Speculation spurs spike in Nevada foreclosures

By Phoebe Sweet / Staff Writer

With Nevada ranking first in the nation in foreclosure rates in the first quarter of 2007 and again in April, the mortgage lending industry and consumers are taking notice.

Although foreclosures were down from March's 1 in 183 households to 1 in 232 households in April, numbers were still 225 percent higher than April 2006.

And insiders say what some call a crisis and others call an industry correction could reshape the mortgage-lending industry for all stakeholders.

Although many of those attending a Las Vegas forum last week sponsored by the community affairs office of the Federal Reserve Bank of San Francisco called the issue a crisis for Nevada homeowners, Mortgage Lending Division Chairman Scott Bice said much of Nevada's foreclosure problem was caused by speculative buyers.

"Of the 24,000 listings on (the Greater Las Vegas Association of Realtors Web site) 50 percent are vacant - up from 40 percent," Bice said in an e-mail this week.

Tom Powell, chairman of the Mortgage Advisory Council and chief executive of IntoHomes Mortgage Services in Northern Nevada, agree, saying that the last five to 10 years of bullish housing markets spurred speculators on.

Powell said speculators, who bought from developers, saw their investments appreciate before they were even completely constructed, and then sold those vacant homes for profit. But when the market plunged in mid-2006 many speculators were caught short, he said.

And foreclosure rates will continue to climb, since the majority of Nevada mortgages are less than 3 years old - the average time by which a mortgage will default.

Bice said the industry would have to sift out the truly needy, troubled borrowers from speculators who got in over their heads.

Bice said where owner-occupied buyers have gotten into trouble is through risk layering. During the height of the real estate boom in Nevada, originators were approving adjustable rate mortgage loans with 100 percent financing for buyers with less-than-stellar credit.

Powell said that borrowers who do get in trouble should contact their lender immediately.

"I think that when people want help and are willing to work with the lender, all the resources should be afforded to that person within reason," he said. "We have found that if borrowers work with and talk to their lender, accept their lender's calls, the lender will figure out a way."

Since banks lose 30 percent to 50 percent of the loan balance when a foreclosure occurs, they are motivated to help borrowers.

"They don't want to own that house," Powell said. "They want the payments."

He said that the rise in foreclosure rates likely won't cause the Nevada economy to tank because job growth is still fairly strong and employers aren't going anywhere.

But the rise in foreclosure rates and the dip in the housing market does impact the overall economy through the decline in home improvement projects and purchases funded by withdrawn equity.

In the last decade, he said, American homes have gained more than $10 trillion in value.

"A lot of people borrowed on (that value) to assist their lifestyles," Powell said. "When houses are appreciating 15 percent, people feel wealthy."

When homeowners do get into trouble, Bice said, education and early intervention is key.

Gail Burks, president and chief executive of Nevada Fair Housing Center, said nonprofit groups also need to differentiate themselves from for-profit credit counseling and homeownership businesses that take advantage of troubled borrowers.

"When we are doing education we have to make it relevant to what's happening in our market," said Burks. "We have to stay current (on trends and scams) and our programs have to be designed so they're flexible.

"This problem crosses ethnic, income and age lines."

Phoebe Sweet covers banking and marketing for In Business Las Vegas and its sister publication, the Las Vegas Sun. She can be reached at (702)259-8832 or by e-mail at phoebe.sweet@lasvegassun.com.

IBLV Homepage