Posted on 03/28/2006 9:40:42 PM PST by ex-Texan
Bankers, lenders remain bullish, but rate hikes may collapse house of cards
As the home-loan delinquencies rise nationwide, Nevada's numbers remain surprisingly strong. However, the pending interest-rate hikes by the Fed, the day-to-day fluctuations in oil prices, and the Silver State's high percentage of interest-only and adjustable-rate mortgages have left some lenders and analysts wondering if the bubble will burst.
"Where you will probably have problems is with the no-down-payment, 100-percent-financed ARM (type of loans), and interest rates go up," Nevada State Bank Senior Vice President Jeff Bargerhuff said. "It's kind of like the perfect storm of mortgage lending."
Nevada ranks second in the nation at 61.3 percent, behind only California (69 percent; in 2004, it was 46 percent), in the percentage of potentially negative-amortizing mortgages, including interest-only and products with ARM options, according to the Federal Deposit Insurance Corporation's most-recent numbers. Nationwide, 49.5 percent fall into that category. "ARMs tend to have a higher rate of foreclosure," said an official from the Mortgage Bankers Association. Realtor Linda Rheinberger shows a house in Summerlin to prospective buyers.
The year-end 2005 FDIC statistics show a sharp jump from the same time 12 months before, when Nevada's interest-only and adjustable-option loans were more in line with the rest of the country. The state had 39.5 percent of its mortgages in that category at the end of 2004, compared with 31.1 nationwide.
"It jumped for the nation and for Nevada. The reason is affordability," explained John Anderlik, the acting regional manager in the FDIC's San Francisco office. "With price appreciation in Nevada, it is getting more difficult for people to afford their homes. These products have become more attractive as affordability goes down."
Nevada has struggled with affordable housing issues as land prices skyrocketed in the past few years. Statewide, home prices rose 18 percent during 2005 and 37 percent in 2004, which enabled buyers to flip their properties if they couldn't afford to pay their mortgages, Anderlik said. "If they've been in them two or three years, they have pretty good price appreciation. That's the reason we have seen very few foreclosures."
A recent survey conducted by the Mortgage Bankers Association found that only 0.3 percent of the home mortgages in Nevada were in foreclosure as of the end of 2005, making it the 48th-lowest out of the 50 states, the District of Columbia and Puerto Rico. Nevada also showed one of the lowest home-loan delinquency rates in the country at 3 percent, according to the Mortgage Bankers' report. Past-due loans are defined as those 30 days or more behind in payments. Hurricane-stricken Louis-iana led the way in past-due loans with 21 percent, while Ohio ranked first in foreclosures with 3.2 percent.
EXCELLENT RATIO
Bankers like Nevada State Bank President Bill Martin are happy with the performance of their mortgage portfolio. "We have over 4,000 first mortgages, and only three are delinquent, and none over 90 days, which is when they usually trigger default," he said. "The economy is that good, but we also try to select very well. When somebody asks for a loan, we have to look at their ability to pay at a higher rate. With some of the others, there is no question there is a risk of default."
Wells Fargo has enjoyed a strong loan portfolio in Nevada as well, said Ed Delgado, the bank's vice president of default information. "I have not seen an increase, fourth quarter 2004 to fourth quarter 2005, in terms of Las Vegas." The bank would not release specific loan numbers, but the banker did say Wells Fargo tries to be proactive with its loans. "We might get involved in past-due loans before the 30-day point. We might call the consumer at 10 days or 15 days past due." At that point, the lender might be willing to adjust terms or make other arrangements to help the borrower.
Problems can show up when underwriting standards are relaxed, Martin added. "It just depends how tight the lender tied it and if they just didn't care because they wanted the loan. You have to realize people have car payments and other things to pay."
RISKY ARM LOANS
Some of the riskiest of loans -- the subprime ARM loans -- showed an increase in delinquencies at the end of 2005. The Mortgage Bankers reported 7 percent of such loans were 30 days or more past due in Nevada, compared with 5.2 percent the year before. The U.S. averaged a 12.6 percent delinquency rate in subprime ARM mortgages as of December 2005, which was up from 10.7 percent the year before. "They have shown some deterioration," Anderlik said of Nevada, "but they remain strong compared to the rest of the nation."
The last year was tough on mortgage holders. Nationwide, borrowers faced higher interest rates and fuel costs and mortgage delinquencies rose 4.7 overall, hitting its highest point since the middle of 2003.
"It's what we have been expecting," a Mortgage Bankers representative said. "There are so many new loans out there that haven't been seasoned. Interest rates may play a role in the future, but right now, it is just the economy -- job loss and low (home) appreciation."
Fortunately, those are two things that Nevada has not had to contend with in quite a while. "Nevada is anchored in the West Coast, where a lot of the home market is strong," said Wells Fargo's Delgado, who expects interest rates hikes to halt soon with inflation in check.
San Francisco-based RBC Capital markets analyst Joe Morford pointed to the Silver State's economy: "The healthy job market should keep loan losses to a minimum," he said.
One Source Realty broker and owner Linda Rheinberger believes there might be too much emphasis put on Nevada's interest-only loan numbers anyway. "It's just to maximize return," she said of the financing's popularity among investment buyers. "If you don't hold the properties that long, it doesn't make sense to put money down."
Maybe a little longer than that.
I have been saying this for two months here on FR. Many people have said I was nuts. But the housing bubble is just starting to break. I posted a comment two days ago warning that California may face a similar fate soon and that right now housing is at it tip-top peak. Again, people were telling me I was wrong.
The national economy is really many regional economies. Nobody really studies regional economics in college but that is the most important subject books do not cover. California may be booming while Indiana is fading. I believe the bubble has already burst is sections of California. But, then what do I know?
My best buddy is moving to Nevada and will buy near Lake Tahoe. He was working for the holding company that owns Coldwell Banker and Century 21 and was running the entire western region of eleven states for them: Take the hint folks.
7 posted on 10/07/2003 3:58:13 AM CDT by ex-Texan
Hmmmm, very interesting. Provocative, even. Let's check the tape!
When I click on that link you provided, I see entry number two:
www.NewsPundit.net; Your Worldwide Source for Superior News & Blogging ...
Headlines, news weblog and links to news sources worldwide.
Definitely no blogging going on there....
LOL
LOL!!
That last paragraph is a doozy. If I read that right we should all just swap houses every six months or so and hence never let the market drop.
You ought to be writing your Book, Petronski! What's the matter? Have you got got writer's block? You will never finish your book or have a chance at best seller as long as you spend time on FR.
But it's NOT A BLOG, and you're not pimping it.
Right.
Many were agreeing with my post way back then. Some were relating examples of how real estate was starting to fall down in their region. The real estate bubble may have collapsed by if the Fed had remained neutral. But something happened. Greenspan intervened.
On or before March 8, 2004, Fed Chairman Alan Greenspan himself told Americans they should opt for exotic mortgages! Greenspan advised homeowners to refinance into adjustable mortgages just as interest rates were beginning the big upward move. He asserted that homeowners could save a ton of money if they took out an adjustable rate mortgage instead of a fixed rate mortgage. Many financial advisors were incredulous when Mr. Bubble gave that advice.
So Alan Greenspan sold the concept of exotic mortgages to America. The bubble should have leaked nationally in 2004. Between 2004 and 2006 millions of Americans bought homes at hyper-inflated prices. Using exactly the type of mortgages that are now causing default problems.
Ex-Texan Post 68:
That must be why the site is ranked # 8 out of nearly 78,000,000 sites for news and blogging links
But you just spend your time writing vapid insults at a disabled person for pleasure.
Pull out the victim card... How very liberal of you. (As if your disability has anything to do with anything)
But you are pimping it with a large picture of your cover. LOL, LOL, LOL . . .
I am not in one of those insane markets, and even here locally they are predicting a 16% default rate in the coming year.....
People who think there is no housing bubble, and that it won't have any impact on them... are in la la land.
These people who are attacking me may be in the business of pimping real estate or mortgages.
The Fed Funds rate was reduced to 1% in June of 2003.
On or before March 8, 2004, Fed Chairman Alan Greenspan himself told Americans they should opt for exotic mortgages!
"Hunny, should we buy a new bigger house?"
"I don't think we can afford a bigger mortgage."
"Alan Greenspan said we should opt for an exotic mortgage."
"Let's do it!!"
LOL!
So Alan Greenspan sold the concept of exotic mortgages to America.
Yeah, no one ever used an ARM before March 8, 2004. And those ARMs are really exotic!!
You're silly. So, if the bubble doesn't burst this year, you'll still be right? What if it doesn't burst next year either?
I hope they go down on that lake-front cottage I am dreaming about.
Are you referring to yourself? I have no idea whether or how you might be disabled, but I'll presume you are.
No aspect of your disability has prevented you from posting hysterical and misleading information about real estate, therefore, no aspect of your disability should protect you from criticism of your posts, nor will any aspect of your disability prevent you from defending your positions with facts, if you can.
In any event, I've insulted your behavior, not you.
Predicting the demise of a "bubble" is really difficult. I thought the NASDAQ was primed for a big fall in 1996.... the real crash was delayed for four more years. In that time, lots of people made LOTS of money.
Let's see..... housing pricing in San Luis Episcopo are increasing at 2% per month, 21% per year, and now AVERAGE $604,000... and, That's not a bubble?? ok... ya'll just go on thinkin that.
Perhaps, I'm a little jaded. Since, I lived near Houston in the mid-80's. I SAW housing prices (that had been increasing for decades) decline >50% in SIX MONTHS. I saw neighborhoods with more than 50% of the homes for sale, and ~25% or more in foreclosure. And.. here's the REALLY scary part for me: At that time, Second Mortgages were ILLEGAL in Texas. To buy a home, you had to have AT LEAST 5% downpayment, most were 10%. So... everyone had REAL equity in their homes, but... many still ended up in foreclosure. Today, 69% have potentially negatively amortizing loans????? Man, we've come a long way...
God help us all if we do ever pop this bubble.
You must be a real estate pimp in addition to a book pimp.
Lay it on thick now. It's all you have left.
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