Details of the foreclosure rescue bill passed by Congress and awaiting President Bush’s signature are coming out. Before we take a closer look, keep in mind we have 2.2 million vacant homes on the market, sales of new homes are plunging, and the trend of increasing foreclosure rates shows no sign of stopping.

Back to the bill. First, it won’t come into effect until October. If things continue as they are, there will be another 700,000-1,000,000 foreclosed homes on the market by then. The bill is estimated to help about 400,000 people (a little more than half the number of homes in the foreclosure process in the second quarter of 2008).

It will only apply to owner-occupied homes with mortgages dated 1/2005-6/2007 (one 30 month block). It will do nothing to help renters who dutifully pay rent and live in homes with defaulting mortgages. The homeowner has to prove that the mortgage payment is at least 31% of their monthly income, and that they won’t be able to afford paying it anymore.

Now, here’s the deal-breaker. The old mortgage company has to agree to write down the loan to 90% of the current appraised value and forgive the remainder. CNN correctly points out “that will mean a substantial loss for the lender.” A new mortgage company issues a new loan for that 90% (some sources are saying only up to 85% — where is our cash-strapped homeowner going to get that 5% difference?) and the old mortgage company has to accept it as full and final payment. One of the mortgage companies has to pay FHA a 3% insurance premium up front.

As for the homeowner, they will have to pay an insurance premium to the FHA every year of 1.5% of the principal. In addition, they will have to share any profit on the house with the FHA (100% the first year, declining to 50% after the 5th year, plus a 3% exit fee). The homeowner also must accept strict limits on equity loans.

For the sake of argument, let’s flesh out these numbers. If you own a median priced house in Las Vegas, the nice folks at HousingTracker say it’s worth $225,000. Scroll down for historical median prices. Let’s assume the mortgage originated in the middle of the 30 month window, March of 2006. Median prices then were roughly $325,000. For the sake of argument, say you had a 90% LTV, or a mortgage of $292,500.

Assuming you actually meet all the other qualifications, your mortgage company would have to agree to write down what you owe to 202,500 (lose almost $90,000 — the principal has come down a little since then unless you have an interest only loan). The local experts in bank-owned properties tell me that it costs a lender $60,000-80,000 to take a foreclosure to completion., so they really only have to bet that prices won’t decline another $10,000-$30,000 over the course of 6 months to come out ahead by refusing to play along. This bet becomes even better for your mortgage holder if you financed 95% or more of your home’s value.

But let’s also look at why this deal might be bad for you. First, somebody is going to pass the 3% FHA insurance origination fee on to you. That’s $6075. Plus there is the annual 1.5% insurance fee that will be tacked on to your payments, $3037.50 annually ($253.13 per month). And even if you sell your home 20 years from now, you will still owe the FHA half of any profits you may make on the place.

Rest assured, this deal is not a bailout. It doesn’t help much of anybody.

I’ll leave you with a couple of local interest items: 2 Nevada banks taken over by the Feds; and a Nevada court upholds term limits.

It must be nice to be a Congressman. They’re already out for the Independence Day holiday. Of course they left a few little things undone. Like, say, that bill that might have helped homeowners and mortgage companies prevent some foreclosures. Don’t get me wrong, the ideas on the table were far from perfect, but they were better than nothing.

Vacant homes — abandoned, foreclosed, or simply waiting to be sold — are now a serious problem in many communities across the nation. It’s no longer just an “inner city Detroit” sort of issue; even “nice” neighborhoods have boarded up homes that attract parties, drug use, vandalism, and theft.

However, even if we had enough buyers for these properties, there is the problem of getting the money to purchase (and renovate where needed) all those homes. We still have a “credit crunch” where many banks don’t have money to lend. Some of them over-extended credit to construction firms that were themselves overextended. Some of those builders have slashed prices just to raise capital, and in the process slashed market values in the neighborhoods they were building.

But today there is more to talk about than doom and gloom. Today in the Greater Las Vegas Association of Realtors (GLVAR) MLS, we have 21,390 available homes, 16,806 of them Single Family Residences. This level is high, but stable. In addition, we have 7,032 homes that are “contingent” or “pending”. These homes have signed purchase contracts, and the overwhelming majority of them will close within 30 to 60 days. However, the sale is not final yet. Of the available homes, 11,171 are currently vacant (54.7%); 5,809 are short sales (27.2%); 4,737 are REO/foreclosed/bank owned (22.1%). All those percentages are up over last month, and they represent “motivated sellers.” These figures must be taken along with these (courtesy of our friends over at Frothing Developer): taxable sales in the Valley are up (meaning economic growth, and the promise of more jobs); home sales are better than they were this time last year; and despite a regional “recession”, net new residents of 4,600 in May. That’s a slow way to fill those available homes, but it’s better than nothing.

Although we made our decision about potential Presidential candidates with a caucus, Nevada does have a primary election for other positions coming up in a couple of weeks.  Here’s a little more about who we will be voting for/against.

The intersection of real estate and politics is right here, in this item from the IHT called “U.S. housing bill evolves, but crisis grows deeper”.

Elections have a direct impact on you.  Primaries are in some ways more important than the Big Game in the fall.  It’s not easy finding out about these candidates and their positions, but give it a try, and remember to vote on August 12 if you are a registered Nevada voter.

The nice folks at Econbrowser have outlined how mortgage securitization works both in theory and in practice. Fear not; they include handy diagrams.

AlterNet has some choice opinions about the Bank of America bailout of Countrywide.

Some people are very particular about how you pronounce the name of this state.

Did you know that women are being disproportionately hit by the subprime crisis?

Don’t forget that the caucuses are tomorrow, Saturday, January 19, 2008! Here are links to help you find the closest location for the Democratic caucus and the Republican caucus.

Nevada doesn’t do “primary elections.” Instead we have a caucus. It’s fairly early, on January 19, which explains why the candidates are spending so much time in Nevada. It’s a little different, so the nice folks at the Las Vegas Review-Journal have put together some information to help de-mystify the whole thing. Here’s how you can get involved, and here’s what to expect if you do.

Be sure to keep up with the local spin on national politics with the LVRJ 2008 Elections page. Hope to see you at the caucuses on January 19!