New law’s wording may worsen state’s mortgage woes

CARSON CITY -- Unclear wording in a new law to block bogus real estate deals could make it tougher for some qualified Nevadans to get home loans, and no hearings on rules to resolve the problem have been held -- even though the rules must be in place by Oct. 1.

The problems with AB440 of the 2007 session come with Nevada ranked No. 1 in the nation for foreclosure rates on home loans and experiencing a slowdown in home sales that mirrors a national pattern.

Mendy Elliott, head of the state Department of Business and Industry, said Monday the hearings on the AB440 rules will be held, with a goal of adopting regulations that ensure mortgage lending isn't "shut down in the state."

Elliott also said the state is working on other projects to ease the mortgage lending crisis. That could include a requirement for credit counseling sessions for prospective borrowers and the use of bond revenue to help some borrowers.

Assemblyman Marcus Conklin, D-Las Vegas, prime sponsor of AB440, said the idea of his bill was to protect consumers, and nobody involved in the legislation wanted to "slow up the process for qualified people" trying to buy homes.

Conklin said that he plans to talk with Elliott about the regulation process, adding that he thinks any confusion over the new law "will clear up fairly easily." If necessary, he said an emergency regulation could speed the process.

Some major lenders recently expressed concerns about AB440. Ironically, the banking industry came up with a late-session amendment that was designed to give the measure flexibility but also inserted the fuzzy wording regarding lending practices.

Marcie Benvin, a Reno mortgage broker and president of the Nevada Association of Mortgage Professionals, said Monday that thousands of loans to otherwise qualified borrowers could be affected unless the regulations are quickly adopted.

Besides the problems that could be created for "the very best borrowers," Benvin said wary lenders could focus on other states when making money available for mortgage loans.

With the Oct. 1 deadline for a rule adoption nearing, Benvin said it's no time for foot-dragging by the state.

"This is an issue that needs to be addressed," Benvin said. "Our frustration has been that it seems that it's not being looked at."

AB440, which created the crime of mortgage lending fraud, was one of several bills in the 2007 session aimed at the mortgage industry. It applies rules to lenders who don't follow standard loan procedures and sets guidelines for those who buy foreclosed properties.

Other measures called for rules for nontraditional mortgage loans, such as interest-only loans and adjustable-rate loans; and required appraisals for real estate transactions that are secured by a lien on another property and got rid of an option to waive an appraisal.

Nevada posted the highest foreclosure rate in the nation in July, one filing for every 199 households, or more than three times the national average. It reported 5,116 filings during the month, an increase of 8 percent from June.

In recent months, the mortgage industry has faced rising defaults and foreclosures, primarily driven by borrowers with subprime loans and adjustable rate mortgages.

Lagging home sales and flat or decreasing home prices have made it harder for homeowners who fall behind on payments to sell their homes and clear the debt, spurring the rise in foreclosure activity.