From the real powayseller’s blog SD Realtor-your old buddy from yesteryear
California homes worth $10 billion returned to lenders in May
Thursday, June 12, 2008 at 10:16AM
Schahrzad Berkland
California foreclosure chart
Click on image to enlarge
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We see that all levels of foreclosures are growing: Notices of Default, Notices of Trustee Sale, and Real Estate Owned.
Now here is my own commentary to add to this. With each mortgage payment not made, someone is losing money. Last month, lenders lost $10 billion in California alone! This hampers a bank’s ability to make more loans, restricting lending and taking out more buyers. Price declines follow. When a property becomes bank owned, the bank has to set aside reserves against that property, and thus has less capital available for lending. That is why the banks are so serious about selling their REOs.
I spoke with a major lender’s REO VP, and he told me what happened to my missing 4000 REOs. He said that at the auction (trustee sale), the loan goes back to the servicer. Then the servicer has to figure out who owns the loan. The loan can be owned by a pension fund in Germany, a hedge fund in the US, and a wealthy investor who bought a strip of the mortgage backed security. Figuring out the ownership can take 1 – 4 months. Then, the property is given to a lender to sell. Even then, the asset manager can delay the process for various reasons. They are just overwhelmed with large case loads.
As the distress sales (the REOs not yet on the MLS, and the short sales) make up more and more of the inventory for sale, it puts downward pressure on prices. Banks are motivated sellers. They don’t suffer from the “But I gotta sell it for $720K because I need xyz….”, and instead are rational “This home is worth $620K so I’ll list it for $599K”.
