About Las Vegas' Anthem

Mortgage lenders and servicers have generally been going at a snail's pace, or slower, in modifying homeowners' loans. Many applications to do so have been actually declined for a variety of reasons. Some borrowers have just plain given up on the process due to all the hoops they have to jump through and still not get anything meaningful done. And all the well-meaning government programs introduced so far have produced at best mixed results.

A major mortgage provider, Wells Fargo, is doing something different now. It is taking the lead in home loan mods by taking in the so called Pick-A-Pay mortgages, an option ARM product it inherited with the recent Wachovia purchase, from distressed borrowers and replacing them with interest-only paper with due dates possibly as far down the road as 6 to 10 years.

The plan also includes the much sought-after mortgage principal reduction that every home owner who is underwater can appreciate. According to Wells Fargo its modifications to date have resulted in about $2 billion worth of balance cutbacks, averaging roughly $46,000 per loan. From what it looks like is that the bank is offering to reduce the underwater portion by about half. Let's say a home has a loan balance of $400,000 and is now worth only $200,000, Wells Fargo would propose a new interest-only mortgage amount at $300,000.

Las Vegas valley - including Summerlin, Henderson, Southern Highlands, Anthem, Mountains Edge and Green Valley - home owners who are currently on Wells Fargo mortgages could benefit from this. It's predictable that it is mainly targeting the most-ravaged real estate markets where being underwater is very common. Las Vegas certainly qualifies here. This could also inspire other mortgage lenders to come up with similar modification programs.

People are increasingly walking strategically away from their home loans which has obviously influenced Wells Fargo's decision makers. It clearly makes decent sense to give up half of the negative equity than the whole thing when a foreclosure sale is the other option. Every home owner isn't going to buy into this plan because it can still leave them on the hook for years to come. Most-affected Las Vegas residents, for instance, are likely looking at years in double digits before their home values recover to match their mortgage balances, provided the economy here gets back on its feet soon.

The healing of the housing market, in Las Vegas and nationwide, will come. Although it could be painfully slow. Wells Fargo is evidently betting that it is doing that within ten years and it could be right. Everyone would be happy to hoist a cold pint for that.

Mortgage-backed securities, or MBS, played a pivotal part in the recent galloping real estate market and in its eventual and memorable collapse. These bonds get rated based on risk before they are offered for sale so that potential investors - pension funds, university endowments, international investors, among others - know what they are fiddling with. Moody's is one of the top three in U.S. to do that, the others being Fitch Ratings and Standard & Poor's.

When Moody's was spun off from Dun & Bradstreet early in the decade, the long-time corporate philosophy of honest and quality ratings was supplanted with a more pro-business one. In essence it would now pay more attention to the bottom line than accurate mortgage and other bond ratings. It needed to keep its market share, and possibly even increase it regardless of the means. That looks like a dangerous shift in corporate strategy. And it was.

Writing countless AAA ratings for mortgage bond issues - and also doing packaging of securities - earned Moody's superb fees. Later on many of the issues were rated no more than junk. The ratings were based on mathematical models that were far from accurate and often hopelessly out of date. Perhaps so by design. Anyhow, life was good. Not only for Moody's but the other players as well. Global investors trusted their advice, liked the yields and were writing checks left and right. And then the unthinkable happened. A thermonuclear event blew up the mortgage industry.

Another aspect about the mortgage bond rating regimen that skews its results is how the agencies are compensated. For decades now Wall Street itself has been paying the fees, the same investment firms that benefit from top ratings - no matter how erroneous - when marketing their products. That smells of a major conflict of interest. How objective can a rating be when it's done this way? Not very. Decades ago, before the new setup was approved it was the investors who plunked down cash for the ratings. That makes much more sense and should be considered for revival.

Government regulation - currently through Securities and Exchange Commission (SEC) - of this particular segment needs to be carefully assessed and preferably tightened. The big investors were badly scorched in this recent home loan and real estate meltdown. They formed the backbone of the secondary mortgage market here and they are needed there again. But to convince them to return requires new procedures and rules that would assure them the securities they are considering are thoroughly and competently researched and then rated accordingly. After all, the Fed, having largely replaced the no-show investors to keep the secondary mortgage market alive and liquid, can only do it for so long.

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.

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.