Esko Kiuru - Las Vegas NV Mortgage Consultant

FHA is a mortgage loan insurer that has stepped into the rather sizable vacuum the recent housing finance market collapse created. Inside Mortgage Finance reports that its market share has jumped from a paltry 3% in 2006 to a strong 23% in the second quarter of 2009. It has become very popular especially with first-time home buyers because of its as low as 3.5% down payment requirement and more accommodating underwriting guidelines. Those parameters, actually, have to be well-liked by all borrowers.

As real estate prices have been steadily sinking in several areas, among them of course Las Vegas, FHA's increased exposure in them is also bringing more losses. Mortgage Bankers Association, or MBA, enlightens now that by the end of June 7.8% of its insured mortgages were 90 days or more late or then already in foreclosure, while a year ago that figure stood at 5.4%. The trend clearly is leading in the wrong direction.

FHA is required by Federal law to hold cash reserves a minimum of 2%, counting anticipated losses, of its insured mortgage portfolio. In 2007 the quotient was a healthy 6.4%, but took an ominous drop to around 3% last year. Another indicator that gets government housing officials and others in the know talking, some of whom are suggesting tighter controls.

The mortgage arena is today by a large measure maintained by Washington, FHA itself having a good share of it and then there is the Fed that is by far the most active buyer of Fannie Mae and Freddie Mac paper on the secondary mortgage market. FHA could be pressured into tightening oversight just to abide by the law, and the 2% minimum, and that would put more strain on any nascent nationwide real estate recovery. That in fact is already evident, as the new commissioner recently took a firm stance toward a national FHA lender, suspending its charter.

The housing market appears to be at a turning point for the better in many regions. That should help stabilize prices and therefore rein in any further losses at FHA. It then would be able to continue operating without too many new restrictions and provide further momentum to the budding recovery that everybody is anxiously waiting for.

The Federal Reserve has become the bedrock of the mortgage market, whether it likes it or not. It's buying just about all of the Fannie Mae and Freddie Mac paper, the conforming kind, to provide badly needed liquidity in the secondary market. Private investors are almost non-existent over there; for lack of funds to participate, for still harboring loads of toxic home loan securities in their books or just being wary about getting back into the recently-devastated mortgage bond business.

In the Fed's August Federal Open Market Committee, or FOMC, meeting one of the topics around the table touched on the continuation of its aggressive purchasing program of these mortgage bonds. Since there are some cautious signs that the economy is about to turn around some members felt the critically-important effort should begin winding down. Winding down? That would be premature, to put it bluntly.

Las Vegas area - Henderson, Anthem, Summerlin, Sunrise Manor and North Las Vegas - real estate, to give an example, is still in slow motion, despite some news lately about increased resales. There is still a long way to go before "normal." The same can be said about many other markets, most notably large sections in Arizona, California and Florida. If the secondary mortgage market were to shrink with Fed pulling slowly out, it would roll back some of the nice gains achieved so far. It would delay a solid housing recovery by months, if not longer. And the entire economy would be slow in waking up since housing has such a large impact on it.

The private financial sector worldwide is not strong enough yet to step into the possible vacuum. The Fed's purchasing program should go on well into next year to assure the current gradual expansion gathers steam.

Residential real estate plays a large role in U.S. economy. Recessions are an inevitable experience in a market economy like ours. They come and go. Historically housing has been the engine that has usually generated the necessary momentum to pull the country back onto a path of solid growth. This time, however, things could shape up differently.

Co-chief investment officer at Pimco, a huge bond fund from Newport Beach, California, Bill Gross makes that argument. His reasons include reduced consumer spending, more government regulation and a newly-discovered trend for people to save. All basic macro-economic developments and definitely valid points.

The mortgage industry appears to have a hand in this potential shift, too.

Home loan providers have suffered losses to the tune of a few gazillion smackers, have therefore become very cautious and are hardly in a position to underwrite the amount of mortgages that are needed to make a serious impact on the economy. The government bailout money many have received has largely been used to shore up their own balance sheets, pay ill-advised bonuses and acquire other failing banks. Even well-qualified mortgage applicants often are turned down due to strict loan requirements prevailing nowadays. This is not going to help much to power up the housing market.

Las Vegas, Nevada, is a good example of a real estate market where thousands of mortgage balances are much higher than the prevailing housing values. In other words, many homeowners are upside down. They are unable to move anywhere; up, sideways or down. They are trapped. They cannot spawn demand at all, unless they happen to have plenty of cash handy to bring to the closing table if they desire to sell. In the near term, this is another obstacle to a smooth housing recovery.

Economic recovery is coming. It evidently just cannot rely on the housing sector as much as it is used to.

Las Vegas real estate market has undoubtedly seen better days. Anyone who knows something about the timely topic is well aware of that. Now there is an altogether new, bizarre twist to the notion.

National Association of Home Builders, or NAHB, convention comes to Southern Nevada every January to showcase the latest in their product lineup. It really is an impressive event and usually draws huge crowds year after year. One of the annual must-see displays is a model house, called The New American Home, which introduces the hottest new technologies available in home building. Domanico Custom Homes from Las Vegas is currently constructing this year's home, a 6,800 sq. ft. affair, using many energy efficiency features in it as well.

The project, however, has run into some mortgage loan trouble of late. Being about halfway done, the private finance source recently bowed out and no bank so far has been willing, or capable, to step in.

Usually mortgage lenders are more than eager to compete for a loan like this, as it gives them great exposure. This time things obviously are different. Most are still licking their wounds from the Wall Street meltdown, their books splattered with toxic home loan entries. Yet, thinking about it, this is not the average borrower who nowadays has to go through all the various underwriting hoops to get anywhere. This, if anything, is high profile.

Las Vegas valley - including Anthem, Sunrise Manor, Whitney, Henderson and Summerlin - also continues to top the chart for mortgage foreclosures, which of course casts a shadow on this case. In addition, the home is a custom effort, appraised a short time ago for $3.5 million, and values in the luxury segment here are very soft, so that, too, is a negative factor in the scheme of things. When this model was planned, perhaps a smaller version with fewer features should've been considered, knowing how volatile the local housing market still is.

Nevertheless, the builder is determined to finish it by early fall, and has also listed it for sale at $3.39 million.

Southern Nevada - like Green Valley, Summerlin, Henderson, Spring Valley and Eldorado - was rapidly pricing itself out of the housing market a few years ago. The recent unforgettable boom pushed home values way past the average household income, forcing many to buy property with flexible mortgages that they really couldn't afford, or leaving others out of the market altogether.

That was the flavor of the Las Vegas real estate scene then. Things, fortunately, have changed drastically from those days.

BusinessWeek.com and a research shop Reis made some advanced calculations to rank the top 20 cheapest housing markets in the whole nation. The study actually compared how much it costs to own and maintain a home vs. renting one. Reis put these figures together from its own second quarter rent statistics and from Zillow.com's second quarter home price records. And the envelope, please.

Vegas fought its way to the 11^th spot on the list. The own-versus-rent equation here has greatly narrowed now as prices have taken a major pounding, largely on account of oversupply and mortgage foreclosures, and home loan rates have remained nice and low. According to this report the own/rent ratio in Southern Nevada is 131%. If the figure is below 100%, it's cheaper to own a home than rent. In any case, at 131% it's a bit more expensive to own a place today, but the difference is now rather manageable.

Las Vegas has become once again an affordable place to own a home in. Like it used to be not that long ago. First-time home buyers are having a time of their lives picking and choosing moderately-priced property from a huge inventory, often using an FHA mortgage loan that offers a low down payment option and reasonable underwriting criteria. They may also qualify for the first-time buyer's tax credit of up to $8,000.

By the way, the top three places on this most affordable list went to Detroit, Pittsburgh and Rochester. N.Y.