Transfer order doesn’t wait for real estate to rebound

By Megan McCloskey

Wednesday, May 27, 2009 | 2 a.m.

Brian O’Neill bought his house in Aliante in April 2006 for $360,000. It’s now worth less than half that.

His is a familiar story in the Las Vegas Valley, but he’s in a worse predicament: Uncle Sam has ordered him to move.

O’Neill is a major in the Air Force and is being transferred from Nellis Air Force Base to his next assignment at Fort Leavenworth, Kan. He has little other choice than to try to unload his house in this stark market.

With the start of the busiest time for military moves, many airmen are in the same position: facing staggering financial loss as a result of their relocation orders.

For some, the government is stepping in to help.

Because airmen are typically stationed at a base for a few years, many of those who have orders to move this summer bought at the peak of the housing bubble. In the summer of 2006, the median price for a new house was about $337,000. Today it’s $150,000.

Amy Brooks, a military wife and real estate agent, said many of her Air Force clients are staring down losses of at least $100,000, if not $200,000 or more.

She can rattle off examples: “I have one client who bought for $315,000, and we’re hoping to put it on the market at 179. Another bought for $345,000 and is selling for $150,000.”

Brooks said her clients are overwhelmed by the impending hit to their pocketbooks.

Last summer most of her clients ended up renting instead of selling their houses, but still took a hit because the rental income fell hundreds of dollars short of matching their mortgage payments, Brooks said.

If O’Neill had to rent his three-bedroom, two-and-half bath house, he estimates he would get only $1,200 a month from a tenant, well short of the $2,000 he owes the bank each month.

O’Neill is hoping he’ll be a beneficiary of the federal stimulus package passed by Congress in February. It appropriated $555 million to help offset losses service members incur because they “are compelled to move in an unprecedented real estate market as a result of their service to the United States,” according to the guidance for the Housing Assistance Program.

If the service member bought before July 1, 2006, and has orders issued before Dec. 31, 2009, the government will either refund to qualifying military families some of the money lost in a sale or, if the house doesn’t sell within 120 days, buy it at the current market value and refund 75 percent of the original purchase price to the owner.

To ensure resources are spent on the hardest hit real estate markets, the military requires that the value of the individual house and the overall housing market in the area dropped at least 10 percent. Most installations are in housing markets that don’t qualify. Nellis and Creech Air Force Base, at Indian Springs, easily do.

The most popular area to live for those stationed at Nellis or Creech is North Las Vegas, which has been hit hard by the foreclosure crisis.

Buying a house is always a risk for a service member, given that constant moves are a part of the lifestyle and conventional wisdom dictates buying only if you’re able to stay in the house for three to five years at minimum. But many do, and few anticipated the real estate crash.

“I figured the worst-case scenario, the house might not go up in value,” O’Neill said, adding he and his wife thought it was best to sink the profit he made off his home in Florida into another house instead of paying taxes on it.

About three-quarters of those stationed at Nellis or Creech live off base, but the Air Force doesn’t track how many own homes.

Questions about the assistance program are second only to divorce matters at Nellis’ legal office.

O’Neill sent his application in for the assistance program the day after the bill passed.

“At first I thought a government handout isn’t for me, but then as I assessed the reality of my situation I thought there might be something to this,” he said.

Without the housing assistance program, not only is he out his down payment equity of $100,000 but he also must come up with $90,000 to close on the sale of the house.

He said that would mean either liquidating retirement savings or asking family for money, neither of which is an appealing option.

O’Neill is fairly even-keeled about the situation — he even jokes “you’re supposed to buy high and sell low, right?” — but “my wife is very, very stressed out.”

Even with the housing assistance program, he’d still lose money. In that case, the government would subtract the sale price of the house from the original purchase price and refund him 90 percent of the difference. So O’Neill would get 90 percent of $200,000, which is $180,000.

After paying off the bank, the remaining $90,000 would cover most of his down payment.

Despite what a huge difference the assistance program could make for airmen, O’Neill said there hasn’t been any discussions in formal channels on base about it. So he started an e-mail support group of sorts for people to commiserate about their situations and swap information about the program.

Only recently did the Defense Department release the guidelines for how the program would be applied, and there are still lingering questions, the biggest of which revolve around the timeline. When will applications be approved? And how long until the money comes through?

“For most people there’s no way to close escrow without that money. Who has that kind of cash to float?” real estate agent Leslie North said, adding that those with orders in the next couple of months are in a holding pattern with their houses until they know.

Best-case scenario for O’Neill, who moves next month, is to find a buyer who would rent the house until the government comes through with the money and they can close a sale, he said.

Despite the uncertainty, O’Neill is one of the more fortunate ones in his situation.

The Defense Department capped the housing assistance program at the Fannie Mae/Freddie Mac limits, which means only houses up to $417,000 are eligible for reimbursement.

This “prevents taxpayers from ‘bailing out’ million-dollar homes, but is adjusted by region to account for cost variations,” according to the guidelines.

However, those limits are devised using an average of housing prices over 10 years, and Las Vegas’ market exploded so fast that the Fannie Mae/Freddie Mac cap doesn’t accurately reflect the cost of living in Clark County during the boom.

“It’s like Christmas morning didn’t come for them,” O’Neill said about friends who had been expecting some relief from the government.

In the summer of 2006 a house that sold for $400,000 to $430,000 was about 2,300 square feet with four bedrooms and two-and-half baths.

One of North’s clients, an Air Force major, faces a stark situation as a result of the assistance program’s cap. He bought a home for $500,000 that is now worth $240,000.

“He needs $110,000 just to close — not to mention the $150,000 he put down that’s now out the window,” she said.

Many in that situation are frustrated that they won’t get assistance from the government when their mortgage is the same as many others who didn’t put any money down but bought cheaper homes, O’Neill said.

And with the steep fall in prices in Southern Nevada, even those who will get assistance will be scrambling to come up with cash to pay off the bank if they didn’t put any money down. North said one of her military clients, a young couple, will be short $30,000.

“They’re just starting out, a young family,” she said. “And now they’ll be begging Mom and Dad for help.”

Sun reporter Alex Richards contributed to this story.