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Las Vegas: almost a sure bet.

LAS VEGAS Almost a Sure Bet

Mortgage lenders see a lot to like about the land of slot machines, Wayne Newton and prizefights.

In this time of slow home sales and empty office buildings, one might wonder if there is any place where buyers have a lot of cash and home prices are affordable. According to Michael D. Costello, Las Vegas surpasses that description. An assistant vice president with Pacific First Mortgage, Costello has lived for 35 years in the town most people equate with slot machines, Wayne Newton and prize fighting.

"Qualifying is not a problem" for Las Vegas borrowers, he says. Although many people leave the town broke after a trip to the casinos, folks who move to Vegas often pay cash for a home.

That's mainly because almost a third of the 6,000 immigrants arriving each month come from California, says Greta Cohen, a vice president of marketing research at Pasadena's Countrywide Funding Corporation. And many of them, Costello notes, are retirees who 20 or more years ago bought homes for around $20,000 in Southern California. Today they can sell that house for $400,000, and head for Las Vegas.

In the second quarter of 1990, the median Las Vegas home cost $111,900, according to the University of Nevada at Las Vegas' (UNLV) Center for Business and Economic Research.

Countrywide's Cohen says 12 percent of new Las Vegas residents are age 65 or older, with another 14 percent ranging between 55 and 64. But Costello figures 40 percent of his mortgage customers are retirees. Down payments are 30 percent or higher on 15 to 20 percent of his loans.

Costello discovered the downside of a strong market when he recently sold his home. "I put it on the market Saturday," he says. "And on Monday I had a cash buyer." But Costello adds that it was "difficult to buy the resale house I wanted." He said he made three offers on homes which "never got presented because the houses had sold already."

In Las Vegas, "another word for a `listing' is a `sold property.'" agrees Coldwell Banker Residential Group senior vice president Don Bonnell. He oversees the real estate brokerage firm's activities in Nevada and Arizona. Bonnell, like other residents, can quickly describe the reasons for living in Las Vegas.

Many attractions

Nestled between the Spring and Muddy Mountains, the town's lights appear to be jewels thrown in the desert when one drives towards Las Vegas at night. Much of its allure comes from the equally exotic attraction of gambling.

Before "gaming" was legalized in 1931, the city was primarily an agricultural center. But it started gaining popularity as a resort area after World War II. Today the hotel, gaming and recreation businesses comprise 31 percent of non-agricultural employment in a town of 758,300 residents.

To support those workers, the attractions welcomed more than 18 million tourists and conventioneers in 1989--and brought nearly $11.5 billion into the Las Vegas economy. Gaming made up approximately $3.2 billion of that total. Since 1982, yearly revenue from tourism and gaming has more than doubled.

More than 73,000 hotels rooms are available today, and occupancy rates are higher than national averages. "Most of the major casinos are expanding," says Coldwell Banker's Bonnell, in order to handle conventions such as the computer industry's 1990 COMDEX -- which had an estimated 120,000 attendees.

Such additions create jobs for local residents and the stream of newcomers. For instance, the new Mirage and Excalibur hotels by themselves are creating about 10,000 new jobs.

Having millions of tourists reduces the need for taxes on residents in Nevada. Personal and corporate incomes aren't taxed in the state. Neither are gifts, inheritances or food bought for home consumption.

In addition, property taxes were reduced by about 50 percent early in the 1980s. Today the statewide rate averages $2.12 per $100 of assessed value.

Added features

Residents enjoy more than just low taxes. Besides the casinos--which offer nickel slot machines, free lounge shows and inexpensive buffets--the area has a range of other activities to go along with its 315 days of sunshine a year.

Twenty-one golf courses are in the area, with nine more under construction. Hoover Dam and Lake Mead, the nation's largest man-made lake, provide water sports and fishing one hour away from the Strip.

Valley of Fire offers Indian petroglyphs, while snow skiing is possible from Thanksgiving to Easter in Lee Canyon. Other attractions within a day's drive include Death Valley, the Grand Canyon, Disneyland, Hollywood, the Pacific Ocean and Mexico.

Low taxes, jobs and plenty of attractions bring many new residents who are "fleeing California," says Chuck Baker, real estate editor of the Las Vegas Review-Journal. He says traffic, smog, gangs and overbuilt conditions are driving Californians into the desert. Today, Las Vegas--which means "the meadows" in Spanish--offers "the laid-back lifestyle they went to California 20 or more years ago [to find]," Baker adds.

The housing picture

UNLV's Center for Business and Economic Research forecasted a 9 percent population increase in 1990. And an estimated 29,500 housing units will be required for those 73,000 immigrants. Yet, permits were requested for fewer than 25,000 units. Apartment vacancies stayed around 5 percent during the year, with average rents rising to $507 by mid-1990.

Construction led all industries with 112.7 percent growth from 1984 to 1989 in Las Vegas. During the first half of 1990, more than three-quarters of home purchases were for new construction.

Median prices for existing homes were an affordable $98,200 in the third quarter of 1990, according to the National Association of Realtors. Resale homes rose in price 12.5 percent from the same period a year earlier.

Not surprisingly, mortgage lenders in this market tend to concentrate on builder business. Builder-oriented originators generally have loan officers calling both on the tract sales force and a developer's home office, in order to establish a relationship.

With $240 million in 1990 originations, Woodland Hills, California-based Weyerhaeuser Mortgage Company is tops in Las Vegas, holding down about an 8 percent market share. Margaretten & Company, Inc., Perth Amboy, New Jersey, is the number two Las Vegas mortgage lender, followed by local bank subsidiary Valley Mortgage Company, and then Salt Lake City-based Crossland Mortgage Corporation. Each of these companies gets at least 5 percent market share.

Other strong producers include Citibank Nevada; PriMerit Savings Bank, Las Vegas; American Residential Mortgage Corporation, La Jolla, California; First California Mortgage Company, San Rafael, California; and Directors Mortgage Loan Corporation, Riverside, California.

Weyerhaeuser Mortgage Area Manager Rick Piette says Las Vegas has 140 mortgage firms, but that 50 to 60 of them "do less than five loans a month." He stresses the need to have loan officers working with tract sales people. But he also uses low-commission "builder reps" to handle applications from accounts with which he has ongoing commitments. In that way, Piette reduces the overall costs of his originations. Piette explains that having an efficient back-room operation is important for competing in Las Vegas. His 43-person office tries to hire experienced mortgage personnel. Weyerhaeuser, he adds, finds it useful to "pay just a hair more, but get people who can think on their feet."

Robert Reaney, Sr., regional vice president with American Residential Mortgage Corporation, agrees that it takes "quite a team effort to service a builder." He adds that some lenders are leaving Las Vegas because they "came in expecting too much," and haven't been able to find enough experienced workers to compete with more-established firms. "Old lenders command a lot of business by reputation," Reaney notes.

Fixed-rate town

But they can't rest on their reputations either. Piette spends 40 percent of his time calling on builders. He says a fast pace "gets infectious" in the office, as employees hustle to provide builders with a maximum 45-day turnaround or else "a real quick `no'," so the house can be resold. Piette aims to have rejections accomplished in five to seven business days. More than a third of his loans use limited documentation processing, and most are fixed-rate, conforming mortgages.

Buyers with large down payments have made conventional lending easier, says Reaney. Five years ago, he adds, the market was "mostly government" loans. During 1990's second quarter, 10 percent of Las Vegas originations were VA and 19 percent were FHA loans, according to UNLV's economics center.

Median income for mid-1990 homebuyers in Las Vegas was $55,668, while their total average monthly payment was $937.37. A year earlier the median income for buyers was $33,600, and payments averaged $914.20, according to UNLV. Over the short term, it appears that buyers are becoming easier to qualify. However, median household income for new residents is just $31,081.

Condominium purchases almost doubled from the first quarter of 1990 to the second, when they accounted for 24.2 percent of all sales. Townhouse sales went from 10 percent of the market to 16.3 percent during that period. Single-family homes thus dropped from a 77.5 percent share to 59.5 percent.

However, sales accounted for by new construction stayed even at 77 percent. Close to a third of the units sold had between 1,500 and 1,999 square feet, and 51.9 percent of the buyers had a two-person household in mid-1990. One-person households made up the next-largest group of purchasers, accounting for 22.1 percent of sales.

But the demographics split into groups of young workers and retirees. The median age of new residents is 39 years. But 26 percent of these are 55 or older, while another 27 percent are 25 to 34. With unemployment at 4.3 percent--compared to the nation's 5.9 percent average--working-age people are lured as well as retirees, says Diana Meyer, staff economist at Countrywide Funding.

Newcomers make up 8 percent of all Las Vegas households. When these immigrants were asked why they moved to southern Nevada, 10 percent of recent survey respondents said it was for retirement. Nine percent were looking for employment. But the largest group--21 percent--moved because they liked the area.

Twenty-seven percent of Las Vegas families have lived there from one to five years, while 29 percent have been in town more than 20 years. Sixty-two percent of Las Vegas residents own their homes. Household income for all homeowners is $40,118, while renter households bring in $25,366 annually. Median income is $32,862.

Building boom

Households headed by retirees bring in a median income of $24,153 annually according to the 1990 Las Vegas Perspective report. Some builders are developing communities for the needs of this market, such as Sun City Las Vegas, which will accommodate 6,000 residents upon completion. Local real estate observers say demand exceeds the supply of such communities. Other developers are focusing on commercial properties. In 1989 and early 1990, more than 3 million square feet of shopping space was added through 17 new shopping centers in the city.

And more than 675,000 square feet of office space also came on stream in 1989-90, with another 1.5 million square feet of space currently under construction or planned. Total office space in Las Vegas exceeds 6 million square feet. Vacancy rates are the second lowest in the country, after absorption of about 900,000 square feet in 1989-90.

Close to half of all businesses surveyed in late 1989 reported plans to hire more workers soon. In addition, firms such as Lockheed Engineering and Montgomery Ward Credit Card Corporation have moved into town.

Job growth has been 8 percent annually for several years. Obviously, this nicely complements the 9 percent population growth in 1990. Construction is one of the largest beneficiaries, with 8,500 jobs created in 1989.

Commercial building permits granted in 1989 were valued at $2.3 billion, up 36 percent from the year before. And permits were issued for more than 11,000 single-family homes in 1989--a 40 percent jump from 1988 levels. However, multifamily permits dropped by 40 percent in 1989, after rising 150 percent the previous year. Still, permits for 13,500 units were issued in 1989.

New developments near the city combine office, recreational, resort and residential space. For instance, Howard Hughes Properties is building Summerlin, a master-planned community of 25 villages around a business core. When completed early in the 21st century, the development will cover 39 square miles in Clark County, and house 200,000 residents.

Despite all this building activity, mortgage lenders report that business "leveled off" the second half of this year, according to American Residential's Reaney. "Supply and demand is in balance" now, he notes, after going through a "purchasers' frenzy for the past year."

Reaney adds that builders "have no standing inventory," and that tract homes are bought nine months before their completion. Keeping loan files updated during the construction period adds expenses for originators, he says.

Demand for financing for new construction, as less money now is available from thrifts, is a concern for Pacific First Mortgage's Costello. He cites a "tremendous amount of requests coming in daily" for construction financing. "We can't facilitate all of them." Private investors are picking up some of the slack, says Ray Crebs, president of Directors Mortgage Loan Corporation.

Pacific First evenly divided its $140 million in 1990 commercial lending between construction and permanent loans. Like most Las Vegas lenders, the firm expects next year's production level to be about the same--"or slightly more."

Builder perspective

But caution is the key now for Cindy Schaefer, marketing and sales director for R/S Development Company in Henderson, just south of Las Vegas. Although R/S Development sold 150 homes in 1990 and hopes to close on 200 this year, Schaefer says the firm is proceeding cautiously.

For instance, now R/S will start construction on 10 homes in a tract at once, "instead of 20 or 30," she adds. Schaefer also notes the market has slowed down in recent months. Right now the firm is building three- and four-bedroom detached homes for retirees at prices ranging from $140,000 to $160,000. In another R/S development, homes are the same size, but priced more moderately for families at $113,000 to $140,000.

Because the cost of land is cheaper, some California builders have come to Nevada. But as in many western cities, concerns about adequate water supplies in the future, the environmental impact of development and traffic congestion are growing concerns, says Review-Journal real estate editor Baker.

"Future growth has to be controlled," he adds. Yet Baker expects 1991 to be another strong year for real estate sales, although he sees some softening of the overall Las Vegas economy. "New car sales are off," Baker observes.

Concessions on the scale currently offered by some California builders--who are known to give luxury cars to homebuyers--are unheard of in Las Vegas. Yet, Shaefer says builders there traditionally "pay up to 2 points" to buy down loans. R/S Development also purchases commitments from Weyerhaeuser Mortgage. "If the market goes bad," she explains, "commitments always help."

Weyerhaeuser's Piette notes that "90 percent of builders" in Las Vegas don't care to spend money for commitments. "There's no fear of, `I need this commitment to sell product'," he explains. Builders know their homes will sell whether market rates are 10 1/4 or 10 3/4 in the future.

Security Pacific Bank's Los Angeles office has supplied construction funds to R/S Development for years, Shaefer adds. But the local relationship with Weyerhaeuser has been in effect just a little over a year. She notes that there has been "some switching" of lenders by builders.

"The majority of mortgage companies offer service," Schaefer notes. "But offering and giving are two different things." She wants approval in 30 to 45 days from application. "I like to be able to work closely" with a lender, Schaefer says. Additionally, if a problem comes up she wants to be able to "call the boss--and get results."

Schaefer describes Weyerhaeuser Mortgage as "very attentive," and adds that choosing a lender involves looking at the personalities involved, and then finding a firm whose people are "good for their word" -- as well as offer good rates.

Similar lender traits are desired by Realtors, says Coldwell Banker's Bonnell. He cites "speedy processing, accurate accounting of costs and fees, responsiveness to the needs of the buyer and agent and pricing" as keys to gaining a Realtor's loyalty in the Las Vegas market.

In addition, Las Vegas breaks rules found in other markets, according to Crebs. His first surprise after opening shop in Las Vegas around three years ago was the high incidence of fraud, often from the use of straw buyers. But instituting a quality-control program took care of those concerns, and for the last two years Directors has gotten "nothing but very good product" from Las Vegas, Crebs says.

Additionally, he initially opened offices in different parts of town, since Directors found that California homebuyers don't like driving far to get a loan. But now Directors is responding to the unique nature of Las Vegas by consolidating into one office.

Crebs explains that although about 60 percent of Director's Las Vegas business comes from new homes, 70 percent of those new homes are sold by Realtors. Agents rent buses, fill them with potential homebuyers and drive to a tract. After looking at the models, everyone signs the guest book, and they go to the next development.

But if one of those lookers buys a home in the subdivision within 60 days, "the Realtor gets a commission," says Crebs. His office is affected by this practice when a Realtor brings in a buyer, but the developer wants to use Directors' builder division to do the loan.

Directors thus has consolidated the two divisions in one office, so the retail and builder staffs "can talk with each other." Crebs says spot loan originators typically don't understand how important it is to builders to pay off construction loans quickly.

Furthermore, the lender's builder division provides extra services. For instance, one or two processors are assigned to each developer, and weekly status meetings are held with them to go over the status of all their loans. Directors also is aware that losing a builder client is more damaging than if one dissatisfied Realtor quits using the firm.

Directors' $5 to $6 million of monthly originations in Las Vegas is expected to grow, says Crebs. He adds that Director's originations have changed from being three-quarters FHA loans down to just half.

Tough competition

Other aspects of the Las Vegas market make it difficult to work in, says Bob Lee, vice president of Countrywide Funding's western division. For instance, Lee, who oversees Countrywide's Las Vegas operations, explains that some lenders quote loans "at rates that don't necessarily have any relationship with secondary market prices."

Lee says financial institutions might be "three-eighths under to one-quarter over. There's no pattern to it." He adds, "that forces us into things we don't want to do"--namely, allowing regional and branch managers to drop prices.

Countrywide concentrates on building relationships with Realtors in the Las Vegas market, Lee says. Agents are relied on more in Las Vegas than other areas, he adds, since "most buyers are not that experienced in multiple-home ownership." In addition, Las Vegas buyers like having low loan-to-value ratios, and are "not as aggressive as California buyers would be" in terms of choosing loan types. Lee explains that Las Vegas is a fixed-rate market.

Average loan size originated out of Countrywide's Las Vegas office is $124,650, and total volume last year was over $22 million, according to Lee. A branch manager brings in the business, takes applications and underwrites. A loan processor and a funder complete the typical office staff.

Lee notes that many applications are taken over the phone, or done through the mail. "We try to make it as convenient as we can today," he says, in order to compete. In addition, Countrywide's computer system increases efficiency by eliminating paper forms. A phone application can be taken in half an hour, and the forms will be printed and ready for signing 10 minutes later.

Since the person taking the application also underwrites the loan, homebuyers can be told immediately if there's a problem. Countrywide's no-commission system keeps the combination loan officer/underwriter from having potential conflicts of interest.

Will it last?

In Las Vegas, "the question being asked is, 'With a recession coming, when are we going to slow down?'" says Weyerhaeuser's Piette. But the market seems to stay strong regardless of external economic forces. For instance, one would think that California's slowing home sales would keep some people from selling their homes and moving from that state to Las Vegas.

But Piette thinks that high home prices on the Coast are encouraging some of the 20,000 monthly California immigrants to finally decide it's too expensive and come to Las Vegas instead. "They don't want to spend $350,000 for a 30-year-old house in South Pasadena," he explains.

Despite its obvious attractiveness for lenders, Las Vegas is a competitive market for mortgage lenders. American Residential's Reaney says loan officers go through the cycle of calling on tract salespeople and explaining their products in order to get a chance at one loan. "No one gives [away] business," he says. "You've got to earn it."

But if another lender loses a loan product, or if his service drops due to personnel changes, then Reaney says his originators are given the chance to "fill a void" created by that firm's slip.

Even with the competition, Costello says Las Vegas mortgage bankers "all know each other" and socialize together. If one can't do a loan, he will "know somebody who can."

Las Vegas doesn't reward deception in either poker or lending. Originators recognize that having good service establishes their reputations, since builder expectations are high. "Don't take on what you can't service," is Reaney's motto.

And he makes sure that American Residential has the necessary loan officers, processing capability and product lines before starting to go after any new business in this promising and unique market.

Howard Schneider is a freelance writer based in Ojai, California, specializing in real estate issues.
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Title Annotation:mortgage lending
Author:Schneider, Howard
Publication:Mortgage Banking
Date:Jan 1, 1991
Previous Article:A longer perspective.
Next Article:Housing policy after the S&L crisis.

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