Strategic Defaults on Mortgages are Rising

Some homeowners believe that lenders are failing to pursue those who default on their mortgages, which creates a risk that a growing number of homeowners will walk away from their homes even if they can afford monthly payments, states a Housing Wire article.

The researchers found that the number of homeowners willing to default when the value of a mortgage exceeds the value of their house, even if they can afford to pay their mortgage, dramatically increased compared to just a year ago. The percentage of foreclosures that were perceived to be strategic was 31 percent in March 2010, compared to 22 percent in March 2009.

One likely reason for this growing trend is the increasing perception that lenders are not going after borrowers who walk away. In December 2009, the average homeowners surveyed said the probability that a lender will go after a borrower is 56 percent, as compared to 54 percent reported in March 2010.

The growing importance of strategic defaults is in line with the recent Obama administration’s new set of housing initiatives.

The Wall Street Journal also reported that, more homeowners are willing to walk away from their homes voluntarily, according to new research released by the University of Chicago and Northwestern University. About 31% of foreclosures in March were considered “strategic defaults,” in which homeowners walk away when the value of a mortgage exceeds the house value — even if they can afford the mortgage. That’s up from 22% in March 2009.

The results also indicate that the likelihood of strategic default increases by 23 percent when homeowners learn that their neighbor with negative equity has received a partial loan for forgiveness. Additionally, strategic default increases by 29 percent if homeowners are able to find an alternate way to finance a new home.

“A key deterrent to strategic default is the fear of losing a good credit score,” said Zingales. “Approximately 74 percent of homeowners in our survey believe it is very important to maintain good credit and this can be a factor in encouraging them not to walk away,” states an article in Financial Trust Index.

Las Vegas Short Sale Program Allows Prospective Owner-occupants First Right to a Short Sale

A BLURY VISION OF HOPE
A pilot program from Fannie Mae could help level the playing field between cash-laden investors and owner-occupants bidding on low-priced foreclosure homes in Las Vegas, the president of a real estate organization said Thursday.

Fannie Mae is extending the “First Look” grace period in Nevada from 15 days to 30 days effective Monday. That gives buyers who plan to make the home their primary residence first shot at purchasing a foreclosure within 30 days of its listing states an article in the Las Vegas Review Journal.

This article illustrates how Las Vegas is leading the country in trial programs. All-cash, owner-occupant purchases will require certification as an addition to the Fannie Mae purchase addendum. Properties that go to contract before the end of the 30-day period and subsequently fall through will be relisted with a new 15-day marketing period. See Housing Wire.

First Look will help get more owner-occupants into Fannie Mae foreclosure homes, which make up the bulk of the market in Las Vegas, Realtor Steve Hawks said. Banks are not committed to taking the first offer and have certain rules to follow as third-party loan servicers, said Jumana Bauwens, spokeswoman for Bank of America in Los Angeles.

Development is also occuring in Las Vegas states an article in the Las Vegas Sun. Local newspapers are discussing both sides of the real estate market. Developer Jim Rhodes owes Clark County two years of property taxes, totaling $490,000, on his Blue Diamond acreage, where he wants to build homes over the objections of environmentalists and residents.

Las Vegas Home Sales Yo Yo Up

Las Vegas region home sales rose last month to the highest level for a March in four years as buyers took advantage of soon-to-expire tax credits and low home prices and mortgage rates. The median sale price inched up from February and declined from the year-ago level by the smallest amount since October 2007, thanks mainly to an uptick in transactions over $200,000 and a decrease in foreclosure resales, a real estate information service reported DQ News and Nuwire.

The press shows the fluctuations in the Las Vegas real estate market. Foreclosure resales – homes that had been foreclosed on in the prior 12 months – fell to 55.5 percent of all resales in March, down from 59.6 percent in February and down from 73.1 percent a year ago, according to MDA DataQuick of San Diego. The firm tracks real estate trends nationally via public property records.

Foreclosure resales peaked in April 2009 at 73.7 percent of all resales. They’ve declined each month since then. Last month’s figure was the lowest since foreclosure resales were 54.7 percent of the resale market in May 2008.

A total of 4,328 new and resale houses and condos closed escrow in the Las Vegas-Paradise metro area (Clark County) last month, up 31.9 percent from February and up 12.7 percent from a year earlier. A rise in sales between February and March is normal for the season, with the gain averaging 29.1 percent since 1994, when DataQuick’s complete Las Vegas region stats begin.

Again, articles report a stabilizing of the market. March’s sales total was the highest for that month since March 2006, when 8,486 homes sold, and it was 0.8 percent lower than the average March sales tally back to 1994. Last month marked the 19th in a row in which total sales rose on a year-over-year basis.

The median price paid for all new and resale houses and condos sold in the Las Vegas metro area in March was $130,000, up 3.0 percent from $126,197 in February but down 10.3 percent from $144,900 a year earlier. The year-over-year decline was the smallest since October 2007, when the median dropped 9.2 percent from a year earlier, to $279,790.

The overall median sale price has fallen on a year-over-year basis for 35 consecutive months and in March stood 58.3 percent below the peak $312,000 median in November 2006.

The median price paid for resale single-family detached houses – by far the region’s largest home-type category – was $135,000, up from $133,800 in February but down 8.8 percent from $148,000 a year ago – the smallest annual decline since September 2007. The March median was 56.8 percent lower than the peak $312,250 median in June 2006.

Las Vegas posts nation’s highest metropolitan foreclosure rate

Las Vegas continued to post the nation’s highest metropolitan foreclosure rate during the first quarter according to the Las Vegas Sun.

California-based RealtyTrac said one in 28 housing units received a foreclosure filing in the first quarter, nearly five times the national average.

A total of 28,480 Las Vegas housing units received a foreclosure filing during the quarter, an increase of 13 percent from the fourth quarter of 2009. The filings are 19 percent below the first quarter of 2009, when a self-imposed moratorium was in place among lenders.

Las Vegas was ranked No. 1 in the nation in 2009. In the state category, Nevada has been ranked No. 1 since January 2007.

Will Arizona’s Strict Immigration Law Increase Migration Into Nevada?

¡PURA VIDA TICA!
The Arizona governor just signed a bill requiring local law enforcement to question a person if the officer reasonably believes the person is in the state illegally. It is estimated that 400,000 people reside illegally in Arizona. That new law gives some of those people an incentive to move to Nevada.

SB 1070, has several provisions. It requires the police “when practicable” to detain people they reasonably suspect are in the country without authorization and verify their status with federal officials, unless doing so would hinder an investigation or emergency medical treatment. It also makes it a state crime, a misdemeanor, to fail to carry immigration papers. To thwart the common practice of hiring day laborers at street corners and roadsides, it makes it a crime to do so if it interferes with traffic. It also allows people to sue local governments or agencies if they are failing to enforce federal or state immigration law.

Interstate migration is governed by a “push-pull” process; that is, unfavorable conditions in one place (oppressive laws, heavy taxation, etc.) “push” people out, and favorable conditions in an external location “pull” them out. Under that theory, some of those immigrants will move to Nevada which has much more lenient immigration laws. Others who originally intended to migrate from Latin America to Arizona may choose Nevada instead.

Immigration provides America with legions of unofficial ambassadors, deal-brokers, recruiters and boosters. America has by far the world’s largest stock of immigrants, including significant numbers from just about every country on earth. Most assimilate quickly, but few sever all ties with their former homelands.

All of which makes the task of fixing America’s cumbersome immigration rules rather urgent. With unemployment still at nearly 10%, few politicians are brave enough to be seen encouraging foreigners to compete for American jobs.

The Nevada Race for the Senate

VOTE FOR NEVADA
MIGHT the Republicans seize the Senate from the Democrats in November’s mid-term elections? It looks a tremendously long shot; at present the Democrats control 59 of the 100 seats, and even the most optimistic list of probable and possible pick-ups sees the Republicans adding at most only eight of the ten seats they would need for control. A 50-50 split would favour the Democrats, because in that case the vice-president, Joe Biden, would hold a casting vote states the Economist.

But the Republicans are hoping to get most of the way there; and they are hoping, above all, to inflict a deep humiliation on the Democrats by toppling one of the chief architects of Barack Obama’s proud victory in reforming health care. Harry Reid, the leader of the Senate’s Democrats, makes up, along with Mr Obama himself and the speaker of the House, Nancy Pelosi, the three-headed leadership of the Democrats in Washington. And he faces the battle of his life as he seeks a fifth six-year Senate term.

All the opinion polls suggest that Mr Reid is in deep trouble in his home state of Nevada. Granted, the western desert state has not exactly been besieged by the pollsters. But Pollster.com, a leading psephological website, lists no fewer than 12 polls so far this year in which voters were asked to choose between Mr Reid and his most probable Republican challenger, Sue Lowden. (The Nevada primaries are not until June 8th, but most analysts reckon Mrs Lowden is a shoo-in, while Mr Reid is so far running unopposed.) Every one of them gave Mrs Lowden the edge, mostly by double digits. Realclearpolitics.com says its weighted average (which emphasises the most recent results) has Mrs Lowden up by 11 percentage points.

Of course, it is still early days. Mr Reid, most obviously, has not yet started to spend much of the gigantic war-chest he has assembled. This amounts already to over $9m, and David Damore, a political scientist at the University of Nevada, Las Vegas, reckons that by the time of the election Mr Reid will have been able to count on as much as $25m or so, thanks to his ability to raise money on a national scale.

Unlike Mrs Lowden, he will not have to spend any of it fending off a primary challenger from his own party. Mrs Lowden is up against Danny Tarkanian, a former basketball star who is getting a lot of backing from Nevada’s “tea-party” conservatives. Since there are only 2.6m people in Nevada, and they are overwhelmingly concentrated in and around Las Vegas, Mr Reid’s $25m will go a long way.

Mrs Lowden, by contrast, needs to spend a lot of money that she does not have just getting herself known. She is not exactly a nonentity, having served as a state senator for the Clark County area (which includes the Las Vegas Strip, with most of the big casinos and hotels) in the 1990s. She was once a Miss America runner-up, and is now a fairly prominent businesswoman in the gaming world. But she obviously cannot compete with Mr Reid on name recognition.

Recognition, though, for what? The Republicans’ hopes rest on blaming Mr Reid for failing to help Nevada dig its way out of the mess it is in. Apart from Michigan, home to Detroit’s big three carmakers, no state has been so hard hit by the recession. Nevada’s unemployment rate is running at 13.4%, against a national average of 9.7%, and you only need to walk the length of the Las Vegas Strip to see why.

The giant steel skeletons of mothballed megahotels and luxury condominium towers blight one of the world’s most famous skylines, testimony to the transmutation of the most spectacular boom in the gambling city’s history into its most painful bust. The north end of the strip, where work on the Echelon and the Fontainebleau hotels has halted, feels especially desolate, and casts a pall of gloom around other nearby properties.

For a state whose prosperity has been built on construction and tourism, the downturn has been savage. Hotel-occupancy rates are running at just over 80%, which sounds good until you realise that in 2007, the last year before the recession started to hit, they averaged over 90%. And in 2007, the average room rate was around $130; now it is running at under $90, as hotels have slashed their rates to keep business moving. About the only bright spot comes from the gold industry; Nevada is one of the world’s largest producers, and gold has been trading at record highs. Unfortunately for the state’s finances, which involve a budget gap of close to $1 billion, state law exempts mines from almost any taxes.

Is it fair to blame Mr Reid for any of this? The unrestrained boom that led to the bust happened during the Bush years, of course; but Mr Reid does, oddly enough, stand guilty of having failed to bring much in the way of bacon home from Washington now that help is sorely needed. Nevada gets less money per inhabitant from the federal government than any state bar Utah. Robert Uithoven, who is advising Mrs Lowden, notes that it gets only about 65 cents back for every dollar it sends to Washington in the form of federal taxes. In part, this is because Nevada is a lean state, and does not like putting up the matching funds many federal programmes require.

Mr Obama is doing his bit to help. In February Mr Reid was able to boast that he had helped persuade the administration to stop a deeply unpopular proposed nuclear-waste storage facility at Yucca Mountain in southern Nevada before it has received even a single barrel of spent fuel. But when people are suffering, they tend to blame incumbents. And they don’t come much more incumbent than Mr Reid.

Homeowners who have done short sales will qualify for a new mortgage in two years.

Here’s some good news for people who had to give the deed on their house back to the bank because of financial problems, or who have done a short sale to avoid foreclosure: You may not have to wait the typical four or five years to re-qualify for financing to buy another home.

Instead, it could be as little as two years. In a bulletin to lenders April 14, mortgage giant Fannie Mae said it is relaxing rules that prevented loan applicants who have participated in short sales or deeds in lieu of foreclosure from obtaining a new mortgage for extended periods of time. The new rules are scheduled to take effect July 1.

Homeowners who have done short sales — such as under the Obama administration’s new Home Affordable Foreclosure Alternatives program — will also be able to qualify for a mortgage in as little as two years. Although Fannie Mae officials declined to discuss the reasoning behind the changes, the bulletin to lenders said the company hopes to encourage troubled borrowers to work out solutions that avoid the heavy costs of foreclosure.

Fannie’s new standards come with some noteworthy fine print, however. To qualify for a new loan in the minimum two years, most borrowers will need to come up with down payments of at least 20 percent. If they can scrape together only 10 percent for a down payment, the wait will revert to the four-year minimum. And if their down payments are less than 10 percent, the wait could be even longer.

On the other hand, if borrowers can demonstrate that their mortgage problems were directly attributable to “extenuating circumstances” — such as loss of employment, medical expenses or divorce — they might be able to qualify for new loans with minimum down payments of 10 percent in just two years.

Analyst forecasts fewer Las Vegas foreclosures

LAS VEGAS IS MAKING PROGRESS BUT NOT YET FINISHED
The statistics are stacked against Las Vegas: highest foreclosure rate in the nation, 80 percent of homeowners “underwater” on their mortgage, half of homes with 25 percent or more negative equity, 16 percent of homeowners delinquent on their mortgage, 13.8 percent unemployment states the Las Vegas Review Journal.

The news coming from local outlets shows how the market is suffering from fits and starts. Housing Wire. On the otherhand, he’s revising his foreclosure predictions downward.

“We had 25,000 last year, and I said we’d probably have the same amount this year,” Murphy said at his quarterly Crystal Ball presentation at the Suncoast. “We probably won’t see 25,000. We probably won’t see 20,000. We might only see 15,000 foreclosures in 2010.”