This HAS happened before. I worked as an REO Marketing Analyst for the RTC when they took down Home Fed Bank around 1991. It was the largest bank ever taken down with hundreds of millions in REO. I personally sold bank REO for 20%-30% of what it appraised for just two and three years earlier. Banking regulators don’t give lenders alot of leeway to play the market so to speak, or hold on to get a better price. They HAVE to get those non-performing assets OFF their books. I have lots of stories about those days and I’m convinced this time it will be far worse because back then we didn’t have any of the Geo-Political crises we have now, and because the advent of the internet now facilitates the free flow of information much much faster. Look at all the housing bubble blogs there are with all the reliable data they are providing. It’s almost an avalanch.
I remember telling people in 1989-1990 that the writing was on the wall and nobody listened because there was no publicly available data, and the media, especially newspapers, weren’t going to report it because their largest source of advertising comes from brokers.
With the internet and the info that is available on it, you’ll soon see the amount of time it takes for real estate to crash significantly compacted. In fact when homeowners increasingly start putting their homes up for sale in the next few weeks to get an early start on the spring home buying season, and they realize how inventories on their local MLS’s have tripled and quadrupled and worse, you’ll see panic set in, especially now that you can monitor home inventories in any metropolitan area on ZipRealty.com and other sites. This will feed the panic. In 1991-1994 (the last time there was a real estate crash), only real estate brokers with access to the MLS were able to see the early signs. Now everyone sees the signs and is blogging about it.
The one thing I’m always amazed to find out is how many borrowers think that when their home goes back to the bank, that’s the end of their problems. What they don’t realize is that if the lender writes off or forgives any debt to them (i.e., short sale, etc.) the former borrower will get a 1099 for the amount of that forgiven debt as though they had received it as income. If they sold their home through a short sale at the begining of the year and they got a 1099 by January 30th of the following year, they not only have to pay taxes on that forgiven debt, but penalties and interest too, because it was due (unless you pay estimated quarterly taxes) at the time the debt was forgiven.
