State’s foreclosure plan: We’ll help, but not too much

Saturday, Oct. 27, 2007 | 7:12 a.m.

Nevada leads the nation in the number of foreclosures but lags far behind other states in helping homeowners. It's about ready to take some action, but reflecting Gov. Jim Gibbons' hand s-off philosophy, it will pale by comparison with what some other states are doing .

Mendy Elliott, director of the Nevada Business and Industry Department, said several initiatives will be unveiled starting next week to help those hit hard by a wave of foreclosures and the collapse of home values.

Among the programs:

"I think the state's responding appropriately," Elliott said, suggesting that people in trouble call their lender and try to work out better terms.

Other states started sooner and more dramatically to respond to the financial crisis.

In Ohio, Democratic Gov. Ted Strickland put in motion outreach programs that use databases to find homeowners most at risk of foreclosure and counsel them on how to avoid it, while committing money to help people move from volatile adjustable-rate mortgages into fixed -rate loans. In all, Strickland's task force made 27 recommendations, which include help for neighborhoods - like many in Las Vegas - emptied by foreclosures.

Strickland began implementing the proposals several weeks ago, while suggesting a compact with subprime lenders that would lean on them to give more favorable terms to borrowers in trouble.

In California, Gibbons' fellow Republican Arnold Schwarzenegger signed a law increasing the debt limit for the state's affordable housing agency to help people made homeless by foreclosure. The state has also ramped up its counseling services for people in trouble.

Analysts blame the current problems on the increasing number of higher-interest subprime loans made in recent years to people with damaged credit histories. Many of these loans came with low or no down payments and adjustable interest rates that started artificially low. When these "teaser" rates expired, the payments sometimes became unaffordable.

And, more than 25,000 houses are on the market in Southern Nevada, driving down prices and killing plans for new projects.

Gibbons' more limited approach to the problem reflects his conservative political philosophy , which preaches that government should allow the free market to correct itself.

Gibbons appointed Joe Waltuch, a former senior executive with a failed subprime lender, to head the state's Mortgage Lending Division. Waltuch has downplayed the subprime meltdown and said the current level of government regulation and intervention is sufficient.

Also, Nevada's government doesn't have the infrastructure to deal with such downturns because the state's economy - and the development economy in particular - has been flying high for more than a decade.

In Arizona, for instance, Gov. Janet Napolitano could turn to an existing state program that helps mediate settlements between lenders and borrowers. Nevada has no such program and no money to start one.

Gibbons and his defenders also point out that the governor has very little leverage with many local lenders because they no longer hold the loans. Mortgage loans are now often bundled and sold to hedge funds and other financiers.

That's why many policy analysts say the real fix will have to come from Congress.

After the summit with lenders that Gibbons convened a few weeks ago, he said the housing slump is not in fact a "crisis," and, contrary to a report this week in The Wall Street Journal, he offered no help to at-risk borrowers.

Even if Gibbons is correct, his refusal to call the foreclosure surge a crisis was seen as politically tone-deaf, considering the mounting collateral damage to the wider economy.

As Jeremy Aguero of the economics consult ant Applied Analysis noted in a recent interview, the mortgage crash is beginning to bleed into the rest of the economy, cutting into voluntary purchases and driving up Nevada's unemployment rate to 5 percent, which is above the national average.

With state tax revenue lagging largely because of the homebuilding slowdown, Gibbons has directed state agencies, other than K-12 education and public safety, to prepare spending reduction recommendations of 5 percent this year and 5 percent next year.

That highlights another obstacle for policymakers as they consider solutions: State government has little money.

Assemblyman Marcus Conklin , D-Las Vegas, is heading an interim legislative subcommittee that met for the first time Monday and recommended an 800 number to help homeowners in trouble get help from nonprofit credit counseling groups. Gail Anderson, Elliott's deputy, committed to the idea. The Interim Finance Committee will have to approve money for it.

Conklin, who was the prime mover of a law passed last legislative session that made mortgage fraud a felony and imposed tougher regulations on the industry, said he was open to other ideas, but acknowledged the state has little fiscal room in which to maneuver.

One idea, advocated by Assembly Speaker Barbara Buckley, D-Las Vegas, would be to take money currently in the budget for assistance for first-time home buyers, and use it to get new homeowners out of adjustable-rate mortgages and into loans with stable payments . (Elliott said the money comes from a federal program and can't be used that way. Buckley and Conklin disagree.)

"The advantage of that idea is that the money is there," Conklin said, "but there's not much of it."