Friday, Oct. 13, 2006 | 8:01 a.m.
The number of home foreclosures in Nevada has more than tripled in the past year and is outpacing the national rate as homeowners succumb to rising adjustable-interest rates and a weakened seller's market.
Chief among those being foreclosed on are investors who purchased homes about a year ago with minimal down payments just as the market began to soften, were unable to resell them for quick profits and are now holding mortgages they can't afford.
With home valuations stagnating if not dipping slightly, some homeowners who paid the barest - or zero - down payments now owe more than their homes are worth. New home buyers are watching from the wings like so many vultures, waiting to pounce on dropping prices and foreclosure distress sales.
Nevada recorded 2,016 foreclosures in August, according to the latest available statistics. That's well above the 568 foreclosures recorded in August 2005.
Since May, foreclosures in Nevada have increased 83 percent, compared to 24 percent nationally and 43 percent in California. The foreclosure rate shows no signs of slowing in Nevada with predictions it could triple again in the next six to nine months.
Michael Krein, president of Nevada Real Estate Services, which handles foreclosures for banks, said the worst is yet to come.
"This is the tip of the iceberg," Krein said.
About a third of the homes now in foreclosure were bought in 2004 and 2005 with adjustable-rate mortgages.
With the resale market flush with more than 20,000 homes and potential buyers waiting for prices to fall, many overextended owners have been unable to sell their homes. Instead, they're having to walk away with nothing.
"We anticipated there would be more foreclosures," said Dennis Smith, president of Home Builders Research, which tracks housing trends. "That's part of the cycle. It means there will be more houses on the market in the resale segment. That means it's a good time to buy a house. There may not be any better deals in the future than right now."
"They are going to sell them for whatever they can, whether they take a loss or not," said Steve Schauer, president of National Lenders Services, a local mortgage broker.
The majority of properties foreclosed on are vacant, Krein said. More than 40 percent are owned by investors who bought in late 2005, hoped to turn them around for quick profits and didn't even make a payment, he said.
"We were all expecting to see this increase, and this looks like this is it," said Richard Lee, vice president of First American Title. "I think we are going to see it pick up over the next four to six months and be over by next year. It means it will be a good opportunity to buy."
Because of the rising number of foreclosures in Nevada, lenders are tightening up on home loans, Schauer said. Lenders are cracking down on 100 percent financing and adjustable rate mortgages, especially teaser loans that start at 1 percent and then rise dramatically.
"If you want to get a 100 percent loan, you need a higher credit score and more reserves in the bank," Schauer said
Many overstretched homeowners are trying to refinance 100 percent loans, only to be rejected because their homes' appraised values have dropped and they don't have the cash to make up the difference, he said.
Krein said homeowners should negotiate with their lenders on alternatives to foreclosure.
A version of this story appears in today's In Business Las Vegas, a sister publication.
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