Law seen hindering home ownership

Now might be a good time for the average Strip casino worker to buy a home in Las Vegas, but qualifying for a mortgage based on their wage earnings is going to be next-to-impossible, an executive for a local mortgage company said.

Home ownership in Las Vegas has become more affordable under current market conditions, with the median resale price dropping 19 percent from a year ago to $235,000.

Average casino wage and allowable debt-to-income ratios by Freddie Mac and Fannie Mae would indicate that many hospitality workers can afford the American dream they were priced out of yesterday, said Cory Frey, senior loan officer for Southern Fidelity Mortgage.

But they're being denied that opportunity, he said, because they can no longer use so-called stated income loans, or loans based on income other than reported wages.

"The biggest story has to do with how our gaming employees report earnings," Frey said. "Stated incomes were abused in the past. They were originally put in place for the self-employed and expanded to tip earners. When it really got out of hand, they let everyone have stated income loans. When the market adjusted, those were the first not to perform."

Before Assembly Bill 440 was enacted last year, Nevada law required lenders to ensure that borrowers could repay their loans before issuing a mortgage.

The bill amended the law to make it unfair for a lender to "knowingly or intentionally make a home loan, other than a reverse mortgage, to a borrower including, without limitation, a low-document home loan, no-document home loan or stated-document home loan, without determining, using any commercially reasonable means or mechanism, that the borrower has the ability to repay the home loan."

Assemblywoman Barbara Buckley, D-Nev., said she doesn't think AB 440 has hampered casino workers' chances at obtaining a mortgage. It has more to do with the entire nation being in a housing meltdown, she said.

Mortgage companies made loans through "creative financing" methods without verifying that those people could repay the loan, Buckley said.

"I think (AB) 440 was a good bill even before this credit meltdown," she said. "If someone is on tip compliance, all you have to do is collect the documents to show you're a tip earner. Let's say they paid rent higher than their mortgage would be. All you have to do is document that to show you're using reasonable means to repay the loan."

Bankers look at loans in foreclosure and see that a majority of them are either stated income or adjustable rate, said Ed Jamison, chairman of Community Bank of Nevada.

It's an unfortunate dilemma because people got money they probably shouldn't have, but the product was available, he said.

"It's always been a nod and a wink with certain segments of our economy on what they make," Jamison said. "Candidly, that segment has dried up because of the risk factor. Bankers are pretty dumb, but when you get hit in the head several times, you say, 'OK, that's not a good product.'"

A majority of wage earners on the Strip, including dealers, valet attendants, cocktail waitresses and bartenders, live off their tips as well as their paychecks, Frey said. They've been taking advantage of loan programs that would base qualifying requirements on their type of job and those programs are no longer available.

"So you might have a 750 FICO (credit score) person who has been using a stated or fast and easy documentation-type loan in the past who will not be able to refinance their house just because the loan program no longer exists," he said.

A perfect example in Las Vegas is the cocktail waitress at Bellagio who makes six figures a year and lives the lifestyle, Frey said. She had excellent credit, paid her mortgage on time and did everything right, including filling out her tip compliance form at work, he said.

She makes maybe $20,000 a year in wages at $7 an hour and comes in at about $37,000 with tip compliance. Every major casino has a compliance formula to report tips and they're almost always lower than the actual amount, Frey said.

"That's where (AB) 440 really impacted some of these properties. I guarantee because the cocktail waitress can't get her loan, you're getting a glut of short sales," he said. "Those people that are our core economy, they're going to continue having trouble getting loans. When you're filling out your taxes, you might actually want to report what you make so you can get that loan."

Home ownership has been a cornerstone of the country's economic strength throughout the past decade, said Rick Davis, president of Washington, D.C.-based Homeownership Alliance.

"State and local governments nationwide must expand their efforts to ensure that every family in America has the opportunity to own a home," Davis said in a statement.

Buying a single-family home in Las Vegas can be tough for a single wage earner, but it's affordable for dual-income households, Frey said. With 5 percent down and a 30-year, fixed interest of 6 percent, monthly mortgage would be about $1,300 plus tax and insurance, he calculated.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.