Clearly lots of confusion here. There are shenanigans that banks can play with loan valuations, but… not to the degree, or in the manner that you’re suggesting with respect to SFRs.
When a loan goes on non-accrual (that is, the loan is 180 days past due) the bank has to set aside reserves (through a “provision”) to cover for any estimated loss (admittedly, this number is generally too low if the loan then goes to REO post-foreclosure). Once the bank forecloses, it has to mark the property to market (and provision the difference between the loan value and the expected recovery) and the loan becomes Real Estate Owned (REO). Now, if there is an additional loss beyond what was expected (likely these days), then there is an additional charge off. But, it’s not as though a bank keeps an SFR loan on the books at $200K until the property is sold post-foreclosure and then wakes up and says, “Oops! Gotta charge off $100K!” The vast majority of that charge off has already occurred by the time the property is sold out of foreclosure. And, more importantly, most SFR loans aren’t held by directly by banks. They’re in securitizations held indirectly by banks and the servicers are making the foreclosure decisions, not the lender itself.
So, yeah, plenty of shenanigans can be played at banks. But the main reason that foreclosures gum up the system is that servicers are understaffed relative to the work to be performed. And the various anti-foreclosure laws are also monkeying with the process.
