Law may be of little help to LV

The Housing and Economic Recovery Act of 2008 that was signed into law by President Bush on Wednesday authorizes the Federal Housing Administration to refinance loans for up to 90 percent of a home’s appraised value, which would help homeowners who owe more than their home is worth.

Michele Johnson, CEO of the Consumer Credit Counseling Service, said Thursday she doubts the federal law will help much here.

“Even if it were beneficial for consumers in Nevada, I believe it would be helpful on a very limited basis,” she said.

Lenders with second-home loans would be wiped out and probably won’t agree to the FHA loan arrangements if they don’t also hold the first mortgage on a home, she said.

“How many second-mortgage lenders are going to be willing to eat the balance (on their loan)?” she said. “Probably 70 percent of the homeowners we’re seeing have a second mortgage with a different financial institution (than the first mortgage lender). Most of the (second-home loans) were for down payment on the house.”

In order to take advantage of the new program, a homeowner or his mortgage broker will need to convince the lender to write off the amount that the original loan exceeds the home’s market value, plus 10 percent.

The question is whether the lender is willing to accept a loss in order to recover 90 percent of the home’s value, said Brock Davis, outgoing president of the Southern Nevada Chapter of the Mortgage Bankers Association.

And if the lender is willing, can the institution absorb the loss, Davis asked.

Lenders would need to write off tens of thousands of dollars on each of the FHA refinanced loans, and the lenders may not be able to take a financial hit of that size, analysts say.

Wells Fargo Bank, one of the biggest home lenders in Nevada, is analyzing geographic areas and may approve the FHA refinancing and loan reductions in distressed areas, possibly including parts of Clark County, said Kirk Clausen, regional president of Wells Fargo Bank.

“It could include some forgiveness on some mortgage loans that might be underwater,” Clausen said. “It’s probably too early to commit on any across the board loan forgiveness (of amounts exceeding 90 percent of appraised value).”

The FHA refinance option probably will work for only a small percentage of financially struggling home owners, he said.

Yet, “I think it’s going to do a lot to really stabilize the home mortgage market,” Clausen said.

Assemblyman Marcus Conklin, D-Las Vegas, is chairman of a legislative panel on home mortgages. Conklin said the bill was good for the country, but said it probably won’t help many in Southern Nevada because many mortgage balances exceed home values here by such a large amount and lenders may be unwilling to take such a large hit.

Las Vegas home loans “were really overcooked” and typically exceed the current value of homes by 20 percent or more, he said.

A Las Vegas homeowner may have a $500,000 loan on a house with a current appraised value of $230,000, Conklin said. That would be too big of a loss for most lenders to accept, he said.

If the public believes the law will help the housing market, Davis said, the law may become self-fulfilling by convincing people that the worst is over and it’s time to buy a home.

“Anything right now is a benefit,” said Patty Kelley, president of the Greater Las Vegas Board of Realtors. She noted the law includes a $7,500 tax credit for some first-time buyers. However, she said, it’s too soon to know if that provision will help many.

Bankruptcy trustee Tim Corey said homeowners would have benefited more if Congress had given bankruptcy judges authority to force lenders to reduce the mortgage balances to the value of the home. Several decades ago, bankruptcy judges had that power but it was eliminated first by the 9th U.S. Circuit Court of Appeals and later by the 2005 bankruptcy reform law.

Corey doubted Congress would restore the bankruptcy “cram-down” provision.

The new law “will help a fair amount of people,” said Martin Lobel, a Washington, D.C., attorney and former legislative aide to the late Sen. William Proxmire. “It’s not a total solution to the problem.”

Before the home mortgage crisis ends, Lobel said home prices will need to decline to more appropriate levels that are justified by the local economy.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.