Las Vegas counts on Obama housing rescue

Sam Morris

Prospective bidders inspect a house last month that was slated to be a auctioned off in a large auction of foreclosed homes.

By Nicole Lucht (contact), Brian Wargo (contact), In Business reporter

Fri, Feb 27, 2009 (2 a.m.)

With Nevada leading the nation in foreclosures, no one has a bigger stake in the Obama administration’s housing rescue plan than Las Vegas.

Housing industry observers are guardedly optimistic the plan will help stem foreclosures, which continue to drive down home prices. Although the drop in prices has boosted sales, that threatens to depreciate values marketwide and trigger more foreclosures, which have ruined bank balance sheets and contributed to the deepening recession.

President Barack Obama’s plan calls for $75 billion to help up to 4 million at-risk homeowners. Companies that collect mortgages will be paid $1,000 for every interest rate cut to make the payment no more than 38 percent of the borrower’s income. The government will split the cost of lowering payments to 31 percent and both lenders and borrowers will be paid $1,000 a year for keeping loans current.

There will also be lower mortgage rates with the sale of Fannie Mae and Freddie Mac mortgage-backed securities to the Treasury Department.

No matter what happens, it is going to be slow going, said Steve Bottfeld, executive vice president of Marketing Solutions, a local housing consultant. The housing market recovery is a key to a nationwide economic improvement that will boost Las Vegas tourism, he said.

“The plan doesn’t stop the bleeding, but it puts a tourniquet on it,” Bottfeld said. “That is a positive, and it will have a ripple effect. First, it helps shore up prices in all the markets and that affects foreclosures. That helps restore consumer confidence, and we are going to be far more helped than any other market. That is important because this economy depends on spending.

“That’s not the ballgame, but you have hit a double and you have a runner on second and third with no outs.”

Mortgage origination companies, rather than mortgage service firms, will see that the indirect effect of Obama’s plan should be positive, said Jeremy Moskowitz, manager of Lakeside Mortgage Co. of Las Vegas. This should help to remove more listings from the market and reverse the negative cycle, he said.

“If the plan is implemented quickly and effectively, it should help to stabilize the market, thereby helping those homeowners who do have some equity hold on to what they have by leveling home prices,” Moskowitz said. “This in turn, should help to bring more future home buyers back by giving them more confidence that any home they wish to purchase may hold its value, making it a more sound investment.”

Despite some optimism, there is plenty of concern.

Nevada Bankers Association President Bill Uffelman said he doubts that some aspects of the plan, as it is proposed, will help Nevada homeowners, particularly those who are trying to refinance a home that is severely upside down in value.

Home values in Las Vegas fell almost 50 percent from their peak. More than 50 percent of Las Vegas homeowners are underwater on their loans, housing analysts estimate.

“Some people in Nevada will benefit, but it’s way too early to tell what the numbers are going to be,” Uffelman said.

There is some concern among lenders that homeowners who are having problems paying their loans will forego talking with their mortgage service company in hopes that a better deal will come along from Obama’s plan, Uffelman said.

Dennis Smith, president of Home Builders Research, said he doesn’t think there is a magic wand to solve the foreclosure crisis because it is so broad and deep. Smith said he’s pessimistic about the foreclosure plan working.

“I think any kind of action that we can get out of the government to assist in the foreclosure problem is a positive and it is appears like they are trying to take as much as they can and throw it against it the wall and see what sticks,” Smith said. “And that is not bad ... But when you have 50 percent of homes in Las Vegas underwater, that is a scary thought. To suggest that a person is not going to walk away from that loan because he can go in and refinance and save 150 to 200 bucks a month — I don’t see that happening. He is going to walk away like everybody up and down the street did.”

But any plan must help California as well as Nevada because those homeowners need to sell their homes and have equity to buy in Las Vegas, Smith said.

Signature Homes founder Richard Plaster said the plan has limited beneficiaries, including those who are lucky enough to have Fannie Mae or Freddie Mac loans and whose house prices have dropped modestly — only those whose loans are no more than 5 percent above the fair market value qualify.

Since Clark County housing prices have dropped almost 50 percent from their high point, the number of homeowners who are only 5 percent underwater and have Fannie Mae or Freddie Mac loans is likely to be quite small, Plaster said. This small group will get lower payments on homes since interest rates will drop.

“The rest of the program suffers from some of the same problems as the Bush administration efforts,” Plaster said. “They are relying on the best efforts of mortgage holders to do the right thing and modify their loans by reducing interest rates on outstanding loans. This reduces the mortgage holder’s current incomes, so there is a built-in disincentive.”

Obama’s plan has tried to create incentives and subsidies, but in ways that don’t suggest a rapid solution, Plaster said. Underwater homeowners will stay underwater, he said.

“These modification efforts are certainly greater than those under (President George W.) Bush, but not great enough to be effective in saving many homeowners," Plaster said. “(Obama’s plan) may help out those in parts of the country who didn’t experience the worst of the bubble, but does little for those in the hardest hit areas (such as Las Vegas).”

Meanwhile, calls have been pouring into mortgage service centers, but part of the Obama administration’s housing plan may leave some Las Vegas homeowners without a solid option to refinance, experts said.

Wells Fargo Home Mortgage has experienced an 8 percent to 10 percent increase in call volume since it the media first reported that Obama would announce a housing plan, said Mary Coffin, an executive vice president.

Already Wells Fargo is working with the Obama administration to glean as much information as possible about the plan so that the bank is ready to move as soon as the final details are announced. Wells Fargo is the second largest mortgage lender in Nevada, according to In Business Las Vegas research.

Wells Fargo has a moratorium on the sale of its foreclosed properties through March 14. Over the past 18 months, the bank has been able to help 700,000 of borrowers with modifications, repayment plans or short sales in lieu of foreclosures, Coffin said.

Wells Fargo borrowers are asking the bank several questions, such as “How soon will it be before you know if you can help me?” “Is my loan a Freddie Mac or Fannie Mae?” “Can you tell me more about the program?” “When and how should I expect to hear from you?” “Can you mark the system to make sure you call me back?”

Many just want to learn more and understand what parts of the program they might be eligible for, Coffin said.

And it’s more than people facing foreclosure or having trouble with their payments, Coffin said. The callers range across the bank 9 million borrowers; even those simply looking for a better interest rate are calling in.

Countrywide Financial, a subsidiary of Bank of America, and the largest mortgage lender in Las Vegas, placed a moratorium on foreclosure sales a week before Obama’s plan was announced.

Nationwide, the company modified 39,000 loans in January and expects to modify 630,000 loans through 2010.