EDITORIAL: Another failed housing intervention

The most important lesson of the housing collapse that triggered the Great Recession: government meddling made it worse. Political interventions caused the market distortions that inflated the housing bubble and kept it flat far too long after it finally popped.

Nevada officials were part of the problem. The state's housing market was the most distressed in the country, so all kinds of programs were created to delay or prevent foreclosures and keep people in homes they couldn't afford because they couldn't find jobs. These initiatives prevented the market from hitting bottom, contributed to the buildup of vacant, bank-owned inventory, and ensured that Nevada's economy was one of the last in the country to recover.

But give Nevada officials a little credit: At least they've finally recognized that one of their housing rescue creations is a complete failure.

Who could have seen that coming?

As reported last week by the Review-Journal's Sandra Chereb, the Nevada Home Retention Program likely will shut down by 2017, four years sooner than projected, at least two years too late and far, far short of its delusional goals.

In 2013, when state housing finally was showing signs of recovery six years after it crashed, state lawmakers set aside almost $50 million to acquire discounted mortgages on distressed properties and give homeowners a chance to keep their homes. The program had access to another $100 million in federal funds and loans from the state housing division. The hope was to modify between 700 and 800 loans per year.

But after one year of operation, just 36 homes had been approved for loan modifications. It's a miracle that many qualified, because homeowners couldn't apply for the program. They became eligible only through blind luck.

The federal Department of Housing and Urban Development provided Home Means Nevada, the nonprofit that oversees the Nevada Home Retention Program, with a bundle of mortgages to buy. The group then had to try to track down the owners of the homes it had bought to see if they were even interested in assistance. After buying 221 notes for $31 million — "The quality of the notes was so bad," said Sharath Chandra, Nevada Housing Division deputy administrator — it turned out more than half already had been abandoned.

You read that correctly. While you struggled to keep your own roof above your head, your tax dollars were used to buy vacant homes.

Anna Zakowska, chief executive of Home Means Nevada, told Ms. Chereb the nonprofit still holds about 100 properties pending foreclosure, and that its staff members are still running around trying to find the people who used to own them to see if they're interested in a loan modification so they can move back into those homes, many of which are complete dumps by now.

It's difficult to conceive a less efficient way of providing housing assistance in a state where 25 percent of the mortgages are still seriously underwater — homes with loan balances that are at least 25 percent higher than their market values — the highest such share in the nation.

Someone, somewhere thought this approach could help 700 to 800 people per year for several years. Such a goal must have been set with the assumption that housing would never recover. Lo and behold, home values are rising — not because of the Nevada Home Retention Program and other such boondoggles, but in spite of them.

"There was an option of doing a second round of purchases from HUD, but HUD has basically indicated they just don't have the portfolio of units we're looking for to do one," Mr. Chandra said. "If you look at the market itself, any of those distressed mortgages out there, the private industry has stepped in and bought a lot of those. Anything that's out there that potentially we could have acquired, we'll probably be outbid."

Private investors working more efficiently than government? Imagine that.

Instead of refinancing or modifying loans, the Nevada Home Retention Program is now rehabilitating and selling its properties. It might actually return a couple of million bucks to the state general fund. Maybe the program can get a guest spot on A&E's "Flipping Vegas."

Let this be a lesson to government at all levels. When the next housing crisis hits — and crisis will strike housing again, at some point — leave it alone. Let the market correct itself. Whatever your good intentions or big ideas, you'll only waste a lot of money and make it a whole lot worse.

The Nevada Home Retention Program shouldn't survive to see 2016. Shut it down now.