The whole process starts with NOD’s. From this point on, the owner of the mortgage has a fair amount of freedom as to how fast they process it. I think the fastest a property can go NOT from NOD is about 6 months. The mortgage could get cured in this time period or a short sale could happen as well. If the mortgage is 5 years old or less, then the odds are good that the debt is higher than the market value of the property. So a short sale is about all that could save the property from becoming an REO. But still, how quickly a lender wants to get the property back is really up to them. And then once it is REO, they may not list on the MLS…they may put it in an auction pool.
So, you can see how listings can be very misleading way to discuss “inventory” at this time.
Mr. Mortgage estimates that 70% to 80% of NOD’s will end up being REO. This may be a better way to get a handle on how much inventory is really out there or will be in the next 12 months.
Another factor that may be influencing this is that the lender does not have to declare a loss on their books until the property is actually sold at a loss. So they may also want to “parse” out the properties over time rather than dump them all at once and clobbered with losses in one quarter. The losses may be worse than having a bunch of non-performing loans on their books. At least for a few quarters anyway.
Bruce Norris, the famous buyer of distressed property in the Riverside County area, is focusing very strongly on the auction environment these days as he feels the situation for REO’s is so huge that lenders are forced to use auctions rather than just list them on the MLS.
