About Las Vegas' Whitney Ranch

Home Owners Associations are as vulnerable to the mortgage and real estate meltdown as banks, property owners and investors are. There is no escaping the wrath of the marketplace. Homeowners finding themselves in mortgage payment trouble often stop meeting their HOA responsibilities even before letting the loan itself go delinquent. That can spawn an unrelenting downward spiral where the HOA falls short on its fee collections and has to cut back on services and maintenance, while affected homeowners later on go into foreclosure and abandon their properties, leaving vacancies subject to blight and all sorts of ugly stuff. The end result is deteriorating property values that can push other owners to leave the subdivision before things get out of hand.

Mortgage lenders have been slow in taking possession of delinquent homes because they don't want to glut the housing market. They have trouble selling for a decent price what's already listed for sale as it is. Many units are underwater - mortgage balance is higher than the underlying value - anyway, so what's the hurry. Pouring more inventory onto it would only continue softening values and further terrorize their already weak balance sheets. Not being in possession means they are also not legally responsible for the maintenance fees, leaving HOAs crying bloody foul. And for a good reason. They are literally between the rock and the genuinely hard place.

Some creative real estate legal minds have come up with a solution to that. For lack of a better name it's called a reverse foreclosure. This is what it looks like. The HOA files for a foreclosure, which is well within its rights, because the homeowner ceases making dues payments, and takes title. Of course it cannot sell due to the bank's mortgage lien on the home. But it can give up its claim to it and petition the judge to hand the title back to the financial institution which makes it now liable for the dues. Nice little maneuver.

This procedure is rather new and may not be applicable in all states. It depends on how each state's law is written in this regard. Florida seems to be the testing ground here as it has accumulated its share of mortgage foreclosures and subsequent HOA revenue shortfalls and the law there supports this.

The mortgage and real estate turbulence will continue for the foreseeable future, putting more pressure on HOAs to find the needed revenue for their operations and reverse foreclosure can offer a workable remedy. States that lack this type of structure may add it to their existing statues later on to help balance the playing field.

Las Vegas housing market alone would be a big beneficiary if it did happen. Southern Nevada has already seen solid gains this year in sales thanks in large part to the first-time buyer tax credit of $8,000. This incentive is set to come to an end December 1.

NAR, or National Association of Realtors, and the mortgage industry are currently working on Congress to keep it going well into 2010. It has such a good track record, so why not. They have two other worthwhile ideas in mind as well.

The tax credit ceiling ought to be hiked to $15,000 is one of them. If it were to go that high, it would really give the real estate market some kick. Of course this would cost the U.S. Treasury another chunk of money, so there could be some resistance to it. But on the other hand, it might be better spent this way than hand anything more to banks that have largely been using bailout cash for just about everything else but help the housing industry. In other words, make mortgage funding more available to borrowers.

The other is to allow every homebuyer under this tax credit umbrella. Not just first-time buyers. There is no doubt that this would give the housing market another serious injection of valuable medication.

The real estate market is a key element in the entire economy that is still wobbling along. In light of that, it's predictable that some sort of a stimulus effort will be enacted before too long and hopefully it includes some good news for the housing sector.

This outcome hasn't been discussed much before but now it's out there for everyone to see. Namely that if a homeowner in distress is successful in using the Home Affordable Modification Program, kicked off in March, to lower his mortgage payments, his FICO score is likely to take a hit. FICO is the commonly-used barometer to assess a consumer's credit standing.

That's because many mortgage lenders report the modification to FICO as such. This means that the original terms of the loan were changed, often for less than the full amount, and any time that happens FICO's existing formula regards that as a negative. The score can drop 100 points and more. A perilous dive.

Under current train of thought, the negative impact is entirely reasonable. By how many points it should impact the score is debatable, however. In this deep recession borrowers that are proactive and seek to work things out before falling behind in their payments ought not to pay a heavy price for it. They are trying to achieve a win-win outcome for everyone. It clearly seems excessive to see FICOs tumble 100 or more points.

Not only that, but consumers that have done this have also generally been unaware of the blow to their credit scores. They only find out about it later when requesting a fresh report. Either the disclosure hasn't been there at all, or was buried somewhere in fine print, the usual industry practice. This can predictably slow down foreclosure prevention efforts to the detriment of the entire economy. That, for the most part due to FICO using an outdated scoring model. It should be quickly revisited to reflect the presently difficult real estate market.