Selling short: Foreclosures slowing down

At all levels of government, elected officials decided the devastated housing market couldn't be left alone to correct itself. For more than five years, they tried tax credits and deductions, new regulations and lawsuits, government-sponsored refinancing plans, principal reductions and loan modifications, not to mention the demonization of the financial services industry. When something didn't work, politicians tried something else. And the foreclosure crisis dragged on and on.

In the Las Vegas Valley, there are signs that all this government intervention finally is having an effect. Foreclosure filings have been in decline. And last month, for the first time since subprime loans started melting down all those years ago, short sale closings outnumbered foreclosures. For years, foreclosures accounted of about half of all home transactions, while short sales - properties purchased for less than what is owed on the mortgage - hovered below 25 percent. David Brownell of Keller Williams Realty told the Review-Journal's Hubble Smith that foreclosures and short sales now comprise about 32 percent each.

According to real estate professionals, the most likely reason for the swing is Nevada's new law to limit so-called robo-signings by lenders, Assembly Bill 284, which took effect in October. Now banks must provide an affidavit of authority to foreclose on a home - a process that can take many months. Increasingly, lenders are finding it more cost-effective to work with a distressed homeowner on a short sale than dedicate the resources necessary to foreclose, which can result in the deterioration of the property.

"Pressures from all levels of government have strongly encouraged banks to look for solutions other than foreclosure," Mr. Brownell said.

Of course, all this meddling has distorted the housing market. If governments had backed off from the beginning, more cities might be seeing more appreciation in their property values. The hardest-hit markets, such as Las Vegas, are still struggling amid historically high unemployment.

Thankfully, the market still has some say in the housing turnaround. Joel Sarmiento, senior vice president of Wells Fargo's home and consumer finance group, said mortgage investors must agree to a short sale to close any deal. "They're realizing it's better for everyone across the board."

In most sales, the "investor" is a government-sponsored enterprise: Fannie Mae, Freddie Mac or the Department of Housing and Urban Development. In other words, the investor is you. Which only underscores the importance of a broader housing recovery.