Las Vegas still faces foreclosure snags

At first glance, it's a housing problem that bypassed Las Vegas.

Several mortgage lenders earlier this month halted foreclosures in the 23 states that require court approval on housing repossessions, after judges pointed to questionable default processes that included thousands of automatic signatures on documents the lenders never read.

Nevada's not one of those states, but local housing observers say the foreclosure-paperwork questions could still affect the Las Vegas real estate market.

Here's what you need to know about your home's value now: Local experts agreed the documentation troubles aren't likely to push down area home prices or curb home-sales figures in the near term.

That's because banks will likely halt foreclosures for a few weeks or a month at most, said Dennis Smith, president and chief executive officer of Home Builders Research in Las Vegas. The inventory of properties for sale would slump, but for too short a period to move the market significantly in either direction.

If anything, reining in defaults for a time could slightly increase prices in the short run, as a smaller supply of listings placed upward pressure on values, said Jon Copeland, branch manager for First Mortgage Corp. in Las Vegas.

In the longer term, though, the paperwork mess could have troubling implications for the housing market here.

For one thing, any pause in repossession activity kicks the recovery can down the road. Foreclosure delays interrupt a default-discharging system that's "kind of working," said Larry Murphy, president of local real estate research firm SalesTraq.

The Las Vegas market moves about 2,000 foreclosures a month, and is on track in 2010 to sell 24,000 foreclosures -- almost exactly the number of properties banks will actually take back locally in 2010. The average price on those defaulted homes has stayed stable for the past year at around $120,000.

"It's been painful, but it's been working, and if we stop this train, it's just going to postpone the inevitable," Murphy said. "It's going to take longer for recovery to be realized. These people are behind on their payments. There may be some sort of technicality, but the bottom line is, they owe the money. Stopping foreclosures will just slow down the inevitable. I don't see any good coming from it."

Some observers see an even bigger potential problem looming. It'll be tough, they say, for home buyers and homeowners to keep faith in a lending system fraught with questions about paper trails, rubber stamps and iffy documentation.

"This just casts a lot of doubt on the banks and (loan) servicers," Smith said. "We could see a worst-case scenario where buyers lose complete confidence in the system and say, 'I can't stick my neck out with a potential liability to this degree and feel comfortable about buying a house.' "

Added Murphy: "I think the integrity of the whole home-buying system is in critical condition. I don't mean to sound alarmist, but I think we're at a very dangerous point. I sincerely think the integrity of our home-buying and homeownership system is at risk right now."

It's bad enough that questions and concerns have visited the foreclosure process, Murphy said. Add to those paperwork woes the fact that roughly 80 percent of Las Vegans are underwater on their home loans, and you have the ideal conditions to encourage masses of Las Vegans to simply, finally walk away.

"People won't see any light at the end of the tunnel," Murphy said. "That's the thing that scares me the most. I think we're in danger of people just stopping making their housing payments."

Just how bad things get depends on how long the processing questions linger. Already, Bank of America said Monday it would attempt to restore confidence in the system by quickly resubmitting foreclosure applications in the 23 states that demand court orders for defaults.

Another factor Smith is watching? The Mortgage Electronic Registration Systems, a national home loan-servicing clearinghouse through which lenders filed thousands of foreclosure motions. Should the courts rule that the lender-owned system lacks the authority to hold titles and file defaults, a "mess" could follow, with courts reversing prior foreclosures, Smith said. That would destroy consumer faith in foreclosure purchases.

But it's also possible that banks nationwide will drop their interest rates to lure consumers back into their offices, Smith said.

As for how quickly the paperwork problems clear up, experts don't see eye to eye.

Murphy said he expects the documentation troubles to hang around a while.

"The odds of the banks quietly and quickly working anything out is a joke," he said.

Copeland sees a relatively fast conclusion, though.

"The lenders will have to justify why they proceeded with foreclosures, but the reason was the clients weren't making their payments," Copeland said. "If there was something done incorrectly in the paperwork, that can be addressed, but it's not going to change the fact that the homeowners weren't paying their loans."

Contact reporter Jennifer Robison at jrobison@reviewjournal.com or 702-380-4512.