Housing Division administrators say Nevada must put together programs that leverage the $72 million the state will get from the federal Neighborhood Stabilization Program if that money is to have any real impact on the foreclosure crisis.
The program approved earlier this year sends $3.99 billion to the states and local governments nationwide to try deal with the growing number of foreclosures.
Nevada is now leading the nation in rate of foreclosures with one in every 43 homes receiving a notice in the second quarter of 2008. California is second and Arizona third.
Lon DeWeese, chief financial officer for the division, said the plan is to find neighborhoods where there are a cluster of 15-20 homes in foreclosure owned by one financial institution and convince that financial institution to "take a haircut" - lowering the value of those homes to current market value - so that the homes can be put back on the market at a realistic price. And that realistic price may be 30 percent below the amount they originally sold the house for.
Beyond that, he said, the federal rules for the program require they cut prices an average of 15 percent below current market value.
For those reasons, he said, banks have been unwilling to drop the prices until now because, "that loss goes straight to the bank's bottom line."
He said with federal money flowing into those financial institutions and the market still falling, they may soon be much more willing to make a deal.
"In high foreclosure areas, the downward spiral is accelerating," he said.
He said a deal with the state that finds qualified buyers for a group of homes in one of those neighborhoods at realistic prices could produce a dramatic recovery for the neighborhood, stopping the loss of value to the mortgage holders.
In the long run, he said, that would be to the financial institution's advantage and actually save them money.
To work out the kinks in the plan, Housing Division Administrator Chaz Horsey said they are putting together three pilot projects - one in Clark County, one in Las Vegas and one in Reno - seeding them each with $2 million.
The plan was announced Wednesday at the governor's Housing Recovery Task Force meeting.
"By utilizing a portion of this federal funding for this pilot project, the state and local governments can help take some vacant homes off the market, get qualified buyers into these homes and help rejuvenate the neighborhoods that have been dragged down by a glut of foreclosures," said Gov. Jim Gibbons during the meeting.
Horsey said the state and local governments are on a tight deadline to put things together. They have until Dec. 1 to submit programs under the Neighborhood Stabilization Program or they will lose the $72 million in federal money set aside for Nevada.
He said under the federal rules, all but $24 million of the $72 million goes to Clark County. And, divided by population, Clark gets $12.7 million of the $24 million as well plus $4 million in the two pilot projects there.
When the state's administrative costs are deducted, Washoe County is left with just $2.7 million of the money and all of the rest of Nevada about $2.2 million.
As a result, DeWeese said, the state will not be buying any homes but, instead, putting qualified buyers together with local governments, nonprofit groups and lenders. The plan would use the state's existing first-time home buyer's program.
"The first priority is to find qualified buyers so local jurisdictions don't have to get into the home-owning business," he said.
The task force meets again Thursday to adopt the state's plan for dividing up the money and begin sorting out the local plans for implementing the housing recovery program.
"We got into this housing crisis one home at a time, and we're going to get out of this housing crisis one home at a time," said Gibbons.
• Contact reporter Geoff Dornan at gdornan@nevadaappeal.com or 687-8750.