Federal bank regulators this month have called on lenders to use caution when making the loans by basing decisions on borrower's ability to repay loans at the full and final rate instead of a lower teaser rate.

The reasons behind the problems are flat home prices and rising adjustable rates, which are impacting those who bought in the last 24 months, Burns said. The subprime loans tend to reset after two years versus three for other loans and those borrowers are more likely to default, he said.

"The primary housing market will have significantly more stress 12 months from now than it has today unless mortgage rates fall dramatically or home price appreciation returns," Burns said of the nation's housing market.

An adjustable-rate loan made in early 2005 will result in a 30 percent increase in a borrower's mortgage payment, and the value of their home may have declined since they bought it, Burns said.

When he spoke at a housing conference last month in Las Vegas, Burns said he expected sales in the Las Vegas new-home market to stabilize by the end of 2007, essentially starting its recovery. But he said builders in satellite communities in Southern Nevada and Northern Arizona are affected more by the market's housing slowdown than subdivisions closer to the metropolitan area.

The problems in the subprime lending market make it more difficult for builders to sell homes to those with marginal credit histories, Burns said.

"The builders who are getting hurt the most today are the ones who are primarily selling entry-level homes on the outskirts of metropolitan areas,'' Burns said.

Mortgage industry view: Steve Schauer, president of National Lenders Service, a local mortgage broker, said that what's happening with subprime loans, however, can be good for the real estate industry in the long term.

There's quite a shake-up in the mortgage industry with several major companies closing nationwide and others tightening up their guidelines for mortgage loans. The problems for those lenders are the one-time buyers of risky loans on Wall Street are no longer purchasing them on the secondary market, Schauer said.

There's going to be problems when people who had low credit scores of below 600 and didn't have income verified were getting 100 percent loans with adjustable rate mortgages, he said. Those are people who shouldn't have been allowed to get a loan until they saved money, fixed their credit, or gotten better jobs, he said.

"They (the industry) knew they were going to have potential problems down the road, but nobody thought the market would change as quickly as it did," Schauer said.

Today, buyers with good credit and the income to support their mortgage payments won't have any problems getting loans, Schauer said. That's akin to the way it was five to six years ago.

People need credit scores of at least 640 to get financing, he said.

That easy accessibility to money helped fuel the boom in housing, which in turn led to a sharp jump in prices that has made housing unaffordable to many today, Schauer said. With fewer people able to get loans now, that should lessen demand and keep prices stable or lower them, he said.

Las Vegas economic index and housing:An index of leading economic indicators was flat in December as it was for most of 2006, according to the Center for Business and Economic Research at UNLV. Six of ten indicators for December were up over November but six of 10 indicators were down from December 2005.

The mix in the data shows no sign of recession, but it shows weakness, the report said. It is "highly likely" that the index will continue along its recent track through 2007 because of weakness in the residential housing sector, the report said.

The strength in travel and tourism has made up for the decline in residential construction, the report said. Construction employment recovered in December after dips in October and November.

National association of Realtors forecast: Pending sales of existing homes declined in January, with the NAR's index down 4 percent from December and 9 percent from January 2006. Despite the drop, the index has recovered from a low in October, said David Lereah, the NAR's chief economist. Poor weather hurt the index in January but he maintains there is an underlying pattern of stabilization. The index is derived from the pending sales of existing homes with transactions yet to be closed. The index in the West rose 0.2 percent in January over December, but that is 7 percent below January 2006.

An index for the commercial real estate market has increased for seven consecutive quarters and is holding at its highest level on record. Lereah said the growth in the commercial real estate sector, however, appears to be reaching a plateau.

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