As Nevada housing brightens, some see storm coming

LAS VEGAS (AP) -- In a state long defined by its stormy housing market, the sun is apparently peeking out from the clouds.

Nevada just ended its five-year reign as foreclosure king of the nation, relinquishing the title to Florida in 2012. Home prices shot up 24 percent in Las Vegas in one year, and buyers are in outright wars to get a piece of tight inventory that's shriveled to a five-week supply.

Even the Nevada Association of Realtors is looking to retire the lengthy Face of Foreclosure report it's published annually since 2009, saying the issue is no longer the big story in housing and the public is just plain sick of talking about it.

"Nevada's ready to turn the page," Joel Searby, a Florida-based analyst who produced the report, said in an interview. "In terms of what the data says, there's no doubt that there's been a downward trend that's been steady since 2010."

But amid the optimistic signs, troubling questions loom.

Most prominent among them: Has legislation aimed at stemming illegal foreclosures spurred real improvement, or simply created a bubble and delayed the inevitable?

Nobody is quite sure.

"It's having an impact," said Brian Gordon, an economist with Las Vegas firm Applied Analysis, about much-discussed Nevada law AB 284, "But it's difficult to say how big."

STATE LAW ONE OF MANY FORCES

In September 2011, initial foreclosure filings in Nevada totaled about 4,700, on par with a yearslong trend of thousands of such notices each month. In October 2011, the number of notices of default plummeted to about 1,200, according to Realtytrac.

Initial foreclosure notices have since crept up, reaching over 1,500 in December, according to Realtytrac, but they've never returned to their previous levels.

Many point to AB 284, an "anti-robo-signing" state law that took effect that month. It required lenders to show paperwork proving they had the legal right to a property before they could foreclose.

Proponents trumpet it as consumer protection. But to some Realtors, "The world came to an end" when the law took effect, said Keith Lynam of NVAR.

"There aren't enough homes going on the market. That's absolutely creating an artificial, temporary bubble," said Victor Joecks of the Nevada Policy Research Institute, a conservative think tank that supports repealing the law.

Marcus Conklin, the former state assemblyman who carried the bill two years ago and recently lost re-election in a close, expensive race, said bringing the measure was the right thing to do. He suggested criticism was more about upsetting the businesses of people making a heyday selling the distressed homes.

"If your business is built around foreclosures," he said, "you're not happy when foreclosure rates go down."

Lynam, Joecks and Conklin all say there's more behind the market's dramatic turn than the state law.

Lynam contends repealing it would make no difference because it mirrors language in federal rules. He says a more significant factor in the shift was a national, $25 billion mortgage settlement between state and federal governments and the five largest lenders in the country. The agreement, which was reached in February 2012 after months of negotiations, gives banks a financial incentive for reducing principals and allowing short sales and doesn't give them credit for foreclosing.

"It's such a mixed bag in how it's affected the market," Lynam said about AB 284. "People are somewhat myopic in their view of what's happening."

PSYCHOLOGICAL EFFECT

But if the law isn't the only thing to shift the market, it's still had an effect.

"It sent out a mental shift to the homeowner — 'I'm going to sit here and kinda live rent-free,'" Lynam said.

Rocky Finseth, who lobbies for the Realtor association, recalled appearing on a radio talk show and fielding a call from a taxi driver who said he'd heard about the law and stopped paying his mortgage.

"We need to put the threat of foreclosure back into the picture," Lynam said.

Making some changes to the law could encourage people who are still unable to pay their mortgage to short sell, move out, and move on with their lives, Lynam said.

It could also help put the state's housing crisis in the rearview mirror more quickly.

"Our recovery cycle has been somewhat delayed ... as individuals have been staying longer than they would have," said Gordon, the economist. "It's probably time for them to move on."

AN IMPENDING FLOOD?

Critics have made enough noise about that bill that Attorney General Catherine Cortez Masto has convened a working group of lawmakers and other stakeholders to publically discuss the rule.

"I've made it very clear that the intent here is to address people's concerns, not for repealing it or watering down the strictures," she said.

In a report released Thursday, Realtors made their own suggestions for how Nevada lawmakers can help in the housing recovery.

— They want to define what constitutes "personal knowledge" of a loan's history. Lynam says mortgages passed hands so quickly during the housing crisis that it's nearly impossible to know who held it at all times, and says a looser definition would allow more legitimate foreclosures.

— They want lawmakers to address abandoned properties in a way that could help banks and others restore them to a market already starved for inventory.

Conklin thinks such newly freed inventory would be unlikely to flood the market and sink prices. He says such a scenario would not be in the best interest of banks.

"There's always some risk. But it's not like it's a storm," Conklin said. "I think there's a lot of strategy — as more people demand homes, there's more of a release of homes."

And while Lynam says he expects prices will "soften" from current, inflated highs, they don't expect a wave of foreclosures, either. Data shows the number of seriously delinquent properties is going down, Searby said, discounting worries of a widespread "shadow inventory" of properties on the brink.

Experts agree it's a complicated calculus that depends on how banks make their decisions, whether the economy at large continues to improve, and whether the current, rabid appetite for Nevada housing is big enough to swallow up the new foreclosures and short sales expected to make their way

Most expect at least some pain along the way.

"When the bubble bursts, there's going to be a fall," said Joecks, of conservative NPRI.

He added: "Do we want to drag it out, or have some pain in the short term and experience recovery?"