How is the inventory the banks are holding off the market accounted for?

M. Kamadulski

Here's a great article titled "The Case of the Missing REO Inventory" that addresses this question in depth.

www.realtytrac.com/.../newsletter-articles.asp

It's not.

Why are the banks holding back the inventory from the market?

GJN: here's an excerpt from the article referenced in a comment above by Rick Sharga. I think this addresses some possible answers to your question.

Lenders and servicers admit that it’s taking longer to process REOs than it has in the past, and they offer a number of legitimate reasons:

  1. -Many of the properties have title issues that need to be resolved

  2. -Many of the properties are in states of utter disrepair

  3. -A number of states have strict redemption rights periods, which prevents the lender from reselling the property

  4. -A few states have extended the length of eviction proceedings

  5. -The sheer volume of REO activity has created a “pig in the python” phenomena, (to put this in perspective, there will be roughly four times the number of REOs this year as in the last “normal” year, 2005)

What else could be slowing things down? A popular theory is that many banks are holding the properties off the market in order to defer losses. There is some accounting logic to this theory, as in most cases banks aren’t required to adjust asset prices until the actual resale of the property. Another idea is that the industry is holding back the inventory to create leverage with the government in order to force the creation of a “toxic bank” or RTC-like entity that would buy the distressed assets at 50 to 60 cents on the dollar rather than the 30 to 35 cents available on the market today. This theory suggests that, seeing the threat of a massive inventory of distressed homes being released all at once, the government would “blink” rather than risk another housing market meltdown.

Like to be update with new information. Thanks

We bought 2 properties at the big DC foreclosure auction last week, and are still waiting for "bank approval".  One property has big mold issues that will only get worse as it sits vacant.  I sometimes wonder if these lending institutions didn't bring on a lot of these problems themselves - lending money on property sight-unseen.