In Nevada, 23 percent who lost homes to foreclosure could afford payments

By Buck Wargo

Published Tuesday, Jan. 25, 2011 | 9:22 a.m.

Updated Tuesday, Jan. 25, 2011 | 3:06 p.m.

Nearly one in four people in Nevada who lost their homes to foreclosure have admitting to walking away even though they could afford their monthly payments, according to a study released today by the Nevada Association of Realtors.

The study said 23 percent of those surveyed described their own situation as a strategic default, meaning they decided to stop making payments on their debt despite having the financial ability to pay. Many of those who walked away from their homes said trusted confidants advised them that a strategic default was their best option, the study said.

The authors of the study said strategic defaults are a much greater problem in Nevada than the rest of the nation. It has less of a stigma here that it’s a shameful decision, and it’s becoming more popular as part of a snowball effect, they said.

“I believe the current trend upward. It could get worse,” said Joel Searby, SGS’s director of marketing and business development. “The cultural stigma is dropping, and it’s becoming more acceptable.”

The survey was conducted by SGS, a national research firm that has done similar studies in Florida and Pennsylvania. It held two focus groups in Las Vegas and interviewed more than 1,000 Nevadans by phone.

“It was striking to see that nearly one in four Nevadans who lost their homes to foreclosure admitted they simply walked away from their mortgage,” said outgoing Nevada Association of Realtors President Linda Rheinberger.

Nevada has ranked No. 1 in the nation in terms of its rate of foreclosure filings since January 2007.

A report released today by California-based CoreLogic said foreclosure rates in Nevada increased in November to 9.49 percent of mortgage loans, up 1.71 percentage points from November 2009. The national rate was 3.48 percent in November.

In November, 19.65 percent of Las Vegas mortgages were 90 days or more delinquent, down from 19.70 percent in October. The statewide delinquency rate is 17.35 percent, CoreLogic reported.

University studies in the past two years have suggested that between 17 and 25 percent of Las Vegas residents have considered or would consider walking away from their mortgage even though they could afford their payments.

Nevada had nearly 8,000 homes foreclosed upon in the fourth quarter of 2010, according to California-based RealtyTrac. If the survey is correct, that means more than 1,800 of those are people who did so strategically.

Searby said he was surprised with the findings of so many people walking away in Nevada. Anecdotal evidence in surveys in other states suggests the problem is “significantly worse” in Nevada, he said.

Nevada homes have taken one of the biggest price drops in the nation, and in Las Vegas prices have fallen about 60 percent from their peak in June 2006.

Searby said a culture is developing in Las Vegas and the rest of Nevada that strategic defaults are OK, and there isn’t the stigma once associated with it. That’s creating a snowball effect that increases its popularity, he said.

Some websites are dedicated to encouraging people to walk away from their homes. The Las Vegas Sun and its sister publication, In Business Las Vegas, has written on the subject, and one prominent home builder, Richard Plaster, president of Signature Homes, has encouraged people to do a strategic default to spare their finances.

“It is about how they’re perceived by their peers,” Searby said. “One man in a focus group said growing up this would have been an act of shame. It’s not seen as something that brings shame on him now. There’s a subculture arising who don’t believe walking away from a mortgage is necessarily bad. This has become a financial decision for most of the families first and foremost.”

Searby said what surprised him in the survey is that those who are walking away tend to be older, mostly 40 and over, rather than younger generations that might be perceived to be less financially responsible.

“They are looking at the last 30 to 40 years of their life and feel it doesn’t make sense to have that kind of debt hanging over their heads,” Searby said. “It’s about their quality of life and that all they are going to pass on to their kids is debt.”

That scenario describes one Las Vegas resident who took part in the survey.

Lee, who didn’t want to use her last name, said she plans to walk away from her $1,700 a month mortgage even though she can afford the payment. Lee said the value of her home that she refinanced about six years ago for $235,000 plummeted from $270,000 to $80,000 today. Since then, she has retired from her federal job and had her husband leave her.

Lee said the Federal Deposit Insurance Corp. has taken over the bank that once held her loan and the lender now servicing the loan has been unwilling to work with her to reduce her payments. She said it’s prudent to keep the money for taking care of herself during her retirement.

“Why should I pay on something when it’s like losing $150,000 in the stock market,” Lee said. “The way I look at it is I’m 73 and never going to see this market come back. I don’t feel bad at all. They had a chance to work with me.”

Lee said she plans to rent a home from her girlfriend and isn’t worried that the lender will come after her for the first mortgage six months after foreclosing or for the second and third mortgages on the homes over the next six year as allowed under state law.

If that happens, she said, she will file bankruptcy.

Searby said those who walk away aren’t concerned that it would take them three to seven years to get another mortgage or that their credit might make it difficult to buy a car for a while.

The survey said most Nevada homeowners facing foreclosure weren’t aware of the federal and nonprofit programs designed to help them. Some 61 percent said they weren’t aware of foreclosure aid programs and only 3 percent said they used the state’s foreclosure mediation program or were helped by it in any way.

Many Nevadans experiencing foreclosure faced two or more life-altering events that increased their risk of defaulting on their mortgage, the study said. The report said the loss of a job and unexpected medical bills were the most common events triggering a foreclosure.

Homeowners statewide were far more likely to blame banks and lenders, at 46 percent, than the government, which polled 20 percent, for the foreclosure problem. Homebuyers got 13 percent of the blame, the study said.

Short sales proved to be moderately helpful in avoiding foreclosures with the report saying 10 percent of those surveyed said it helped them.

NVAR President Mike Young said the study would be used as a basis with the state’s lawmakers to help address the problems with foreclosures. Besides advocacy and counseling, streamlining short sales could help stabilize the housing market, he said.

Short sales are those in which lenders allow the homes to be sold for less than is owed on the mortgage. Homeowners have faced hurdles in getting banks to approve that option.