With the Nevada Legislature back in session today, a real estate lobbying group has a slate of issues it wants lawmakers to consider.
The most important is whether to change the state’s controversial “robosigning” law. The Nevada Association of Realtors is pushing for changes to the law while at the same time trying to downplay its impact on business.
AB 284 forces banks to provide a signed affidavit saying they have personal knowledge of a property’s document history before they can foreclose on a house. Foreclosures have plummeted in the Las Vegas Valley since the law took effect in October 2011, and real estate brokers have blamed the legislation for reducing the inventory of homes for sale.
One in every 37 housing units in Nevada received a foreclosure filing last year, down almost 57 percent from 2011. And foreclosures made up just 9.5 percent of all sales in the valley in December, down from more than 50 percent a few years ago.
While AB 284 tops the Association of Realtors’ agenda for the legislative session, association officials recently told VEGAS INC that the law has not been nearly as destructive as many people think. They said foreclosures are falling for a number of reasons, including the improved economy and last spring’s $25 billion National Mortgage Settlement between the nation’s five largest mortgage service companies, a coalition of federal agencies and 49 state attorneys general.
Under the settlement, which sought to address lending and foreclosure abuses, the banks must offer at least $17 billion in homeowner relief and $3 billion to refinance underwater borrowers. As a result, the banks now have little incentive to seize homes because they get credit under the settlement for short sales and principal reductions, not foreclosures, association members said.
Also on the agenda:
The association, which has 15,000 members statewide, wants Carson City to adopt criteria this session to help define whether a house is vacant or abandoned.
It cautioned against adopting a homeowners’ bill of rights, saying a balance needs to be struck between consumer protection and banks’ ability to lend money.
And it wants lawmakers to more closely examine how real estate lawyers handle property transactions. According to members, many law firms have overstepped state statutes by “pushing clients into loan modifications or bankruptcy when, in reality, a short sale is the best step for the consumer.”
Short sales soared to record levels last year and now account for nearly half of all sales in the region. The association last July released its “Face of Foreclosure” survey that showed that Nevadans are divided on whether it’s OK to willingly default on a mortgage loan.
VEGAS INC recently sat down with association CEO Rob Wigton, Legislative Chairman Keith Lynam, lobbyist Rocky Finseth and Strategic Guidance Systems Vice President Joel Searby, whose Gainesville, Fla.-based firm conducted the “Face of Foreclosure” survey.
AB 284 has been blamed for clogging up the pipeline of homes that could go into foreclosure. How would your changes help that?
SEARBY: First, you have to take issue with the idea that AB 284 has clogged the market. That is just not supported by the data. There certainly was a canyon of notices of default when 284 came along. Everyone had to stop and get their house in order to make sure they were compliant. But if you were to draw a trend line to where you would have expected those to go if 284 had not been in place, after a couple of weeks or at most a couple of months, it continued exactly where you would expect it to be. The decrease in foreclosures has tracked with the decrease in delinquencies, the improving economy, the decreasing unemployment rate and other trends.
So why would you want to change the law?
SEARBY: Well, it’s more of a clarification; I don’t know that any major changes are being recommended. It’s simply to say, “Let’s bring it back to the forefront and have a conversation about it so we can remind everybody that 284 was not initially a major problem. Let’s clarify a few small pieces.” I don’t think it’s a game-changing recommendation.
LYNAM: The people you hear from are speaking from the standpoint of emotion, from not understanding the bigger picture. They just don’t want to recognize that there are other things going on in the market and in the industry that caused the lack of REOs.
You could repeal 284 today in its entirety and nothing will change. There will be no more REOs on the market than there are today. It doesn’t benefit a bank to foreclose on a property.
But if you want to change 284, you obviously see something wrong with it, unintended consequences. Why else would you want to change it?
LYNAM: I don’t know that I would term it as being “wrong” as much as I would say that we need to clarify. We don’t need people in their homes today who get a knock on their door tomorrow and are faced with being booted because some paperwork that the financial institution screwed up in the first place was not in order. I think those things need to go. Also, there needs to be a reintroduction of the threat of foreclosure put back into the market. The banks aren’t taking any action.
What could that threat be?
LYNAM: We need a motivating factor. Right now, homeowners are sitting in their houses, they haven’t made their payments in “X” months, and the bank has done nothing. Of course they’re not going to make their payments.
Is it a matter of getting homeowners to pay or banks to crack down?
LYNAM: If the homeowner were able to pay, that would be one thing. But I don’t know that that’s the case. At the end of the day, it’s up to the banks to start gaining some control over what they’re doing. They control the process. There’s nothing that stands in their way today to foreclose on a home, other than their own financial wherewithal.
WIGTON: Certainly the national settlement has disincentivized the banks to foreclose; they get no offsets from foreclosing. They get tremendous offsets for working with the home-seller to short sell it, to reduce their principal or even to take a deed-in-lieu. The banks are in no position to want to step up the foreclosure process.
SEARBY: Also, you cannot make a direct correlation between AB 284 and some kind of reduction in the inventory. The data does not support that. There have been accusations that when AB 284 passed, there was nothing to sell because everybody just said, “Well, I can stay in my home as long as I want.” If that were true, what you would see is an increase or at least a stabilizing of the delinquencies and a decrease in the foreclosure starts. That’s not the case. There was no artificial, drastic change from 284. It’s really a conglomeration of AB 284, the national settlement and the overall economy improving.
In December, foreclosures made up 9.5 percent of overall sales in Las Vegas. A few years ago, they accounted for more than 50 percent. What happened?
LYNAM: They’re being replaced by short sales. Also, if it were financially beneficial for a bank to foreclose on a property, it would foreclose, no matter what state law says. But because of the national settlement, they get an offset toward their $25 billion when they 1) reduce the principal or 2) do a short sale with no deficiency judgments. They get a dollar-for-dollar offset.
SEARBY: All past-due mortgages, especially since late 2009, have been on a steady decline, and that has continued since 284 took effect. So have foreclosures. There will obviously be less if fewer people are going into default. You see those trends tracking with things like unemployment going down.
The jobless rate hasn’t gone down that much. It still is around 10 percent. The economy has improved a little bit, but it isn’t great in Las Vegas.
SEARBY: Can you say that everybody has a job and everybody’s paying their mortgage? No. But what you can show is a clear correlation between the strengthening economy and a reduction in foreclosures and delinquencies.
What about the recommendation of addressing abandoned properties. You want to change the definition of an abandoned property versus a vacant property. What would that do?
LYNAM: We need to determine the difference, and there’s a real good reason why. Abandoned properties are the ones we’ve got to address. We need to get them back on the property tax rolls. We need their HOA dues paid. We need to get them in the hands of someone who’s going to take care of the house. A vacant house could be something that’s going through the process. A good portion of my short sales are vacant homes. The seller is engaged, they want to do the right thing, and they’re working it through with the bank.
SEARBY: Let’s make sure the rules clarify and give boundaries to the market in a balanced way so that when consumers need to be protected, they are protected, and when consumers have failed to meet their obligations — in other words, when they’re not paying their mortgages and should be foreclosed — then that also is apparent. There should be appropriate legislation in place to make sure a foreclosure can be done in a timely manner.
Are there any laws that addresses this now?
FINSETH: The challenge is that 284 established a procedure and process by which to foreclose on a home. It involves the homeowner and a lending institution. When the property is essentially abandoned, there is no interaction the lender can have with that homeowner. Legislation needs to be created that allows for the lender to proceed appropriately. So the answer would be no because 284 never contemplated that concept.
You recommended a homeowner bill of rights and urged policymakers not to overstep the boundaries of consumers rights. What did you mean by that?
LYNAM: The short sale process is the best process to go through, for both the homeowner and the financial institution. We need to be sure that we’re protecting the homeowner but make sure they aren’t sitting in their home for free forever.
Short sales account for almost half of all sales, but they can still take a year or more to close. An editor at the Sun recently wrote a first-person account of the eight months it took him to close on his short sale.
LYNAM: For a lot of reasons, he had a bad experience. I’ve done them in as quick as six weeks. Are there (long closings) out there? Of course there are. But I’ve had traditional transactions take that long. If you read his article, it wasn’t as much the short sale that held that up but the financial institution where he was trying to get his loan.
Could a homeowners’ bill of rights restrict lending?
LYNAM: Nothing could restrict lending. The only thing that can restrict lending is lending itself. The financial institutions are the only ones capable of restricting lending. They control the process.
Is there a concern that if homeowners are perceived to have the upper hand, banks will say they just won’t lend in Nevada?
LYNAM: It isn’t, because I have been hearing that for 15 years now. When we went through the 2009 legislative session and said we need to get some deficiency language on the law, we heard that banks would stop lending in Nevada. California has had it on the books forever. California passed a homeowners bill of rights last year. I guarantee if you go back and look, they’ve closed a few loans since then. So, there really isn’t anything that can happen that can restrict lending. That shouldn’t be a concern. It may be an emotional plea, but it isn’t a concern that is based on data or fact.
Your organization contends that real estate lawyers have overstepped boundaries and are pushing people into loan modifications or bankruptcies when short sales are the best option for them. Can you give me some examples?
LYNAM: Here’s what happens: First, they will attempt to get their client to stop making their payments, if they’re making payments. Then they’ll do a loan modification, and they’re basically charging them half the loan payment. After that fails — and it always will — they’ll take them through the bankruptcy and the short sale process. The concern is the up-front fees that they’re charging, too.
What are those fees, typically?
LYNAM: As much as $5,000, as little as $1,500.
None of your recommendations deal with bank lending standards. Why?
SEARBY: I think you can look at the national lending climate. There’s a lot of self-correction going on. The standards have tightened legally, and the banks have imposed their own limitations because they know what can happen if they don’t.
WIGTON: Also, that has become more of a federal issue than a state issue. We’re talking about qualified mortgages here, and the National Association of Realtors has been heavily involved in determining where the credit standards are so that the consumer is qualified.
The issue of underwater borrowers is something you didn’t address in your report. In Nevada, almost 60 percent of all borrowers are underwater, and in Las Vegas, the number is higher. Is that on your mind?
SEARBY: The point of the bigger picture here is that while Nevada may not be ready to close the book on foreclosures, Nevadans are saying they’re ready to turn the page. The data is showing from the survey that people remain optimistic; 79 percent of those who personally experienced foreclosure said they still think homeownership is part of the American dream; 18 percent of them are looking to buy a home in the next two years. You’ve got people who are looking to the future. They’re done talking about foreclosures. The underwater question, I think, is so ubiquitous that it has kind of become a non-issue almost.
But it restricts inventory.
SEARBY: The idea that there is going to be some huge flood of new properties — the so-called shadow inventory, which no one has really clearly defined — is just very implausible. For example, you would expect to see delinquencies either hitting a plateau or increasing while foreclosures are decreasing. That’s not the case at all. The number of foreclosures has decreased at essentially the same rate as the number of delinquencies. People want to make up these stories about all these properties that are coming on the market: there will be a flood, it will be doomsday. But the data just doesn’t support that. The housing and economic data tend to show that this is a real recovery.
FINSETH: The inventory issue is a nationwide problem. It is not isolated to Las Vegas or Nevada. Inventory is down across the country, and a logical conclusion would be that the national settlement has something to do with it.
It struck me in the survey results just how optimistic people are despite how devastating the housing crash was.
SEARBY: We had the same reaction, but we found that Nevadans are ready to turn the page. We have got to stop talking about our state as if it’s the worst state in the union, our economy’s the worst, and all of the negative superlatives. They’re done. People are done with that kind of conversation. Let’s move on; let’s turn the page and start thinking about what the next phase for Nevada could be.
Is it a concern that the majority of sales right now are by cash investors and not people who actually will live here? Are you worried that investors have inflated the market so much that prices will get too high and they’ll leave?
LYNAM: I don’t know that they ever leave. The investor will always be here as long as the price of the home is conducive for them to be here. But I think that there is a significant amount of owner-occupied pressure that will take up any slack they leave.
Homeowners and brokers say there are multiple bids on every house up for sale in Las Vegas, and there always several investors looking at each deal.
LYNAM: I listed a house last week at 2:32 p.m. and by 2:44 p.m., I had six offers. I ended up having more than 40 offers on that house. It was a short sale on a $115,000 house in the southwest valley that we eventually sold for $140,000. About a third of the offers were owner-occupied.
The rest were investors?
LYNAM: Yeah. I sat down with the seller before and said, “You get to choose who you sell it to, but in my mind, we should allow an owner-occupied person — everything else being equal — to live in this home.” And they agreed. The last two listings I’ve done, the clients have agreed that they want an owner-occupied. The seller still controls the process of who he wants to sell that home to. It’s his choice.