Nevada enters the housing law business as state number 7 enacting a foreclosure mediation program. Nevada’s law goes into effect on July 1, 2009. The other states with this type of legislation are Pennsylvania, Massachusetts, Michigan, Florida, Connecticut and Colorado.

I don’t know about the other 6 states but here in Nevada the law will be administered by the Nevada Supreme Court. If that isn’t going to the top of the legal food chain I don’t know what is. The unfortunate aspect of the new law is lack of rules. Since the legislation just passed, the NSC has not had time to implement the rules.

This new law leaves out those borrowers who are already in the foreclosure process. They will not be able to request mediation because they went into foreclosure prior to July 1, 2009 unless the lender agrees to let them request mediation. No one however expects lenders to agree to mediation with people already in foreclosure.

Other Problems

As you can imagine, other problems are inherent. For example, the fees to be charged. The lenders will be assessed $200 and the home owners will pay $200. From the lender’s stand point this could be viewed as another tax in a taxing process. From the homeowner’s point of view, paying $200 and not walking away with a favorable decision is a real slap in the face. The only guaranteed winner is the mediator. (S)he is guaranteed to make $400 per mediation client.

Homeowners may not even enter the process because of this fee. Generally speaking, a person in foreclosure is already behind the financial power curve and in a hole. The advice that says when in a hole, stop digging may become the advice du jour for foreclosed homeowners.

The court is still hustling for mediators, clerical people and managers. As one can imagine, legislation passed in June and going into effect on July 1, does not give them a lot of time to hit the ground running. They believe they will meet the deadline but believing is a long way from delivering.

Program Facts

To be eligible for the program a person has to receive a notice of foreclosure after July 1, 2009. The notice has to include information about the mediation program. Not just anyone can mediate. It has to be a court appointed mediator or it doesn’t count.

Both parties are also required to negotiate in good faith towards a possible solution. A loan modification can be one of the outcomes.

The homeowner only has 30 days to request mediation and they still have to be living in their home. Investors are not afforded mediation at all. This means a good many Nevada investors will lose their properties.

Homeowners who have entered bankruptcy or completed a deed-in-lieu-of-foreclosure will also be excluded. Non-native speakers will be required to provide their own translators. Nevada has many non-native speakers so the legislation has covered everyone.

Out of work people, people with no money to pay their mortgage will not be permitted to request mediation. In addition, the lenders are not mandated to modify any loan. They are only mandated to go into mediation in good faith and pay their $200 fee. One might say this is a sneaky way for the state to benefit from someone’s misery. Nevada never misses a trick to enrich their coffers.

The Big Plus

For anyone who has experienced difficulty contacting their lender, servicer or note holder, this new law erased that difficulty. This means those hard nosed SOBs we all have dealt with will have to change their tune. If a lender is a no-show at the mediation hearing, the mediator has the authority to force him to modify the loan. In other words, the homeowner will see more favorable loan terms.

By no means is this law being touted as the magic pill. Truth is, a whole flock of bugs still sit inside the law. However, once this thing actually gets going, it is expected the outcomes will be positive with more people staying in their homes. It might even help the banking industry in Nevada.

No one’s mortgage will go away but the mortgagors will at least have their homes and can continue on with their lives. I don’t know how the other state programs are faring but I want to believe people are being helped. After all, not everybody went out and bought an overpriced home on inflated income/asset statements.

Photo Credit: mrak75

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Tags: foreclosure, law, loan, Loan modification, mortgage, Nevada

Most people have heard of schemes in which a lender is defrauded by someone who uses an inflated appraisal to obtain a loan for much more than a house is worth. This type of scam generally requires the cooperation of several people. In addition to the person running the scam you need an appraiser who provides the inflated valuation, a real estate agent who goes along with it and, frequently, phony buyers. Sometimes the buyer is a victim in the scam but it is usually the lender that is left holding the bag when the other participants disappear.

However, in an unusual case of “man bites dog”, the usual victim becomes the scammer. Unlike most of these schemes, which involve small-scale criminals, this one involves some of the biggest names in the real estate industry.

The Particulars

A lawsuit has been filed in U.S. District Court in Arizona against Countrywide Financial, KB Homes and LandSafe Appraisal Services (article) accusing them of artificially inflating home prices. This is definitely a new twist. This allegedly took place in the Arizona and Nevada market. According to court documents the scheme netted $280 million between 2005 and 2008.

The lawsuit claims that KB Homes steered buyers to Countrywide Financial who, in turn, used LandSafe Appraisal Services to provide the incorrect valuations.  Some of the appraisals may have been inflated by more than $80,000. Talk about being upside down!

The article didn’t have a response from any of the defendants, nor could I find any elsewhere. If these allegations prove to be true it could cause a lot of problems for Bank of America since they purchased Countrywide.

Housing On Steroids

Manny Ramirez Suspended for 50 Games

It’s bad enough that we have been suffering from the collapse of a runaway housing market that came crashing down. Like a baseball player who was caught using steroids, we now see that some of the housing gains were “juiced” as well. It remains to be seen how widespread this is, perhaps it was just an isolated incident. Somehow I don’t think so.

This breach of trust could make it difficult for builders in the future. Will people begin to look at them they way they look at car dealers? The housing industry could learn a lot by watching what Major league Baseball is going through with the steroid scandal. The builders need to get out in front of this problem and make sure that it doesn’t happen again.

You can observe a lot by just watching. - Yogi Berra

Tags: Countrywide Financial Lawsuit, KB Homes, LandSafe Appraisal Services, Lawsuit against KB Home and Countrywide

It has become common for builders and real estate agents to require a pre-qualification or pre-approval from a lender prior to working with them on the purchase of a home. This is done so that the builder or agent doesn’t spend a lot of time with someone who will not be able to get a loan. It also helps the potential buyer by letting them know home much home they can afford at the beginning of the buying process.

Pre-qualification and pre-approval are not the same thing.  A pre-qualification is just a quick snapshot of the potential buyer’s position based on income and credit. It merely tells them how much money they might be able to borrow based on the information that they provide. A pre-approval is different in that it goes much further. The lender will generally go through the verification process. In addition to checking credit they will verify income and employment and perform other parts of the underwriting process. A pre-approval is the lender’s way of saying that if the property appraises at a value that meets their criteria of loan-to-value and the buyer makes the required down payment, the loan is approved.

Not So Fast

The collapse of the real estate market and price drops in many areas have caused lenders to decline loans for many buyers who had been pre-approved. This has caused problems for both buyers and sellers. A buyer finds a home that they like and puts a deposit down and the seller is happy to have found a buyer. Both are surprised when the bank denies the very loan that they had pre-approved because of changes in the real estate market.

In Las Vegas there has been an epidemic of this happening in the high-rise condo market. Buyers who had been pre-approved had placed many of these luxury condos under contract. However, in the time between contract and the completion of construction real estate prices had plummeted and the lenders refused to honor the commitment. The developers have been left holding the bag on many completed units. Buyers who had arranged their own financing rather than use loans arranged through the builder have lost substantial deposits in many cases because they were unwilling or unable to complete the purchase. This situation has forced many of the projects into bankruptcy or left them teetering on the brink of insolvency.

Turning It Up A Notch

It’s bad enough when this happens to an individual who is trying  to

Image via Wikipedia

purchase a home. It’s even more problematic when it happens to a companythat is building a $3.1 billion resort. Fontainebleau Las Vegas had secured commitments from multiple lenders on the $800 million in financing that was needed to see the project through. Unfortunately the lenders decided to pull the plug on the project just as it is nearing completion. The lenders include some of the biggest names in the industry such as Bank of America, JP Morgan Chase, Deutsche Bank, Royal Bank of Scotland and Barclays Bank. At stake are 3,300 construction jobs and over 6,000 jobs when the 3,815 room resort opens in October of this year. The developer has filed a lawsuit (article) in an effort to get the lenders to honor their agreement.

This is just the latest blow to Las Vegas. The area had been rocked by the stoppage of the $4.8 billion Echelon Place and problems with the $8.7 billion City Center project. The area is one of the hardest hit by the recession with unemployment over 10% and at or near the top of the nationwide foreclosure rankings. Just as area residents are wondering “what else could go wrong” something does.

Tags: city center, Echelon Place, Fontainebleau Las Vegas, real estate

Secretary of Housing and Urban Development Sean Donovan was on Bloomberg this morning discussing the state of housing and the Obama Making Home Affordable Plan. There are some signs that the program is starting to work.”I think we have a good balance of carrots and sticks” said Donovan when asked about banks and servicers working together to modify mortgages for homeowners unable to make mortgage payments. Time will tell if indeed the plan is working. I can tell you that here in Arizona, one of the hardest hit areas, the numbers are starting to be not as dismal. Mark Tait, a principal in NXT Generation Real Estate shared some interesting numbers with me last week:

In the greater Phoenix Metro area:

• Year over year closing are up almost 4000 units.
• Inventory has dropped almost 9000 units since December, 2008.

“As a man on the street, I can tell you multiple offers are back and most REO properties.” said Tait, “$200k and below are going out at FULL PRICE.” Now does this mean that we have a bottom in housing? No, I don’t think we have hit bottom in terms of values yet, what I can say though is that activity is returning to the market–and that is the first step on a long road to stability.

Tags: housing, mortgage, real-estate-owned, residential, United States Secretary of Housing and Urban Development

Last week mortgage rates were exactly flat confirming my forecast that rates may not rise for the third week in a row. The week started off strong but ended with a whimper for 2 main reasons:

• Wells Fargo’s announcement of record $ 3 Billion in earnings
• Mike Mayo’s downgrade of the banking sector. Mike has a history of making accurate bank  predictions

This week there is plenty of good hard data for markets to sink their teeth into.

Tuesday, we’ll get a look at Retail Sales. Because consumer spending accounts for two-thirds of the economy, a lower-than-expected figure for Retail Sales would dampen Wall Street’s current optimism for the U.S. and that would likely lead mortgage rates lower.

Then, on Thursday, Housing Starts is released.

Housing Starts measures the number of new homes on which the nation’s builders broke ground last month. If starts are up, it may mean that builders are optimistic for housing — a good sign for the economy. However, if starts are down, it should help reduce housing inventory over the next few months — also a good sign for the economy. I know that sounds like a “heads I win-tails you lose”  statement, but both can be positive in the right light.

With many people–including myself seeing signs of a housing stabilization happening in some of the hardest hit markets, and all the incentives to purchase the spring buying season promises to be an interesting one!

(Image Courtesy of: Arizona Mortgage News)

Tags: investment banks, Wall-Street, wells fargo

A little bit of a different take on this week’s mortgage market data. Gotta change it up sometimes ya know?

Tags: Economy, mortgage, Mortgage Market, mortgage rates

From an economic standpoint, last week was an interesting one. The stock markets made strong gains last week but the mortgage markets barely moved in the wake of the Treasury’s “toxic asset” plan.

Amongst the other news from last week:

• Existing home sales showed unexpected strength
• New home sales showed unexpected strength
• Data showed home prices rising unexpectedly
• Consumer confidence rose unexpectedly, too.

To rate shoppers, these “unexpected” developments are warnings worth heeding because mortgages trade on expectations of the future. And “the future”, you’ll remember was widely presumed to be an economic nightmare.  This is one of the big reasons that mortgage rates have been so low over the last several weeks. With things outside of the auto industry coming in better than expected, we might start seeing mortgage rates creep up a bit.  This sentiment was echoed by Freddie Mac interim chief John Koskinen Friday. He stated that home loan rates are near their bottom and any further decreases will be small.

Image Courtesy of Arizona Mortgage News