The realities of home ownership have finally hit Northern Nevada, and the truth, for some, can be summed up with one word: Foreclosure.
The foreclosure boom has real estate and mortgage experts are looking forward to the return of traditional home lending practices.
July statistics released by RealtyTrac, an Irvine, Calif.-based Web site for real estate foreclosures, show Nevadans experienced the greatest foreclosure rate per household this year.
A local Realtor said the foreclosure trend here, accompanied by the cooling market, is a means to a more "realistic" future.
"In the last couple years when the market was very high, I'd show doctors around, and they'd say 'I have student loans, I can't afford to live here,'" said Kathy Tatro, a Realtor for the Carson Coldwell Banker Best Sellers. "Our cost of living shouldn't be higher than our wages.
"Right now, it's hard to be a Realtor, it's hard to be a lender, it's hard to be in the title company " in the long run, the market change is a really, really positive thing."
The long run may not come soon enough for several local real estate investors, who stand to find themselves homeless, and, at the very least, with credit in shambles.
Thus far in 2007, one of 75 households in Nevada has faced foreclosure " 3.5 times the national average.
The state documented a total of 11,514 foreclosure filings during the first quarter of this year, an increase of 66 percent from the previous quarter and more than double the total reported in the first quarter of 2006.
The greater Carson area is no exception to the statewide trend.
"We've seen an increase in foreclosures, but I can't quote you a number," said Robin Houston, Carson City's deputy recorder.
Those dealing directly with the beleaguered homeowner say the number of bankruptcies resulting from foreclosure locally has gone up "substantially."
"We've seen an increase of about, I would say 150 to 200 percent in persons coming in who have a foreclosure pending or are in arrears on their primary home," said Carson City bankruptcy attorney Stephen Young. "The main problem seems to be in good times people were refinancing their homes to reduce debt caused by overspending, not budgeting back before they refinanced.
"So, they overspend, they accumulate credit card debt, refinance to eliminate credit card debt and the cycle repeats itself."
Indeed, according to the Humanitarian Research Institute, a nonprofit legal resource center, cash borrowed against home equity from 1990-98 was $50 billion per year. From 1998-2002 that figure had climbed to $300 billion per year.
One Carson-based mortgage broker said things could get worse.
"This is the beginning of the foreclosures," said mortgage broker Kesa Pascal of Trans-Western Investments. "In Washoe County you get 40 defaults a week. As these foreclosures are happening more " lenders are going to cut more."
Michael Krein, president of Nevada Real Estate Services, said he knows of 700 properties foreclosed on this year and expects that number to increase as many short-term loans are due to have payments adjusted through 2008.
In some cases, depending on the terms of the initial loan, payments can go up 50 percent he said.
As a result, lenders nationwide are going to a more traditional lending format Pascal said. Even so, Wall Street investors, leery of the foreclosures and defaults, are not buying mortgages.
Earlier this year, both lenders and investors soured on subprime loans to people with bad credit or just starting out " which, according to experts " was the lifeblood of many upstart lending groups and the reason so many got into the market here in the first place.
"What's happening with the mortgage industry is a very positive thing," said Realtor Tatro. "I just saw an editorial cartoon with two bankers, one saying to the other 'What's the deal with people with bad credit not buying housing?'
"The mortgage industry was stretching people so thin " there were some strange loans. The change is positive and it's weeding out people that shouldn't have been in there in the first place."
The ripple could affect some local lenders.
"We haven't urged any of our clients into (subprime) loans," Pascal said. "We've been in business since '82, I've been processing since '96. Most of our business is repeat clients.
"All these other mortgage companies that opened their doors in 2002, it will be interesting to see what happens."
This week, Wall Street even encouraged lenders to decry jumbo mortgages (those above $400,000) even for borrowers with good credit and a 20-percent down payment.
The redefinition of the first-time buyer with zero-down payment, stretching to make loan payments, may be a short-lived phenomenon, one consumer advocate said.
"We hope more people look at this and get educated," said Larry Bush, communications/media officer for the Department of Housing and Urban Development.
Bush said loans secured through his office are done by buyers using the Federal Housing Administration, a government agency which insures residential mortgage loans.
Those homeowners go through a more rigorous and at times "realistic" process, Bush said. A process he hopes catches on in the private sector.
"In order to qualify, you have to go through housing counseling, that's usually a wake-up call," Bush said. "If more people were going through a housing counseling program, there would be fewer foreclosures."
