The problem is that Familial Status, including the presence of children under the age of 18, is a protected class under Federal Fair Housing Law. In fact, HUD says “Familial status protection also applies to pregnant women” right on their website. So these lenders are treading on very, very thin ice.

Perhaps that’s why the oncologist whose example is used in the NYT/CNBC article got her loan approved after her real estate professional had a polite chat with the loan officer. Nobody wants a $10,000 fine. Per incident.

As far as I am concerned, the important one is the last one: FHA loans are assumable! That means that when the property is sold, the new buyer — assuming they are qualified — can simply agree to take over the existing mortgage, with the same payments and interest rates. Most conventional loans can’t be assumed. This is a great advantage in the current market. And with interest rates at record low levels, it is worth considering an FHA loan now to lock in that rate for 30 years. It could make your property more desirable years from now when it is time to sell.

The reason that rates are low is that mortgage applications are down. In fact, applications have dropped 35% not over the last year, but just over the last 4 weeks! The mortgage industry depends on writing new loans as a source of income, so they are trying to entice you in with super-low rates. Be sure to read the fine print on mortgages as with all contracts. With the home buyer tax credit gone, demand for mortgages is down. I expect a bit of recovery to a “new normal” between current levels and levels from a year ago. The tax credit in some ways borrowed buyers from the future. As new buyers who weren’t able to move earlier enter the market, things should normalize.

The third shoe to drop is in fact undeniable good news. Foreclosure rates are steady. And while the Nevada rate is still a very high 1 in 79 households, that’s still a 16% decline from last year! Remember, that includes everything from Notice of Default to Auctioned On the Courthouse Steps to Bank Owned Listings. It even includes homes that have gotten Notices of Default from their Homeowner’s Associations. One last thing about this news. It ends with this statement:

“The housing market remains plagued by enormous excess supply,” wrote Goldman economist Sven Jari Stehn.

While that may be true nationwide, it is clearly not relevant to the Las Vegas Valley. Over the two years, available inventory has been cut in half locally. We actually have more Realtors than listings in the MLS right now! While I do suspect we have an overbuilding problem (or one in the making), the last thing we have locally is “enormous excess supply.”

While a HAMP modification will cap your mortgage payment at 31% of monthly income, there is no cap on the total debt service a family can have each month. It includes things like car payments, credit card minimum payments, student loans, and other debts that must be paid each month, but not things like the power bill or the water bill. This number is known as a Debt to Income Ratio, or DTI for short. Right now, the average DTI is running over 60%. As Tim Iocono helpfully put it:

Yes, that leaves borrowers with 35.9 percent of their income to pay for taxes, utilities, insurance, food, gasoline, clothing, save for retirement, and have some fun from time to time.

It certainly doesn’t account for emergencies like car repairs or water heaters needing replacement. Clearly most families are not in a position to run their lives in this fashion. This is a set-up to a future default, leaving the homeowner even worse off than before.

Another little talked about provision of the program is this: what happens if a permanent modification is denied? Some homeowners are finding out the hard way that they may be asked to cough up a check for the difference between the trial payments and what they have been paying, often thousands of dollars, or immediately be in default. In the meantime, their credit rating has suffered merely by having been in a trial modification.

The bottom line is to think very carefully before asking about a HAMP modification. If you have a financial adviser or a legal adviser, consult them first.

Now, don’t pick up the phone to pester Customer Service about it just yet. This program is only open to a limited number of qualifying homeowners who have option ARM, 2-year hybrid, or certain types subprime mortgages. Most of these were in fact written by Countrywide. This is estimated to be only about 45,000 loans total.

One interesting detail is that this plan was developed in cooperation with the Commonwealth of Massachusetts (did you know that Massachusetts wasn’t just a “state”?). Was there perhaps some legal arm-twisting? Will homeowners outside Massachusetts be able to take advantage of this program?

Right now, B of A has some huge image problems when it comes to distressed properties: it’s difficult to make a short sale work, and sometimes there are difficulties after closing; they have a reputation for foreclosing on the wrong address; I still see many listings that require pre-approval with B of A before you are allowed to place a purchase offer on one of their properties (right, because they will be so much better a judge of this buyer’s ability to pay than they were of the previous owner); they are also one of the culprit banks I see destroying neighborhood housing values by pricing foreclosures at absurdly low levels. In short, they are one of the reasons Alan Greenspan calls our housing prices “fragile”.

The bottom line: I hope my fears are unfounded and that Bank of America does this right. More, I hope they realize that they can take care of a lot of future balance sheet pain by writing down principal widely in areas that have been hard hit by housing value declines.

For the rest of you, let me back up and briefly explain what “hard money” is all about. In short, hard money is a loan it would be “hard” to get anyplace else. According to eHow, “A hard money lender is a person or institution that offers loans, usually for real estate, with low credit restrictions but high rates and fees. Hard money lenders are often considered borrowers of last resort for those who are facing foreclosures or needing loans under abnormal conditions. Due to the high prices associated with hard money lenders, they are generally not a borrower’s first choice.” Wikipedia has much more on the topic.

The Las Vegas Review Journal reports that hard money lenders are in trouble here in Nevada. They’ve been stung so hard by foreclosures that they in essence want ways around state law and state regulations. Specifically, they want the right to manage real estate without either a real estate license and the additional real estate management permit required by law (NRS 118A), and they want to over-ride a privacy law prohibiting investors from having the contact information of other investors in a given project.

While I think it is probably a good idea for investors in one project to be able to communicate with one another, I think it would be a bad idea to let these investors (particularly out-of-state investors) manage property without a license. A good property manager not only knows the law and collects the rent, she or her staff is available to handle emergencies (NRS 118A.260), her actions prevent damage or degradation of the property, and in many cases she can even add value to a property through practices that maintain a high occupancy rate. This is good both for tenants and the investors. It’s even good for the neighbors.

Sure, it will cost some money to do the job right and follow the laws that were enacted to protect all Nevadans. That’s the cost of doing business.

The purpose of this rule is to prevent “flipping,” buying a property and then immediately turning around and selling it for more money, pocketing thousands of dollars in a couple of months with little actual work on the property itself. Of course, the market downturn put a stop to most of that but the rule remains.

There is one huge loophole already in this rule. It doesn’t apply to sellers who are stare or federally chartered banks, and it doesn’t apply to HUD itself. So you can (theoretically) use an FHA mortgage to buy a newly foreclosed home from Wells Fargo or Nevada State Bank, but not Vinnie’s Pawn and Loan or Joe’s Mortgage Company. So will suspending this rule do what HUD says it will, “speed the resale of foreclosed properties“? Maybe.

There is another class of investor who sometimes gets hamstrung by the 90 day rule: investors who buy cheap, highly distressed properties. They quickly do the necessary repairs, paint and renovate, and sell the property for a profit. These investors are a necessary part of the foreclosure food chain, because they make homes out of properties that most buyers would never consider. Joe and Jane Average are not experts in repairing such properties, but these investors are. The temporary change to the HUD rule — and if successful, expect it to be extended — should make it easier for trashed out foreclosures to become owner occupied homes.

This one by a local loan officer gives you a rather technical view of the impact on Las Vegas real estate from a particular kind of mortgage, the Option ARM. He’s an expert in this, so even if you find it tough reading, it’s worth your time.

This insightful commentary talks about predatory lending and mortgage modifications. In short, there are a number of reasons banks have not exactly been enthusiastic about getting Joe and Jane Average a lower payment!

FHA loans are now one of the most popular ways to get financed. But did you know that nationwide there are only 172 people who can give the final approval? What I take away from this is ask for a 45 day closing on FHA transactions, and think twice before buying a foreclosure with one! By the way, FHA is asking Congress for tougher standards, bigger downpayments, and bigger mortgage insurance fees. No word on whether they are asking for more staff.

One more thing, the Treasury Department did issue new guidelines on short sales this week. To learn more, check out my article on The Moderate Voice. There is a link to the actual rules near the end.

Be sure to join me on Friday for the latest Vegas real estate market data!

More on the Cosmopolitan: Deutsche Bank has had to write down a half billion euros — about $748 million — and there is no clear opening date in sight.

I’ve said before that the housing crisis will not be over until the banking crisis is over as well. The two are just too intertwined. Well, banking reforms may be further away than we would like, and the TARP is looking more like a cover-up than a life-preserver every day. In fact, I am more certain than ever that as bad an idea as it is, it would have been a better use of taxpayer money to put up to $100,000 towards every American mortgage than to continue to prop up huge banks that aren’t accountable to anybody. At least paying off people’s mortgages would have changed the fact that we now have record high delinquency rates.

Housing starts — that’s beginning construction of new housing — is at a new low. Permits to build housing are down too. Surprisingly, that’s a good thing if you think we have an oversupply of housing. It of course isn’t very good news at all if you work in construction.

I do have to say that I am very concerned by the disconnect between the economy you and I see on the streets and the economy that Wall Street is apparently enjoying. I can’t see the Wall Street economy continuing forever, nor pulling the rest of the nation up. Let’s face it, most jobs are not created by huge publicly traded corporations, but rather by the small businesses that are having a hard time getting financing right now. And until we have enough jobs, the housing industry will have something less than smooth sailing.

And on a happy note, there is a movement to create a new national park in the Northwest part of town. An area called the Upper Las Vegas Wash is home to many fossils.

Remember that MERS is involved in as many as 60,000 mortgages nationally. I personally think that if more than a handful of these mortgages is invalidated, that Congress will be under great pressure from the banking industry to quickly push through legislation that clears MERS’s status and allows “business as usual” to continue.

Until that happens, savvy lawyers will ask for proof that the mortgage holder actually holds the mortgage in judicial foreclosure and bankruptcies.