Esko Kiuru - Las Vegas NV Mortgage Consultant

Southern Nevada - including Henderson, Summerlin, Southern Highlands, Green Valley, Mountains Edge, Anthem and North Las Vegas - has graced the pages of many publications in recent years regarding the improbable real estate meltdown and subsequent mortgage foreclosure rampage here. It usually ended up topping many of the national statistics that measured how deeply these negative housing market conditions have affected the area. That has not been fun reading for the locals. Going from a boom town to a bust town so quickly can be rather deflating.

Las Vegas real estate news have got cautiously better, though, in recent months. And another good piece was just published in Forbes magazine. Altos Research provided Forbes the data that it used to study 20 large housing markets in a somewhat unusual way. It measured the changes in price reductions in homes listed for sale. In other words, if a given market sees a growing number of price cuts, then that area is still getting worse. And vice versa. A refreshing method indeed.

Southern Nevada occupies the number one spot in this ranking of 20 major markets. In January 2009 54% of homes for sale here had seen a price reduction, according to Forbes. Fast forward to September 11, a few weeks ago, and that had happened "only" in 30% of them. A genuine improvement that propelled Southern Nevada to the top of the heap. Obviously this positive change comes from the demand side. When more people are looking for homes to buy, price reductions start disappearing.

Of course, this is just an indication that the housing market in Las Vegas is heading in the right direction, is about to find the bottom. The city is still weighed down by some fundamental problems, like high unemployment and mortgage foreclosures, that will slow things down. But nevertheless, the good news are beginning to appear again and predictably give everybody in the valley a much sought-after lift.

The key home loan financier operating on the secondary mortgage market has seen much better days with its immense portfolio. Just like most other lending institutions it, too, has been slowly bleeding as foreclosures keep shaking its once solid foundation. So much so that Washington had to bail it out a while back. Yet, it's still doing what it was mandated to do, invest in mortgage paper.

Fannie Mae, to stem growing losses, is gradually hiking mortgage underwriting criteria, though. In the latest round of updates that'll go in effect November 1, the borrower's FICO has to be 620 or better for every home loan that complies with its Selling Guide. This date applies to manually underwritten and FHA and VA loans. Furthermore, for mortgages routed through Fannie Mae's Desktop Underwriter the start date is December 12, pushed there to get the software configured. Excluded from this FICO upgrade are Fannie Mae's Refi Plus products and manually underwritten loans with non-traditional credit. The minimum score now is 580 for most programs and government loans have none.

Southern Nevada - Las Vegas, Southern Highlands, Summerlin, Henderson, Mountains Edge, Anthem and Green Valley among the communities here - is trying to emerge from a deep real estate slump and these changes naturally will hamper that. The same goes for many other areas in the country, from Arizona and California across to Florida and elsewhere. Not in a major way, but still. The home loan guidelines are already tough enough, so another degree higher will put more squeeze to getting approvals.

On the other hand, as the national housing market continues to plod along unsteadily, Fannie Mae applying more prudent risk management in mortgage lending is understandable. It's already supported by the government. If it makes more risky loans and they increasingly default, it needs more money from Washington to stay in business. In reality, that means the taxpayer who was approved for a mortgage and subsequently goes bust ends up paying for it himself. Stopping the potentially self-defeating cycle at the first step seems to be the right thing to do.

The U.S. housing industry is very dependent on how the secondary mortgage market is doing. That's where a large share of mortgage-backed bonds generated here are traded. In the recent past the private investor class purchased about 60% of the home loan paper for sale, the rest mostly being gobbled up by Fannie Mae and Freddie Mac. Now, after the angry tsunami swooped in a few years ago to decisively maul the real estate market, the private sector has all but disappeared from the scene. It's licking its wounds while trying to deal with the losses the devastation left behind.

The mortgage regime would have been severely handicapped had the Fed not moved in to fill the void. It's presently providing the liquidity that the limping housing sector sorely needs to function as well as can be expected under the circumstances. But the Fed can't be the solution for ever. The private investor has to return and again make a meaningful mark there.

The American Securitization Forum, or ASF, is doing something that will help convince them to look at mortgage paper again. ASF is a trade group for investors, issuers and servicers in the securitization business. It has created LINC, or Loan Identification Number Code, a 16-digit number that'll identify the mortgage loan type, its origination date and country of origin.

The purpose of LINC obviously is to provide more transparency to a skeptical investor about a particular mortgage product he might be interested in. As the home loan crisis unfolded the investor class quickly learned that what disclosures they were given didn't often match the reality. They were badly burned and prefer not to be sorry victims again.

Only time will tell how effective LINC will be in winning over the potential mortgage securities buyer. It'll at least be a step forward in the effort to draw him back in. The U.S. taxpayer should keep an eye on this because the Fed is really using his money to replace, hopefully temporarily, the no-show private mortgage player.

The secondary mortgage market is the life blood of the massive housing industry. If it catches any kind of ailment, the consequences can be rather dire. A serious virus invaded it not so long ago - it can also be called the great escape of the private investor - and threatened to bring the besieged real estate market to its knees. Or worse.

The Fed had to step in to fill the void and started buying Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities, or MBS, to maintain liquidity. To give the housing industry a chance to work itself out of this mind-boggling jam. The Fed had plans to do this through the end of this year, having determined that that's when things ought to be improved enough to draw the private investor back in. That hasn't happened, though, in the numbers they had expected.

The Fed has just this week extended its mortgage paper buying program until March of 2010. It really had no choice. With that, the home loan sector can breath a little easier at least for the time being. And the overall economy is in a better position to climb out of the gutter one of these days. The current plan calls for a gradual slowing down of the purchase process to make the eventual transition smooth, signaling that it is dead serious about exiting the scene in March.

The private mortgage investor needs to see that the housing segment is indeed worth putting money into, where it can expect a decent return. Otherwise it'll look elsewhere. Right now it just might be a bit of wishful thinking that things will pick up sufficiently by March. True, there are a few indicators that point toward a slow turnaround.

Las Vegas valley - including Henderson, Summerlin, Anthem, Green Valley Ranch, Sunrise Manor and Boulder City - for instance is seeing reasonable sales action in the lower third of the market, offering some optimism. On the other hand, high unemployment is a burden for months to come, as are the future mortgage foreclosure projections. And this appears to be the outlook in many other areas of the country as well.

It could well be that the Fed has to do another extension. The best would of course be that the Fed's calculations work out. But plan B is always good to have handy.

Moody's Economy.com analyst believes housing values will take a long while to regain the levels they reached around 2006, the peak year of this recent ultra expansion. Prices went up at a rather steep curve and then hit the breaks and plunged at a breath-taking velocity. With that a lot of other economic fundamentals were thrown out the window, too, and there apparently are the seeds to the sluggish real estate recovery.

Housing values will take 20 years to reach the earlier high point in California and Florida, the Moody's Economy.com forecast says. That's possible knowing what those states have gone through. Arizona and Nevada are conspicuously absent in it, although they are generally considered among the four most bubbling ones and then later the most tormented ones, sporting as severe mortgage foreclosure figures and stagnant housing market conditions as the other two.

Southern Nevada - Las Vegas, Henderson, Summerlin, Green Valley, Nevada Trails, Eldorado Highlands and Mesquite - then should look forward to getting the prices back sometime under 20 years. Provided that this report proves somewhat accurate. 10 years is a long time, 15 even longer. It could easily take double digits. To achieve that, let's say 15 years, depends on several key market fundamentals that are currently out of balance.

Mortgage interest rates today are very reasonable and home prices in Southern Nevada at ten-year lows that together would at first glance signal robust demand and possibly a nice-looking recovery on the near horizon. There are some noteworthy obstacles, however, that keep a lid on that for now. Home loan underwriting requirements are still strict, unemployment in Las Vegas is over 13%, down payment money is scarce and the move-up market is stagnant due to the severe upside down factor. Lot of parts that need fixing.

Las Vegas real estate sector should be on its way to a decent recovery once the employment in the valley and the entire nation, for that matter, improves. The sooner that happens, the better. The average median income that lagged way behind the rapid price appreciation and the spread eventually led to the head-first crash is pretty much covered, as values have plummeted. It's the other fundamentals that need help now.