In the Reno/Sparks area, those loans were mostly used as a source of ready cash when home prices were rapidly appreciating.  Approximately 47.6% of subprime loans in Nevada were cash out refinances, 38% were for the purchase of a home.  There were 40,000+ subprime loans originated in Nevada, with an average balance of $232,000 and an average interest rate of 8.45%.  As of 2/4/08, 10.15% are in default or bank owned.

Most of the subprime loans were originated in 2005 & 2006.  Most subprime loans were fixed for 24 months, but some were fixed for 36 months.  Which means that the large surge in subprime defaults is peaking this year and next.

Home owners who have subprime loans are trapped into the cycle of default and foreclosure if they do not have sufficient income to offset the increase in payments.  As these loans often allowed ratios of 45% mortgage payment to monthly income, few subprime borrowers have had the large increase in income necessary to offset the 4-6% increase in monthly payments when the loan adjusts.

Coupled with falling home prices (strongly influenced by the huge influx of REO properties dumped onto the market)  lack of availability of alternative financing options, and the economic downturn which has caused thousands of workers in the financial and construction industries to lose their jobs, these loans are ending up in default in an ever increasing downward spiral.  Banks, in spite of huge losses on their loan portfolios, have shown no real interest in forgiveness or work outs on non-performing loans, preferring instead to foreclose.

However, where there is change there is also opportunity.  Home buyers who can qualify for a mortgage, especially first time buyers who have been largely shut out of the market, are now out in force, snapping up REO properties.  Most REO properties are selling well, with multiple offers.

Investors are also cautiously out looking for inexpensive properties to pick up for rentals.  Since so many homeowners are losing or walking away from their homes, the rental market is surprisingly strong, and investors have a chance to show cash flow from their investments once again.  The biggest concern is a "blighted area", where large numbers of abandoned and unsold homes cause entire neighborhoods to decline.  This has already happened in areas of the midwest, but so far Reno/Sparks has largely escaped this condition.

Buyers interested in looking at homes in Spanish Springs, Damonte Ranch, North Valleys, Northwest Reno, Dayton and Fernley need to be aware of the current conditions in the housing market and the short term forecast caused by subprime lending patterns, as these areas are of particular concern.  While no one can be certain how long this pall will be cast over home prices in these areas, our best judgement is at least through 2009, and quite possibly 2010.