This week home mortgage borrowers got the latest word on how much they owe compared to the actual value of their real estate – and the numbers are only getting uglier.

First American CoreLogic, a company that gathers data on millions of mortgages that have been packaged into securities for investors, reports that nearly one in four home loans nationally is now larger than the actual value of the home that backs it. In other words, one-quarter of all home loans are underwater!

In just the last three months of 2009, plummeting home prices and accumulating debts pushed 620,000 more homeowners into negative territory.By far the worst off are borrowers in Nevada, 70 percent of whom now owe more than their homes are worth. Not far behind is Arizona, where more than half of borrowers are underwater, and Florida, where 48 percent are in for more than their homes’ value. New York is weathering the storm the best, with just 6.3 percent of borrowers owing more than their homes are worth. (New Yorkers who own should be thankful for their perpetual housing shortage, since it helps keep prices strong.)

For most homeowners, negative equity is just a temporary setback – like watching your stock portfolio dip below where it was when you bought it. Eventually, odds are the values will recover.

But the new numbers show that for an increasing number of homeowners, negative equity is becoming a way of life – and that means living on the edge of foreclosure. Negative equity sharply increases the odds that a homeowner will decide to “walk away” and stop making mortgage payments. And even if a homeowner is eager to avoid foreclosure, owing significantly more than a home is worth usually makes it impossible to refinance or sell the home. If that owner loses his or her job and can’t find another, or needs to get out of an adjustable rate mortgage, a future foreclosure is likely.

Plummeting home values aren’t the only reason homeowners are sinking more deeply into the hole. Borrowers hold hundreds of billions of dollars’ worth of Option ARMs, which allow borrowers to pay less each month than it would actually cost to pay off what they owe on the mortgage so what they owe actually grows. Most borrowers with Option ARM mortgages have only been making those minimum payments. Interest rates are low right now, so some are managing to make a dent in their loan balances anyway. But as rates rise, which they inevitably will, these borrowers are poised to fall farther and farther behind – and when they fall too far below the total amount of principal they owe, their monthly payments are programmed to jump sharply.

In the coming two years, according to Amherst Securities Group, borrowers will see these payment spikes on more than $150 billion worth of Option ARM mortgages. That means that they’ll be forced to start spending more each month, and start catching up with what they actually owe on the house. And if they can’t? That’s when the sheriff comes calling.

The good news: nearly half of all homeowners with a mortgage still have equity in their home. Which side of the picket fence are you on?

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This is just another avenue of down payment assistance programs that are available to home buyers.
By Michael Mishak, Las Vegas Sun

Three years ago, as the Culinary Union sat down with Las Vegas casino companies for a new round of contract talks, labor leaders sought to preserve the city’s identity as a worker’s paradise, the place where a housekeeper owns a home. Part of the Las Vegas dream had always been homeownership — and the housing bubble, driven by subprime mortgages and real estate speculation, was pushing that core promise out of reach for many of the union’s rank-and-file members. The median sale price for a single-family home in 2007 topped $300,000.

So the union asked the casino companies to chip in to a fund that would help its workers buy homes. Three years later, nearly 200 families have used about $1.1 million in down-payment assistance to purchase homes. The program, a joint partnership with a matching grant from the state, has leveraged $24.3 million in home sales throughout Southern Nevada.

Under the program, members can get up to $20,000 in down-payment assistance but must first qualify for a mortgage, contribute 1 percent of the purchase price and complete an eight-hour homebuyer education course. Borrowers must repay the down-payment loan when the home is sold or refinanced. Today, half of the trust fund, or about $1 million, remains.

To be sure, the recession has rocked the union, which has lost roughly 10 percent of its members to layoffs and hour reductions. But tumbling home values and access to the loans has created opportunity for 197 families over the past year, with the program seeing big demand in the last quarter of 2009.
These first-time homebuyers are a rare bright spot in Nevada’s battered economy. Below, four of their stories:

Carla Henderson, 48: Booth cashier, Paris Las Vegas
Carla Henderson and her husband moved to Las Vegas from Kansas City 25 years ago. They raised a family on casino jobs and had dreams of starting their own mom-and-pop restaurant.
But life had other plans. They ended up with custody of their three grandchildren, making home a rented condo near UNLV. Over the years, Henderson watched their neighborhood decline and feared for her grandkids’ safety. When the complex saw a rash of shootings, the Hendersons went house shopping.
They sought financial counseling through a nonprofit but their paperwork was going nowhere. Enter the Culinary’s housing program. After taking an eight-hour class, Henderson had her sights on a house. Apparently, so did a group of vandals. They broke in, smashed holes in the walls and destroyed the toilets, sinks and bathtubs. Total damages: $80,000.
Henderson found another house and, with the help of the down-payment loan, closed on the deal last spring. “That was always the obstacle for me,” she said. “I had good credit, good work history. I just didn’t have the lump sum to put down. That was keeping the dream from coming true.”
Shortly after moving in, she had her first house party — and invited her loan officer, home inspector and real estate agent. Her grandchildren — ages 9, 11 and 12 — love the place. Her husband has planted fruit trees and the couple are busy on a variety of improvement projects.
“I have never been more ecstatic,” Henderson said. “It’s that security, to be able to say, ‘This is the foundation. This is mine.’ ”
Still, there’s guilt, especially when she thinks of her troubled co-workers.
“I’m happy, but in the back of my mind, in order for me to have my happiness means somebody else lost theirs,” she said. “And there’s a part of me that feels bad because my happiness came about as a result of somebody else’s misfortune.
“But I worked hard and the opportunity presented itself. I’ve put down roots now. I’m not moving. I’m not selling. This is it.”

Minjia Li, 26: Bus person, Japonais, at the Mirage
Minjia Li came to Las Vegas from China a decade ago.
He graduated from Clark High School and pursued a degree in electrical engineering at UNLV, supporting himself with a bus job at Japonais in the Mirage. Li interrupted his studies to return to Shanghai to get married. He and his wife came to Las Vegas to start a life together, but a house seemed out of reach.
“The market was crazy,” Li said. “I thought I would never purchase a home in my life.”
Then the recession hit and sliding property values prompted them to start looking. Still, real estate agents wouldn’t return their calls. The home-buying education class at the Culinary Training Academy changed that. Officials even helped him navigate the bureaucracy of verifying money his relatives had sent from China to help with the purchase.
Li and his wife moved into their four-bedroom house, complete with three-car garage, in July.
“I do believe that people deserve the right home and it takes efforts from everyone — the right Realtor, the right financing,” he said. “This is a total achievement of the American dream. For you to be settled and grow in America, to feel you are a real American, you need a home.”
He was so inspired by the experience that he got his own Realtor’s license and has sold four homes. Still, Li said, the banks need to loosen credit for working families.
“The banks aren’t helping the people that need to be helped,” he said. “They are looking for cash purchases and the easy deals. Investors are taking advantage of that. When we see the right people can’t get the right help, there’s a lot of frustration.”

Juan Exposito, 55: Room service server, Harrah’s
Juan Exposito (wife Milagro is also pictured) moved to Las Vegas from Los Angeles in 1997. He got a job working room service at Harrah’s and moved his family into a rental home in Summerlin. A few years later, he considered buying a home but the prices had skyrocketed. Rent was far cheaper than a mortgage.
“It felt like California,” he said. “We didn’t have a chance to buy a house.”
When home values tumbled, Exposito went on the hunt. He looked at 50 homes over the past year before settling on a four-bedroom home. His limit was $200,000. He got his dream house for $170,000. His neighbor, he said, paid $450,000 at the height of the bubble. Today, Exposito’s mortgage payment is $200 cheaper than the rent he used to pay.
“It’s like it came from the sky to us,” he said. “It’s what people call the American dream, to find this type of house for the price I got it. It’s unbeatable.”
Asked about his house, Exposito gushes: “It’s 2,400 square feet, living room, dining room, huge kitchen, family room, guest room with full bath.”
Still, the recession has taken its toll. Harrah’s reduced Exposito’s hours, so he works an additional shift at Red Rock to round out a 40-hour week. His tips are also down dramatically, from around $300 a night in the go-go years to $100 now. Nevertheless, Exposito is glad to be working.
The house, he said, provides stability.
“I’m happy,” he said. “I feel safe.”

Erika Pabst, 67, & Judy Hahn, 49: Retired food server, Binion’s & Hostess, Hugo’s Cellar, at the Four Queens
Erika Pabst and Judy Hahn met when they served tables at Binion’s two decades ago. Pabst, a former flight attendant from New York, and Hahn, a Vegas transplant from Washington, struck up a friendship and decided to become roommates, renting a spacious three-bedroom apartment.
After years of apartment living, they had talked about buying a house but prices were too high. When the Culinary announced its housing program, Pabst and Hahn jumped at the opportunity. The down-payment loan was crucial, as was the education program, which walked them through each step of the purchase.
They settled on a four-bedroom house with a view of Sunrise Mountain.
Four years ago the asking price was $279,000. Pabst and Hahn paid $124,000.
Compared to some of their co-workers, they said they had it easy.
“I’ve heard horror stories,” Hahn said. “Someone finds a house, puts in a bid and then an investor outbids them. It’s been hard for people to even find a house.”
In October, Pabst and Hahn moved in and have been busy painting and laying tile. After 21 years of serving at Binion’s, Pabst was laid off last May.
She’s collecting her pension and Social Security and looking forward to volunteering for her friend’s judicial campaign.
“We are kind of overwhelmed with all the space we have,” Pabst said. “We’re loving it.”

Measure to help bring stability to home values and accelerate sale of vacant properties

WASHINGTON – In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan today announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. The announcement is part of the Obama administration commitment to addressing foreclosure. Just yesterday, Secretary Donovan announced $2 billion in Neighborhood Stabilization Program grants to local communities and nonprofit housing developers to combat the effects of vacant and abandoned homes.

“As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers,” said Donovan. “FHA has an unprecedented opportunity to fulfill its mission by helping many homebuyers find affordable housing while contributing to neighborhood stabilization.”

With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.

“This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed,” Donovan said.

In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

“FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties,” said FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.”

The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

•All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
•In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.
•The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD’s website.