More distressed homeowners in Las Vegas are likely to let their houses become foreclosure homes than in the other cities, according to researchers at Northwestern University and the University of Chicago Booth School of Business.

The researchers found that 17 percent of homeowners in Las Vegas would default deliberately if their negative equity increases to 50 percent even if they have the money to make the monthly loan payments.

Nationwide, 26 percent of all delinquent home loans are considered intentional or strategic defaults.

One of the major reasons, according to the researchers, are the record numbers of foreclosures pushing down home prices in Las Vegas, putting the city on top of foreclosure charts and price decline charts.

Aside from significant price declines, the social stigma of foreclosures is no longer restraining homeowners from letting their homes go into foreclosure because most of them know of neighbors and friends that have gone into foreclosure.

The stigma of foreclosure has been declining in neighborhoods where foreclosure is the norm rather than the exception, according to the researchers.

The median sales price for Las Vegas houses has dropped by more than half since June 2006.

Based on another data of home loans, 67 percent of homeowners with home loans in Las Vegas are underwater and over 80 percent of mortgages taken out from 2005 through 2007 are now underwater.

The researchers found that homeowners who know another borrower who has lost a home to foreclosure have an 82-percent probability of letting their homes go into foreclosure. They found from their survey that more homeowners in zip codes filled with significantly bigger number of foreclosures are willing to default.

Luigi Zingales, a University of Chicago professor who conducted the survey with 2 other professors, said the actual number of Las Vegas borrowers who will deliberately walk away from their home loans will be determined by how homeowners perceive the direction of the economy and pace of recovery from price declines. Loss of hope from housing recovery will push them to walk away.

Jeremy Aguero, head of research company Applied Analysis, said there are a lot of houses in Las Vegas whose prices have dropped from $400,000 by 50 percent to $200,000.

Additionally, the researchers found that homeowners will not intentionally walk away if their negative equity is lower than ten percent.

The unemployment rate continues to surge, exacerbating the house repo crisis that has been sweeping across the country for several years now. And the Obama Administration is finding ways to help the unemployed avoid foreclosure.

One of the options being considered is giving the unemployed loans or grants to pay their mortgage or allow them to stay in their foreclosed properties as renters.

However, industry experts believed that the option of giving loans or grants to the unemployed to help them deal with the effects of the house repo crisis would face resistance in the U.S. Congress.

According to experts, the expanding unemployment problem has long been troubling lawmakers who are focused on stabilizing and strengthening the housing market. They said that the current house repo prevention programs, including the loan modification, do not help people who lost their jobs because they do not have a regular income to sustain paying even a reduced monthly mortgage.

As pointed out by senior adviser at the Housing Department William Apgar, the unemployment is hindering efforts to make loan modification a success.

The collapse of the housing market was linked to subprime loans taken out by borrowers who after some time, defaulted on their payments after adjustable-rate mortgages increased. But industry experts believed that the current house repo crisis is fueled by massive layoffs that are sweeping across the country.

And what is troubling about the current situation is that the unemployment problem has touched creditworthy borrowers, forcing them to default on their mortgage payments.

In the first six months of this year, foreclosure filings were made on over 1.5 million properties, representing a 15 percent increase compared with the same period the previous year. And foreclosures due to unemployment accounted for much of the increase in the first half of 2009.

A proposal has been made to give housing vouchers to the unemployed until such time that they recovered financially. Also, Senator Jack Reed is planning to introduce a bill to provide loan assistance payments to jobless people through local housing finance agencies.

Reed said that his proposal is a way to help people who lost their jobs and are facing the risk of house repo through no fault of their own.

No one can argue that the current mortgage crisis that flooded the housing market with millions of bank repo homes is serious. But all throughout the battle to fight the foreclosure mess, one solution is particularly favored — mortgage modification.

Generally, this solution promises to be a win-win situation for everyone involved. Distressed homeowners get to keep their properties; lenders end up saving a lot of their money considering the cost of foreclosing homes and even the cost of keeping tabs on their bank repo homes; and neighborhoods do not suffer from declining real property values. Perhaps, this is the reason why both the past and the present administration encouraged mortgage modification.

Unfortunately, the number of successful loan modification has yet to catch up with the number of bank repo homes. For the first four months since Obama’s Home Affordable Modification Program was launched, only 350,000 homeowners were able to enjoy new loans while foreclosure cases filed for the months of March to June 2009 reached almost 1.2 million.

Of course, one cannot discount the effects of the rising joblessness rate on the housing crisis. It has actually made it almost impossible for millions of struggling Americans to pay their current mortgage debt, or any other affordable housing loan for that matter. Even if industry experts believe that mortgage servicers should employ more staff and train them well in order to complete more loan modifications, it is simply not enough.

A new study done by economists of the Federal Reserve Bank of Boston showed that loan modification can only work if lenders ignore the two strongest foreclosure incentives: that 30 percent of their troubled borrowers can pay their housing debt without the benefit of a loan modification and the huge probability that borrowers who get approved for a loan modification will re-default.

Considering these two factors, it is not surprising that a lot of lenders are still hesitant about offering loan modification to their borrowers. Not only are they exposing themselves to more risk but they could also end up losing more than what they initially expected.

If this is the case, then the federal government should re-calculate the number of preventable foreclosures via loan modification if they are really serious bout containing the number of bank repo homes.

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