Professional Home Staging and Photography Blog: Las Vegas mortgages over $1 million now in default wringer

Las Vegas mortgages over $1 million now in default wringer

Early on after the real estate bubble burst the home loans that went bad were largely subprime and the general feeling then was that the defaults would pretty much stay in this particular segment. Lo and behold, slowly the Alt-A type of mortgage, once thought to be on really solid footing, started feeling the heat, too. The avalanche didn't stop there either. Defaults are now hitting the luxury homes that were supposed to somehow bypass the wrath of the mortgage gods, at least that's what many industry observers believed.

Mortgage payments on roughly 12% of loans over $1 million nationwide were 90 days or more past due in September, reports First American CoreLogic, Inc. a California research shop. Let's compare that to some other numbers. For home loans under $250,000 the corresponding figure was 6.3%, about half less. For every mortgage around it stood at 7.4%. One more. In September of 2008 it was 4.7% for mortgages north of $1 million. In short, in one year the figure has nearly tripled and that is mildly alarming.

Las Vegas valley - with communities like Summerlin, Anthem, Southern Highlands, Mountains Edge, Lake Las Vegas, Spanish Trail and Canyon Gate - luxury homes probably have even higher default rate due to the serious downturn of the once-booming housing market. Parts of Arizona, California and Florida, at least them, are other areas similarly affected. No market segment obviously is immune to the economic forces of the real estate collapse.

Many high-end homeowners have resorted to short sales to deal with the issue, so long as the mortgage lender goes along with the plan. It can be a tricky proposition, however. Let's say a nice mansion has a mortgage of $1.5 million on it and now the price is only $900,000, a 40% drop. The property is gloriously underwater. The bank would have to take a bath to the tune of $600,000, if sold like that. That's tough to swallow all in one shot. In comparison, a house with a $300,000 mortgage that is 40% underwater would be sold for $180,000, amounting "only" to a $120,000 write-off. Big, big difference for the mortgage lender.

When things fail to work out some homeowners decide to tiptoe away in the thick of night from the property, becoming a so-called strategic default, or a walkaway. These terms really have been absent from the everyday real estate vocabulary up until recently. Now they are being talked about from coast to coast over micro beers and at water coolers, and in high places, too, as it is becoming a growing pain for those dwelling in corner offices with a view.

Jumbo mortgage defaults will keep banks that have a bunch of them in their hack-proof electronic ledgers in a precarious position for a while. Some will never make it, some will do so over a long, painful stretch of time. Overall, it'll limit mortgage liquidity and prolong a true recovery. But, it also could be the end of the default cycle that kicked off with the subprime product. If so, then after this latest mess is sorted out the mortgage and housing markets can begin rising from the fog of misery to once again become power players in the national economy. Can't wait.




Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 8 commentsEsko Kiuru • December 19 2009 11:16PM


Esko, very valuable information. This should be a wake-up call to many of us. I noticed now it is taking 20-24 months to sell the over $5million properties in our area. Your post confirms some of my suspicions of why.

Posted by Endre Barath, Jr., Realtor - Los Angeles Home Sales 310.486.1002 (Berkshire Hathaway HomeServices) over 9 years ago

On my wish list for Christmas:

Foreclosure Immunization... as no homeowner with a mortgage is immune.

Posted by Kate Kate over 9 years ago

I am thinking our luxury market is no where near the middle of it's correction!

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) over 9 years ago

Esko, geeeeee you were full of good news yesterday buddy :) :) :)

No one likes going through this, but just like giving birth, there must be pain before there is life again.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 9 years ago


The default epidemic is sweeping across the entire market, unfortunately.

Posted by Esko Kiuru over 9 years ago


That medicine would earn its inventor a decent hoard of cash.

Posted by Esko Kiuru over 9 years ago


Oh boy. We still have to go through that. I need a cold one.

Posted by Esko Kiuru over 9 years ago


I've been holding off on this, but, hey, pressures were building to come clean. This luxury market segment is now in the quicksand.

Posted by Esko Kiuru over 9 years ago