use MERS due to the uncertainty over loan ownership, clear proof of something being wrong with it.

Hedge funds, pension systems and other wealthy investors bought mortgage-backed securities by the billions during the housing's go-go years and are now angrily licking their still-bleeding wounds. They are looking to make mortgage lenders to compensate them for their losses, or even cancel the securities trades altogether. Should they be successful in this, it could put the entire U.S. financial regimen in jeopardy once again. The predictable consequence is that the housing market's recovery would be pushed back further. Not only that, but the mortgage industry really needs to clean up the house to be able to attract the understandably skeptical investors back, because without them there isn't much to write home about.

The wounded mortgage industry has been working as best it can to pick itself up from the canvas, with massive support and guidance from the government. It has instituted many internal policy changes, on one hand, to correct the grave underwriting, mortgage-backed security and other mistakes made in the not too distant past. On the other, Washington has come up with its own legislative cures to prevent another spectacular mortgage and real estate collapse from creeping up on the country again. Despite the continuing uncertainty and weakness in housing, cautious optimism is also entering into the mix. Maybe the worst is over, or about to be over, many hope.

And then another unexpected lightning bolt strikes the still vulnerable home loan industry.

Evidently in their haste and lack of qualified staff - other valid reasons may come to light later - several large mortgage providers and loan servicers seemingly have signed off on foreclosures without bothering to read the documents. In essence, they have failed to carefully scrutinize them for accuracy before submitting them to courts. Borrowers are increasingly contesting their home repossessions because of this. If the process was flawed, the titles to the properties the banks received through foreclosure are smeared. While the courts are trying to untangle these challenges, in the meantime mortgage lenders can't sell their REOs - real estate owned - due to defective titles. It is possible many borrowers could get their homes back.

As a result, GMAC Mortgage - a division of Ally Financial - has stopped all evictions while it contemplates its next move. Similarly, JPMorgan Chase has requested courts to suspend foreclosure decisions for now. Bank of America has also held up foreclosures in 23 states while reviewing its documents. They - and predictably many others - are well aware of potential lawsuits and want to proceed cautiously. At this point several states - Florida, California, Iowa, North Carolina, Illinois, Connecticut and Texas - are investigating the matter. Conspicuously absent from the list are such hard-hit states like Nevada and Arizona. Logically speaking they have a load of mortgage borrowers whose homes were possibly repossessed under the faulty processes and should now be in the forefront in protecting their residents.

The worst of this could be that mortgage borrowers who lost their homes during this housing meltdown could challenge years later the repossessions. That puts a cloud on a title and the current owner, who probably purchased an attractively-priced foreclosure, say in Las Vegas, cannot now sell because of the defect. In fact, he likely isn't even the legal owner of the property at that point. Ownership rights normally surface during a title search when a property is under a sales contract. What a mess in the making. This could potentially blow up into a truly toxic situation for the mortgage lending and real estate industries desperately looking for more light at the end of the tunnel.

The current real estate meltdown has been a true testing ground for anyone involved in its devastating turbulence. Homeowners have watched helplessly as their property values have headed south with little resistance. Home loan providers have worked under pressure for years to stay afloat in choppy waters full of creepy icebergs and many other deadly maritime hazards. Real estate agents are fighting to secure deals in a marketplace shrunk to a flat pie on life support from a full-blown strawberry cheesecake. The support industries are in it as deep as anyone else.

Something intriguing that could be rather meaningful for many in housing is in the works right now. Namely, the U.S. House just introduced a bipartisan - yes bipartisan, for change - bill that would require mortgage providers to come up with an answer to short sale requests within 45 days. It's common knowledge that mortgage banks usually take their sweet old time in reaching a decision on them. Sometimes they can't even make up their minds at all, ever, no "yes" or "no" at all, just deafening silence or bureaucratic runarounds until participants just give up, throw up their arms in disgust.

Underwater - the mortgage balance is higher than the property's value - homeowners would be big beneficiaries here. They would be informed in 45 days whether a short sale will work or not and then make plans for their next move regardless of the answer. Now they often don't know anything for months and many finally just decide to walk away from the mortgage. Failed short sales are one of the main reasons to climbing walk-away numbers.

First-time home buyers as well as other purchasers would get a much faster response to their offers, helping them with their strategies. The attitude of scores of real estate agents would change for the better toward the frequently ridiculously lengthy and complicated short sale process. Actually, even the mortgage lenders themselves would come out ahead in this, as they would be forced to make a decision and move on.

The bill does have merit aplenty, and should be passed. Who says Washington can't introduce useful housing legislation? Since the private mortgage sector was unable to satisfactorily act on this, the oft-maligned government stepped up to the plate with a well-designed bill that would yield nice dividends for the entire housing industry. 

It appears relative calm has descended on the long-suffering housing market, especially when it comes to price movement. For months now home values have shown signs of stability, and even moderate increases in some areas. Real estate observers of course like to see that but are generally unconvinced that a sustainable real estate recovery is imminent. Too many hazards remain in its way, among them the still notable oversupply, a weak job market and the potential of many more mortgage walk-aways.

Yes, that walk-away - a term that has finessed its way into today's popular real estate vocabulary - where a homeowner who can afford to make his home loan payments chooses instead to take a hike due to being severely upside down. This is the standard definition of it.

Walk-aways represent 15-35% of present delinquencies, according to housing industry estimates. The range is wide because it is hard to really figure out who can afford to make the mortgage payments and who can't. But really, what does it matter; walk-away is a walk-away regardless of the mortgage borrower's finances.

As things stand, the mortgage walk-away trend is likely to shift into a higher gear for the foreseeable future. There are quite a few reasons why so. Any intermediate-term price appreciation will be modest at best, leaving people in the suffocating embrace of negative equity for much longer than they feel comfortable with. They understandably start thinking of their options. If prices backtrack some more - as some real estate experts confidently predict - the decision will be easy. HAMP and other private mortgage provider modification programs are helping to some degree in alleviating pressures on struggling homeowners, but many don't qualify. They see an alternative in walk-aways.

In addition, the shame that has been associated with mortgage foreclosures and walk-aways is gradually dissipating. More people are tackling their distress from a financial survival standpoint instead of what the prevailing moral obligation calls for. They are making decisions based on what's best for them and their families. This is also made easier as mortgage lenders now are increasingly being perceived as being responsible for the housing wreckage.

These developments inevitably point toward the mortgage walk-away problem getting worse from here on out. For how long is impossible to say. It is going to cause trouble, however, for any durable real estate market turnaround hopes.

The prevailing housing mess was for the most part caused by too many homes chasing too few buyers. That's a classic case - Economy 101 stuff on college campuses - of real estate supply and demand going their separate ways. A not just a tad, but by a mile, to put it mildly. Of course, easy mortgage money egged on the housing market to ever further heights that ultimately began defying gravity. Even that precarious stage lasted longer, despite a host of red flags being hoisted, than many real estate observers foresaw.

Moody's Investor Service recently reported that at the end of the second quarter there were an extra 1.8 million vacant homes idling on the vast real estate scene from the usual norm. An uptick from the first quarter's 1.7 million. Mortgage lenders are nowadays repossessing at an increasing pace property that homeowners could not get a modification for - like under HAMP or through their own home loan provider - and are being foreclosed on. Over the last 20 years vacant homes amounted on average to about 6% of the total housing inventory and now that number stands at 7.7%, Moody's continues.

As its own estimate for a better housing supply and demand alignment, Moody's believes an adequate balance will materialize by the end of 2012. Strict mortgage qualification criteria, thus far persistently high unemployment and less than stellar homebuyer credit background are issues that should improve by then, and help narrow the currently wide gap.

That may be true in areas where the real estate market experienced only mild blows, like kid gloves would do. Washington, D.C. metro fits well this picture. But regions that went through the tremendous housing acceleration and then a dizzying, G-force dive probably will take much longer to find a comfortable, workman-like balance. Las Vegas for sure heads the list in this category, and has uneasy company from many parts of California, Arizona and Florida. The notorious four.

One thing that would speed up the balancing process would be for home builders to curtail their current activity even more. For instance, they could cut in half the current production rate from whatever it is to quickly bring the supply side much closer to where demand is. This would pour new energy into the real estate market by propelling price appreciation and then also help boost the entire economy, jolting it out of the present lethargy. Washington has tried quite a few solutions to right the housing and mortgage markets and it ought to keep trying until it finds the real thing designed specifically for today's conditions. This might be worth taking a serious look at.

It looks like the Federal Housing Finance Agency - or FHFA - is getting ready to introduce new regulations later this year that would prevent Fannie Mae, Freddie Mac and the Federal Home Loan Banks - FHLBanks - from investing in mortgage loans tagged with these now notorious private transfer fees. This would then effectively bring major government-controlled home loan players in agreement about them, because FHA already is, according to HUD's regulations, banned from insuring mortgages on homes with private transfer fees. They are considered "legal restrictions on conveyance" in FHA talk.

These private transfer fees are brought to life by covenants attached to a deed that result in a payment to a third party every time a home is sold. The fee generally is 1% of the sales price and paid by the buyer, who may or may not know about it until he's sitting all excited at the closing table. Finding out about it typically elevates his blood pressure even further. Home builders are the ones who usually - but not always - would do this type of thing, giving them an additional, effortless revenue source for 99 years, the standard duration of the arrangement.

FHFA finds several problems with them. They hike home ownership costs up front, make property transfers more complicated and sometimes legally uncertain because regular title searches may not reveal their existence, particularly after multiple ownership changes. They can cause trouble elsewhere, too. Secondary mortgage market investors, lenders and title firms are vulnerable to possible hidden liens and title flaws.

The increased cost factor to home buyers and legal issues for mortgage industry participants are by themselves enough to cause concern. The other big issue is that the home builder who sets up the private fee structure does not provide any service or product to enable him to honestly earn the continuous stream of income. When it's finished with a subdivision, it's gone but would still collect for a long time money for free. Frankly, this seems to take us back to the creative instruments Wall Street not so long ago came up with that ultimately led to the current mortgage and real estate meltdown.

FHFA is on the right track to decisively curtail this from spreading any further. At the moment government entities control over 90% of the mortgage market, so its upcoming regulation will effectively put a stop to private transfer fees, for the good of consumers and the home loan and housing industries.

When major upheaval pummels a real estate market, it as a rule leads to home value depreciation. That's the easy part. The hard part is to try to put an actual number on the price reversal. A team led by the Massachusetts Institute of Technology, or more commonly MIT, recently conducted some deep research to determine how much a home's value deteriorates because of a foreclosure. The current housing and mortgage meltdown obviously got them thinking and they decided to dig up some realistic answers.

The group looked at 1.8 million real estate sales in Massachusetts spanning from 1987 all the way to 2009, which then includes data from the present housing collapse. After spending considerable time shifting through the massive amount of information in front of them they at last were comfortable in concluding that - on average - a foreclosure slices 27% off a home's value. That is a high number, and subject to some serious debate.

The same MIT team also studied other forced sales and their effect on real estate values. When the homeowner goes into bankruptcy, the property's value drops 3%. And when a homeowner death brings about a sale, the price sinks on average 5-7%. Clearly, a mortgage foreclosure has a much more profound impact on the underlying value than the other two.

The main reason to the wide separation between the different forced sales is the condition of the home. Homeowners sliding inevitably toward foreclosure will spend the money they still have on everyday necessities and not on property upkeep. That's stage one. Stage two is when mortgage lenders foreclose and then generally neglect their REOs - real estate owned - allowing properties to fall into further disrepair. There clearly are two forces here steadily gnawing on the property's value. In the other two instances neither one is prominently present.

As the MIT research proves, it would be to the mortgage providers' benefit to maintain their REOs to attract top dollar when selling. 27% shortfall should make them think again about proper maintenance. But that often is not the case in this current real estate downturn.

The recent oil spill has had a harsh impact on everything associated with the Gulf of Mexico and its alluring waters. One of the less-discussed issues, so far at least, has been residential real estate and how severely is it going to be affected. CoreLogic - a California analytics, business services and information boutique - has bravely ventured into the topic and has compiled some sobering numbers for everyone involved in housing to debate about.

Residential real estate values are supposed to wane in the coastal areas by $648 million for the first year and possibly rise to as high as $3 billion over five years, CoreLogic estimates. This is based on what has happened there to date, which is already quite a monster. Popular beach destinations string along from Mississippi and around the curve down Florida's west coast and hold something like 600,000 homes within 1,000 meters from the water.

CoreLogic's research is based on much-used techniques for forecasting environmental amenity values on coastal property on one side and then measuring adverse impacts on those values when a calamity like the Deepwater Horizon oil spill strikes, on the other. Like in this case, recreational use of the beaches is either limited or possibly completely restricted for a period. Buyers have paid nice premiums for homes on the water and now that extra expenditure is largely lost.

Moreover, should the already spilled oil somehow work its way around Florida and up its legendary east coast the cost would leap up to $28 billion through five years, CoreLogic reports. Florida's housing market is already on a super strong drip treatment and this would set it back even further.

Many who were planning to take advantage of today's low mortgage rates and purchase something around the Gulf of Mexico are predictably having second thoughts about that. Either they are going to wait and see or then look elsewhere, like further up the east coast, all across the Pacific shoreline and also give lakefront real estate a chance. These alternatives may experience a moderate upswing in activity in the coming months.

If the oil in the Gulf is cleaned up rather quickly and unhindered beach access is restored throughout it could lessen the expected amenity value erosion. Even so, the memories surrounding the events from the rig's explosion and demise to the inaccurate oil flow reports and the economic loss to the seafood industry and to the struggles of wildlife will long linger in everyone's mind. There are hundreds of oil rigs operating in the Gulf and their presence could harm potential buyers' trust that their coastal property investment is safe from another calamity.

Photo by divemasterking2000

Fannie Mae recently took an assertive step, in its own mind at least, to stem the growing tendency of mortgage borrowers pulling off strategic defaults. In that homeowners who could afford their payments choose to walk away from the obligation anyway. The GSE went ahead and added another category to the new policy. Home loan recipients who fail to do a workout in good faith also fall under the spell of its new guidelines. What this all means is that property owners fitting these parameters would be ineligible for mortgages backed by Fannie Mae for seven long years from the recorded foreclosure date.

Strategic default entered the already crowded mortgage and real estate vocabulary just recently when the ever thinner-skinned housing bubble couldn't hold on any more worthless air and popped. The event sent property values on a long skid toward the beckoning abyss and in the process wiped out equity in numbers not seen in modern times. Eventually home prices sank below the underlying mortgage balances and to the utter horror of observant homeowners just kept on going down, spawning the unpleasant designation for the phenomenon; underwater. And those underwater on their mortgages are prime candidates for a strategic default.

Right now Fannie Mae controls a decent chunk of the mortgage market and that gives its policy adjustment some teeth. Yet, as government-affiliated home loan providers today just about completely dominate the housing finance arena, no one else has thus far followed suit. Freddie Mac and FHA are the other major performers and predictably will then attract with their less restrictive rules much of the business Fannie Mae will be turning away.  

The private home loan sector is still struggling to rise from the ashes, but when they do so Fannie Mae's policy is bound to lose even more of its bite. Mortgage applicants - with strategic default/ foreclosure on their record - with down payment funds and solid income will be shopping for the best deal and private mortgage lenders with their innovative minds are certainly going to find a way to accommodate this specialty slice of the real estate market pie.

As things stand, Fannie Mae's policy change seems to hold minimal deterrence power for homeowners contemplating to go for the now notorious strategic default. People simply have too many options besides Fannie Mae to look at.

Home Affordable Modification Program, or more commonly HAMP, was rolled out to allow mortgage lenders and servicers to make available trial modifications to an estimated 3 to 4 million homeowners.When Treasury announced its birth it raised hopes among not only mortgage borrowers in trouble but also government officials who frantically tried to bring the collapsing housing market back to its feet and with that give the badly-mauled banking sector something more concrete to lean on. But things haven't turned out all that well with HAMP.

At least that's what SIGTARP says. SIGTARP is another wonderful acronym - among so many - that has risen to fame on the heels of the memorable finance and real estate crash and stands for Special Inspector General for Troubled Asset Relief Program. That's a long one. In short, he is - could be a she too - tasked to monitor the government's massive struggle to bring reasonable order to the shaky national banking system and the besieged housing realm.

SIGTARP refers to the 389,198 permanent mortgage modifications HAMP has thus far managed to generate, as was recently reported by Treasury.This of course is far less than what the original plan of at least doing 3 million of them called for. One thing is that HAMP is an ongoing process and perhaps when it's all said and done that plateau can be reached. But, frankly, it probably won't happen.

For one, due to high mortgage redefault rates under HAMP underwriting guidelines have been tightened leading to scores of cancelled trial and permanent modifications.It is greatly lowering the potential candidate pool. Short sales are making serious inroads as a viable option for many struggling home loan recipients. Doing a HAMP requires a lot of paperwork and patience and many are willing to take their chances with short sales.

The underwater menace seems to come into play with HAMP, too.Its malicious impact is somehow going to touch all corners of the housing enterprise. When a homeowner is sufficiently underwater he can be essentially convinced that making those lower HAMP payments for years on end still won't pull him out of the negative equity hole anytime soon, so he clearly has little incentive to apply for HAMP. Lower payments are great, but where is the equity? After careful consideration many choose to just simply walk away from their mortgages.

Besides, mortgage lenders generally haven't been all that enthused, for one reason or another, about putting their arms around the program either.HAMP appears to have suffered from clearly-defined goals, as SIGTARP claims, but also from rapidly shifting real estate market conditions. With more assertive administration Treasury could have streamlined its direction and possibly been more efficient in the use of taxpayers' money.  

Real estate market observers have mixed feelings about RealtyTrac's Midyear 2010 Foreclosure Report. It says that 1,654,634 homeowners were sent at least one mortgage foreclosure filing from January through June. That translates to over 3,000,000 by the end of the year and RealtyTrac forecasts that over 1 million of them will eventually become repossessions, or REOs - real estate owned. The number by itself is of course alarming, but the current six month number actually is a drop of 5% from the second half of last year. Ordinarily in any housing enterprise that would be something to feel upbeat about.

On closer look the home loan picture isn't all sweet grapes and chocolate treats after all. Mortgage lenders and servicers have lately changed course to give a short sale a chance to work before filing foreclosure notices. The government has aggressively promoted its mortgage loan modification programs that have had a preventive impact despite the private sector's reluctance to get fully engaged. Yet, these initiatives have been a disappointment when measured by their originally announced goals. Moreover, mortgage lenders often are disorganized and undermanned to handle the torrent of foreclosures and their workforces seem to lack the necessary training to be effective, therefore foreclosure action can be delayed for months.

These factors have shifted the emphasis away from mortgage foreclosure statistics and are obviously responsible for the 5% decrease. In the meantime distressed properties continue to saturate unabated the landscape from Las Vegas to the shores of Florida. A great many are underwater and are hard-pressed to find any meaningful relief in the near future. The job situation is slowly improving at least in some regions but still isn't strong enough to decisively begin lifting struggling homeowners to their feet.

Nevada maintains the dubious top spot on the list of most foreclosure filings with almost 6% of all households receiving one at the midyear mark. In pure numbers that is 64,429 homes, a bunch really. Arizona came in second with 3.36%, followed by Florida at 3.15%. California registered a score of 2.54%, rounding out the four states that have been dominating this difficult statistic from the beginning of this historic real estate collapse.

The underwater problem will likely be a drag on the housing market for longer than anyone can imagine. But, there appears to be one relatively fast cure for it should the decision makers in Washington - like the Fed and Treasury - have the backbone and political support to give it a try. It's called inflation. With a steady dose of that often-ridiculed medicine home prices ought to begin tip-toeing upward, preferably at a controlled pace. In time it would pull homeowners out of the abyss and give them real equity again that would make them feel better about a lot of things. In addition, banks and investors now smelling the offensive odor wafting from their mortgage portfolios would see a gradual change to that downright embarrassment. Just an idea.

Photo of the Fed by stantoncady

Las Vegas homeowners and real estate observers have been looking for clear direction the local housing market could be happy about but it's refusing to cooperate. It seems to have settled on a typically erratic path that markets display when they reach the bottom on a downward cycle - or are very near it -  and just can't decide how to shake the gloominess off and embark on a climb out for better days. Last month's real estate statistics reflect that rather well.

GLVAR, or Greater Las Vegas Association of Realtors, recounts for its rapt audience that 3,360 resale homes were closed in June, a nice 16.5% uptick from May. That reverses two consecutive months of modest declines. However, it's about an 11% drop from June of 2009, a cause for some concern.

Las Vegas homeowners are carefully monitoring price movement that has been so negatively aggressive in the valley, dragging scores of them underwater, an occasion where property value dips below the underlying mortgage balance. The median price in June parked at $140,000, a $2,000 retreat from May, and the same as it was in May of 2009. For now it appears that prices have stabilized, giving the disappointed Sin City homeowners some hope of sunnier days ahead.

The worrisome trend now is the single-family house inventory. It has been on a constant, although gradual, ascent for several months, topping off at 21,361 in June. It could well be that this will go on another few months as mortgage lenders release more foreclosed homes on the market, or agree to do short sales.

Talking about mortgage foreclosures, their share of total sales in Southern Nevada has steadily declined in recent months to 38%. Gone down, but still a scary figure. On the other hand, short sales have grabbed an ever larger chunk of closings, reaching 34% in June, reports GLVAR, indicating that mortgage lender preference is shifting over to the short sale. So, 72% of all existing home sales are labeled distressed, an unheard of situation that obviously will take some time to untangle. It simply points out how out of balance the once-booming residential real estate arena in Vegas nowadays is.  

The real estate market meltdown has exposed many painful and game-changing weaknesses in how business was conducted in the years past. In the quest to make as much money as possible scores of mortgage files were pushed through with incomplete or doctored information. Now, with foreclosures the topic of the day, mortgage lenders are receiving growing demands from investors like Fannie Mae and Freddie Mac to buy back loans they originated haphazardly. That can be devastating to the bottom line.

To deal with the costly buyback menace many mortgage shops have commenced tinkering with appraisals, of all things. As an appraisal comes in some home loan providers will run an electronic valuation model based on public records - it involves no actual physical inspection - to see how close the two numbers are. They are double checking on the appraiser's work, is what they are doing. If the appraiser's report is higher the underwriter can randomly cut back on the value, so that the lender can't be blamed for using inflated figures should the loan go bad. Of course, many a deal has blown up into many little pieces as a result. This likely happens more in the hard-hit areas - Las Vegas comes to mind, as does Arizona, California and Florida - where values have eroded the most and where all the mortgage foreclosures and short sales can seriously trample with the price structure.

Mortgage brokers, real estate agents and builders are howling injustice at such a practice. Home buyers and sellers whose transactions disintegrate don't know whether to cry or laugh. Part of the housing market has indeed turned into an unpredictable mystery.

But things are about to change for the better. Fannie Mae is tackling the electrifying issue head on. The GSE will not accept mortgages where the appraisal numbers have been altered, the policy going into effect September 1, 2010. It requires home loan providers to get in touch with appraisers to work out any disputes over values. If plan B is needed, a second appraisal should be ordered.

The housing industry is raving about Fannie Mae's decision. Despite having withstood some genuinely tough times during this real estate chaos the GSE can still manufacture sensible policies. It can only strengthen its position as a key element in the mortgage marketplace. It wouldn't be a big surprise if Freddie Mac followed suit in the near future.

The housing collapse has been particularly brutal to home builders. It's hard to market new houses regardless of the latest features when similar resale property is selling for 20-40% less. The usual incentives, like kitchen or flooring upgrades, have very little impact when the price difference reaches, say, to $50,000, and often much higher than that. The gaps are especially wide in badly-mauled cities like Las Vegas and many areas in Arizona, California and Florida. Inviting mortgage rates are available to all buyers, so no help there either.

In order to generate more interest in their products residential real estate developers have been frantically searching for ideas that would give them a chance against the low-priced mortgage foreclosure and short sale properties littering neighborhoods across the land. Several have put their arms around the green home, a concept that was making some progress over the past decade but then was largely tripped by the housing meltdown.

KB Home is heavily using Energy Star features in its homes, including energy-efficient cooling, heating and ventilation equipment as well as appliances. Beazer has the eSmart Green program that also builds homes to Energy Star standards. As an option it offers the SolarLease^TM program in Phoenix that comes with an integrated solar power system, bypassing the pricey upfront installation costs. 

Meritage Homes takes all this to another level. The builder offers as standard an array of green magnets at its new subdivision in Gilbert, AZ. In addition to the regular ones like high-performance windows and spray foam insulation each home comes with a solar system and weather sensing irrigation. All this can save the homeowner up to 80% in utility bills, according to the builder. Meritage snapped up last year land for the project at a deflated price that allows it to throw in these features and still stay competitive with the existing real estate market.

It's too early to tell how in this trying real estate market of record-low mortgage interest rates and ample supply the resurrected eco product will fare. The home buyer remains largely in a holding pattern with great concern about the overall economy and therefore might be hard to convince to apply for a home loan to make a purchase. If anything, this nascent trend should give the green housing advocates something to cheer about.

The housing industry is relying heavily on government-backed mortgage organizations like Fannie Mae, Freddie Mac and FHA for supplying financing to home buyers, filling a gaping void left by the private home loan sector still applying remedial salve to its festering wounds. Without them the real estate arena would be uniquely anemic. And the government is slowly gaining even more control over housing in a different but quite influential capacity, whether it likes it or not.

As mortgage foreclosures keep steadily spilling onto the ravaged real estate market, GSEs - Fannie Mae's and Freddie Mac's official designation - and its federal cousins like FHA and VA pick up repossessed homes by the thousands. Radar Logic - a real estate research boutique - reports that the government now holds about 46% of all U.S. REO inventory, a large share that has been continually growing over the past several years.

What's alarming is that it's going to increase from there for the foreseeable future. 2.3 million homeowners are currently 30-90 days behind on their mortgages, as Zillow and Lender Processing Services have figured out. Radar Logic calculates that 69% of these home loans are guaranteed or owned by the various government agencies. The situation is worse than that, though. About 5 million mortgage borrowers are either 90 days past due or are already in the foreclosure pipeline. The Treasury reports that 56% of these are in some shape or form under the government's umbrella. Radar Logic estimates that roughly 35% of mortgages in these two categories will avoid foreclosure via modification efforts or short sales.

Nevertheless, when everything is tallied up nearly 3 million homes will soon be in the government's REO inventory, Radar Logic says, pushing up its percentage share quite a bit.

If Washington puts the entire inventory as it becomes available for sale, real estate prices that have lately shown some stability will certainly weaken again. That will predictably swing the nascent housing turnaround in reverse. Also, selling in this soft real estate market will bring more losses that will ultimately turn into the taxpayer's responsibility. These choices are so unappealing. What other options are there? Renting them out until the housing market recovers and then later on sell them to at least break even, might be one answer. That is exactly what many investors are doing today, especially in worst-hit areas like Las Vegas and Phoenix. The operative word for them is hold. Be patient.

The government is not in the house leasing business but in this dire and unusual situation it might be wise to seek solutions outside the box.

As the housing sector kept sucking for more oxygen, Washington announced back in February the Hardest Hit Fund worth $1.5 billion that was designed to help states in serious housing peril and asked them at the time, as a condition to get a slice of the money, to submit creative programs that would lend a hand to homeowners struggling with mortgage payments. The plans from Arizona, California, Florida, Michigan and Nevada have now been okayed by the Treasury and the assigned funds are ready to begin flowing to the states' Housing Finance Agencies, or HFA, tasked to administer their use.

California drew the largest share at $699.6 million, Florida got $418 million, Michigan $154.5 million, Arizona $125.1 million and Nevada $102.8 million. Apparently the split was based largely on population size, which certainly is one way to do it.

A fairer method might have been to look at the current mortgage foreclosure rate in each state, in which case Nevada - with Las Vegas as its much-pummeled real estate meltdown epicenter - would have picked up a bigger portion of the proceeds. Negative equity measure, or being underwater, would be another metric that could have been used here. Again, Nevada would have ranked right up there for more funds than what it now received.

Each state presented its own innovative program for mortgage borrower relief, but a few predictable items appear on everyone's list. The most prevalent one is principal reduction, something that all address in a variety of ways. It clearly is the key in any plan, government or private, to stabilize housing markets from Florida to Nevada and beyond. The Obama Administration is putting increasing emphasis on it, but its actions need more support from mortgage lenders who so far have been reluctant to do much about it.

Unemployed homeowners get help to meet their mortgage obligations while looking for work is another popular feature. As is the assistance to handle the complexities of a second mortgage that may be hindering loan modification or any other real estate transaction, like a short sale.

Hardest Hit Fund will have a second phase later this year, covering the next tier of states lured into the now infamous mortgage and real estate backwater. It will bring some relief to a still festering housing situation, but for a real impact to be achieved the private sector needs to step up to the plate with a hot bat.

Subprime home loans became a noteworthy ingredient in the recent real estate frenzy. Large pools of them were sold on the secondary mortgage market as RMBS, or residential mortgage-backed securities, to supply additional liquidity for more loans. When the air suddenly escaped from the tremendous housing bubble the first mortgage product to absorb its swift and devastating effects was the subprime kind, leaving scores of investors wondering what had whacked them.

Moody's Investors Service details that subprime RMBS issued from 2005 to 2008 reached a delinquency level of 54.4% in January of 2010, an all-time high. From there on, though, the rate has been steadily falling, settling at 51.5% in April, a moderate improvement. But it had been climbing continuously for years since the real estate market's collapse, so a change downward, even if slow, is desirable news. In short, subprime mortgage borrowers are bringing their loans current at an increasing rate. Everybody likes to see that.

According to Moody's research HAMP, or Home Affordable Modification Program, has been a major contributor to this. HAMP has received sometimes loud criticism for its lack of bite, but Moody's numbers appear to show otherwise. In January 117,302 trial modifications were converted into active permanent ones and then in April the same happened to 299,092 of them. That's real progress.

Re-defaults are still a problem, however. Moody's estimates that 50-70% of permanent mortgage loan modifications will do so, thanks to the underwater, or negative equity, dynamic affecting so many states. Worst-mauled areas like Las Vegas and Phoenix are extremely ripe here. The emphasis now from the government is to get home loan lenders and servicers to lower principal for borrowers, a task that has been tough in the past and probably will stay so.

It seems that HAMP needed quite a bit of time to get in gear and now it's cruising along under full power and is showing some encouraging results.

Washington has already come up with some unusual and at times confusing legislation during this enduring housing collapse to correct perceived deficiencies. HVCC – the Home Valuation Code of Conduct – addressing the alleged appraisal problems of the recent past is one. The new RESPA – Real Estate Settlement and Procedures Act – is another that has led to many complaints and questions from the mortgage and real estate industries and puzzles the consumer as well. More of the same could be forthcoming.

House Republicans presented a surprise rider at the end of an FHA-related debate the other day that would prohibit mortgage borrowers who engineer a strategic default while still able to make payments from getting any future government-sponsored loans. Basically meaning FHA, VA, Fannie Mae and Freddie Mac. This proposal passed on a voice vote without any dissent probably because everybody was in a hurry to exit town for the weekend.

What is bothersome about this idea is that it would single out mortgage recipients for supposedly being morally wrong and for that they shouldn’t be allowed to enjoy any government benefits. Businesses, including mortgage lenders, constantly pull off strategic defaults when it’s in their best economic interest and no one waves a red flag saying it’s misguided. Some of the biggest mortgage banks just got bailed out, for starters. They also find tax breaks and other government support very useful. To be fair about this, companies then should face the same restrictions upon strategic default as homeowners do.

Wall Street’s greasy fingerprints appear to be all over this strategic mortgage default provision. They are seemingly becoming more common as the real estate meltdown lingers on and the home loan banking interests want to send a warning signal to homeowners who are toying with the idea. Really bad things will happen should they do it.

But the whole thing reeks of a double standard. What’s good for a company should go for an underwater homeowner as well. Fortunately the idea is just taking its first baby steps and once people read the details and find out what it really means it may not go very far. Enforcement alone would be a chore. Besides, it also needs to pass the Senate.

Southern Nevada real estate statistics continue on an unsteady path, as they’ve been for the past several months. One sector could show a bit of sunshine peeking through while anther struggles with a curve heading in the wrong direction. But anyhow, let’s go right to the cold, hard numbers.

The median price for a single-family house came in at $142,000 for May which equals the figure for the previous month, so reported GLVAR, or Greater Las Vegas Association of Realtors. When placed side by side with May of 2009 it’s up 1.4%, a tentative improvement but nothing much to trade hugs and kisses over. Nevertheless, the real estate values are holding on at least for now while talk about the ominous housing double-dip on a national scale is gathering momentum.

In addition, GLVAR bravely informs that 2,884 single-family houses were closed in May, signaling a 2.3% drop from April and a second consecutive monthly deficit this year. It certainly is a concern. And more so when the decline of 11.4% from May of 2009 is reluctantly hustled into focus. Those who have been quietly praying for an impending real estate turnaround in Vegas should scale back their anticipation. It isn’t over until the fat lady sings.

Single-family house inventory has been on a slow but steady climb for six months. In May it reached 21,143 units, 263 higher than in April. A marginal amount really, however when month after month small increases are added up they’ll materialize into real numbers that’ll make a difference. For comparison’s sake with last year this time, the listings inched unimpressively lower by 0.2%.

Las Vegas valley – featuring subdivisions and towns like Summerlin, Mountains Edge, Silverstone Ranch, Anthem, Henderson and Green Valley Ranch – existing real estate market is at best muddling along. Mortgage brokers and lenders are offering inexpensive financing to borrowers, which is one of the great positives in this otherwise tight underwriting era. But it alone obviously isn’t enough to spur more sales than this. Like someone said a while back, “It’s the economy, stupid!” With that in mind, everybody be patient.