Nevada to phase out home financing rescue program

CARSON CITY — State officials are dimming the lights and preparing to phase out an ambitious but short-lived program initially intended to help people stay in their homes as Nevada's housing market crumbled and home values plummeted during the Great Recession.

The Nevada Home Retention Program set a lofty goal of acquiring 4,600 discounted mortgages of distressed properties over a seven-year period with the intent of helping homeowners refinance and stay afloat.

Nevada lawmakers in 2013 appropriated $49 million for the effort, and another $100 million was made available as needed through federal funds and a loan from the state housing division.

But after its first year only 36 households have been approved for loan modifications — way below the 700 to 800 originally anticipated each year. And with housing markets slowly rebounding and private investors snatching up properties, the program's effectiveness was quickly diminished.

"The market has changed significantly from that point," said Sharath Chandra, deputy administrator of the Nevada Housing Division.

Home Means Nevada, a state-affiliated nonprofit group that oversees the program, finalized an agreement with the U.S. Department of Housing and Urban Development in April 2014 to buy a pool of mortgages at a discounted rate and then work with homeowners to modify their loans or explore other options, such as turning over their deeds in lieu of foreclosure.

Under the program, HUD provided the bundle of mortgages available for the state to acquire. Other homeowners could not apply.

There were problems from the start, acknowledged Anna Zakowska, chief executive of Home Means Nevada.

"Quite a few loans were already foreclosed on," Zakowska said, and other notes "had different title issues."

"We had the opportunity to scrub the initial take and take out some of the assets that were impaired," Zakowska said.

The program ended up with 221 notes, purchased at a higher price than anticipated. The properties were statewide, with about 80 percent in Southern Nevada.

"We originally envisioned a larger discount," Zakowska said. "The portfolio that HUD has is already a distressed portfolio."

Added Chandra, "The quality of the notes was so bad."

Initially valued at $36.8 million, the notes were purchased by the program for $31 million — a discount rate of 16 percent.

By the time the notes were acquired, more than half were already abandoned by owners who walked away.

"A lot of people just gave up," Zakowska said.

Of the total, 108 properties were owner-occupied, a requirement for eligibility. After working with counselors, 26 opted for short sales or turning over their deed in lieu of foreclosure. That left 82 eligible for possible loan medication, of which 36 have so far been approved.

Zakowska said the nonprofit has about 100 properties pending foreclosure. Staff members are trying to locate those borrowers to determine if they are interested in or eligible for a loan modification. The program can reduce a borrower's financial burden to 43 percent of debt to income ratio.

"When we got into this, this was a population that was really neglected," Chandra said.

Unfortunately, it was too little, too late for many, and a huge undertaking.

"You have to go person by person, unit by unit," Chandra said. "It's extremely time consuming, extremely difficult … to come down to that micro level and work with people one on one."

Another goal of the program was neighborhood stabilization. The program has sold 24 homes that it acquired and has 40 more in some stage of escrow or rehabilitation. The program expects to net an estimated profit of $2 million, which will eventually be returned to the state general fund.

Chandra and Zakowska said the program will finish rehabilitating and selling the properties it has, and continue working with others that were part of the mortgage pool.

"We're still continuing to do modifications as people's circumstances change," Chandra said, though they estimated that will involve 10 to 15 people at most.

"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," 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," he said. "Anything that's out there that potentially we could have acquired, we'll probably be outbid."

Chandra said there are other programs administered by the Nevada Affordable Housing Assistance Corp. and financed through the state's Hardest Hit Fund to help underwater homeowners. They include mortgage assistance, principal reduction, short-sale options and second-lien relief programs.

Chandra projected the Nevada Home Retention Program will likely wind down by 2017 — four years earlier than intended and thousands of homes short of its goal.

"We maximized what we could do," he said.

Contact Sandra Chereb at schereb@reviewjournal.com or 775-687-3901. Find her on Twitter: @SandraChereb.