Question Regarding Foreclosures

[fishsticks]

A quick question:

If the banks and/or government are gaming the market and blocking the so-called shadow inventory, why is it that some bank-owned houses (a small number for sure) are in fact coming up for sale? Is it something unique about the house? [for instance the loss for the bank is minimal?] Or does it have to do with the mortgage holder? [for instance, are a few banks moving forward on sales while the vast majority are stalling?]. Or does it have to do with the time the house/condo has been in the foreclosure pipeline?

Again, the question is not why we have a shadow inventory, but why any bank-owned houses/condos are getting sold at all.

Any thoughts and/or data on this? Are there any patterns?

Thanks,

Fishsticks

[DWCAP]

I guess the answer lies in what “shadow inventory” is. If you only consider it to be houses that have been taken back by the bank, but are not for sale on the MLS, then there would be a question of ‘why sell anything?’ Why not just withhold inventory until prices reach par with the loan?

If you think of shadow inventory as all the houses that are in serious default, but not already REO on the market, then you realize that many many houses may be caught up in a limbo where banks are unable to process them in a timly manor, and as such only a certain number of them reach the market at any given time. That number is the amount the banks are able to process, both functionally and politically. The rest just live in limbo for another day/week/month/year.

Remember banks are not in the property management buisness. They are in the loan buisness. They dont want your property, they dont want to have to resell houses. They want your monthly payment, and only resort to taking the house when they have to try to get something of the cash they loaned you back.

[DWCAP]

I guess the answer lies in what “shadow inventory” is. If you only consider it to be houses that have been taken back by the bank, but are not for sale on the MLS, then there would be a question of ‘why sell anything?’ Why not just withhold inventory until prices reach par with the loan?

If you think of shadow inventory as all the houses that are in serious default, but not already REO on the market, then you realize that many many houses may be caught up in a limbo where banks are unable to process them in a timly manor, and as such only a certain number of them reach the market at any given time. That number is the amount the banks are able to process, both functionally and politically. The rest just live in limbo for another day/week/month/year.

Remember banks are not in the property management buisness. They are in the loan buisness. They dont want your property, they dont want to have to resell houses. They want your monthly payment, and only resort to taking the house when they have to try to get something of the cash they loaned you back.

[DWCAP]

I guess the answer lies in what “shadow inventory” is. If you only consider it to be houses that have been taken back by the bank, but are not for sale on the MLS, then there would be a question of ‘why sell anything?’ Why not just withhold inventory until prices reach par with the loan?

If you think of shadow inventory as all the houses that are in serious default, but not already REO on the market, then you realize that many many houses may be caught up in a limbo where banks are unable to process them in a timly manor, and as such only a certain number of them reach the market at any given time. That number is the amount the banks are able to process, both functionally and politically. The rest just live in limbo for another day/week/month/year.

Remember banks are not in the property management buisness. They are in the loan buisness. They dont want your property, they dont want to have to resell houses. They want your monthly payment, and only resort to taking the house when they have to try to get something of the cash they loaned you back.

[DWCAP]

I guess the answer lies in what “shadow inventory” is. If you only consider it to be houses that have been taken back by the bank, but are not for sale on the MLS, then there would be a question of ‘why sell anything?’ Why not just withhold inventory until prices reach par with the loan?

If you think of shadow inventory as all the houses that are in serious default, but not already REO on the market, then you realize that many many houses may be caught up in a limbo where banks are unable to process them in a timly manor, and as such only a certain number of them reach the market at any given time. That number is the amount the banks are able to process, both functionally and politically. The rest just live in limbo for another day/week/month/year.

Remember banks are not in the property management buisness. They are in the loan buisness. They dont want your property, they dont want to have to resell houses. They want your monthly payment, and only resort to taking the house when they have to try to get something of the cash they loaned you back.

[DWCAP]

I guess the answer lies in what “shadow inventory” is. If you only consider it to be houses that have been taken back by the bank, but are not for sale on the MLS, then there would be a question of ‘why sell anything?’ Why not just withhold inventory until prices reach par with the loan?

If you think of shadow inventory as all the houses that are in serious default, but not already REO on the market, then you realize that many many houses may be caught up in a limbo where banks are unable to process them in a timly manor, and as such only a certain number of them reach the market at any given time. That number is the amount the banks are able to process, both functionally and politically. The rest just live in limbo for another day/week/month/year.

Remember banks are not in the property management buisness. They are in the loan buisness. They dont want your property, they dont want to have to resell houses. They want your monthly payment, and only resort to taking the house when they have to try to get something of the cash they loaned you back.

[werewolf34]

Fishsticks

Think of the pool of foreclosed and defaults as a bath tub full of water.

The slow trickle out of the bath tub are the foreclosed homes available for sale. The number for sale is a small number compared to the amount which will go bad.

Now imagine pulling the plug out of the bathtub. Banks (if rational) are limiting what they take to the market b/c too much supply will drive down the value of the home and loans left in the bath tub. You limit supply in order to match existing demand.

[werewolf34]

Fishsticks

Think of the pool of foreclosed and defaults as a bath tub full of water.

The slow trickle out of the bath tub are the foreclosed homes available for sale. The number for sale is a small number compared to the amount which will go bad.

Now imagine pulling the plug out of the bathtub. Banks (if rational) are limiting what they take to the market b/c too much supply will drive down the value of the home and loans left in the bath tub. You limit supply in order to match existing demand.

[werewolf34]

Fishsticks

Think of the pool of foreclosed and defaults as a bath tub full of water.

The slow trickle out of the bath tub are the foreclosed homes available for sale. The number for sale is a small number compared to the amount which will go bad.

Now imagine pulling the plug out of the bathtub. Banks (if rational) are limiting what they take to the market b/c too much supply will drive down the value of the home and loans left in the bath tub. You limit supply in order to match existing demand.

[werewolf34]

Fishsticks

Think of the pool of foreclosed and defaults as a bath tub full of water.

The slow trickle out of the bath tub are the foreclosed homes available for sale. The number for sale is a small number compared to the amount which will go bad.

Now imagine pulling the plug out of the bathtub. Banks (if rational) are limiting what they take to the market b/c too much supply will drive down the value of the home and loans left in the bath tub. You limit supply in order to match existing demand.

[werewolf34]

Fishsticks

Think of the pool of foreclosed and defaults as a bath tub full of water.

The slow trickle out of the bath tub are the foreclosed homes available for sale. The number for sale is a small number compared to the amount which will go bad.

Now imagine pulling the plug out of the bathtub. Banks (if rational) are limiting what they take to the market b/c too much supply will drive down the value of the home and loans left in the bath tub. You limit supply in order to match existing demand.

[temeculaguy]

http://www.cnbc.com/id/32630317

diana just released an article referencing the conspiracy theories on blogs about banks sanbagging inventory. FWIW I do not believe they are sandbagging properties they have taken back already, based on my research, they sell them once they process them, however I do think they are purposely moving slow on the actual foreclosures because it pencils out better. The article points out a couple of things, that it takes a while to process a foreclosure, that their goal is to not foreclose if they can find another option and finally that the final step in the forclosure process is down about 50% in the past few months as they were waiting on yet another gov’t program. We’ve seen this happen a few times, as soon as some new program is in the pipeline, the banks hold off on the final step, then after they realize it’s mostly smoke and mirrors, they start to foreclose again.

One element the conspiracy theorists fail to adress is that most of the banks conducting the forclosures are just servicers of the loan, it isn’t their money to lose, it’s a third party investor or many third party investors. The other issue that never gets addressed is that there are many banks in competition, who would love to screw each other. If I was bank A and I could screw bank B and C out of existence by dumping all my foreclosures at once, I’d do it, so would they. But if I was bank A and I could foreclose now and lose my investors 300k or modify the loan, take in a grand less per month for the next three years, then back to full price and even tack back on the lost interest. I’d lose my investors 36k at most and probaby 10k or less if it’s the interest on the mod, I’d try that one first, because Bank A’s job isn’t to correct the market, it isn’t to decide who to reward, it isn’t to let patient and prudent people buy houses, bank A’s job is to make money or lose as little as possible.

[temeculaguy]

http://www.cnbc.com/id/32630317

diana just released an article referencing the conspiracy theories on blogs about banks sanbagging inventory. FWIW I do not believe they are sandbagging properties they have taken back already, based on my research, they sell them once they process them, however I do think they are purposely moving slow on the actual foreclosures because it pencils out better. The article points out a couple of things, that it takes a while to process a foreclosure, that their goal is to not foreclose if they can find another option and finally that the final step in the forclosure process is down about 50% in the past few months as they were waiting on yet another gov’t program. We’ve seen this happen a few times, as soon as some new program is in the pipeline, the banks hold off on the final step, then after they realize it’s mostly smoke and mirrors, they start to foreclose again.

One element the conspiracy theorists fail to adress is that most of the banks conducting the forclosures are just servicers of the loan, it isn’t their money to lose, it’s a third party investor or many third party investors. The other issue that never gets addressed is that there are many banks in competition, who would love to screw each other. If I was bank A and I could screw bank B and C out of existence by dumping all my foreclosures at once, I’d do it, so would they. But if I was bank A and I could foreclose now and lose my investors 300k or modify the loan, take in a grand less per month for the next three years, then back to full price and even tack back on the lost interest. I’d lose my investors 36k at most and probaby 10k or less if it’s the interest on the mod, I’d try that one first, because Bank A’s job isn’t to correct the market, it isn’t to decide who to reward, it isn’t to let patient and prudent people buy houses, bank A’s job is to make money or lose as little as possible.

[temeculaguy]

http://www.cnbc.com/id/32630317

diana just released an article referencing the conspiracy theories on blogs about banks sanbagging inventory. FWIW I do not believe they are sandbagging properties they have taken back already, based on my research, they sell them once they process them, however I do think they are purposely moving slow on the actual foreclosures because it pencils out better. The article points out a couple of things, that it takes a while to process a foreclosure, that their goal is to not foreclose if they can find another option and finally that the final step in the forclosure process is down about 50% in the past few months as they were waiting on yet another gov’t program. We’ve seen this happen a few times, as soon as some new program is in the pipeline, the banks hold off on the final step, then after they realize it’s mostly smoke and mirrors, they start to foreclose again.

One element the conspiracy theorists fail to adress is that most of the banks conducting the forclosures are just servicers of the loan, it isn’t their money to lose, it’s a third party investor or many third party investors. The other issue that never gets addressed is that there are many banks in competition, who would love to screw each other. If I was bank A and I could screw bank B and C out of existence by dumping all my foreclosures at once, I’d do it, so would they. But if I was bank A and I could foreclose now and lose my investors 300k or modify the loan, take in a grand less per month for the next three years, then back to full price and even tack back on the lost interest. I’d lose my investors 36k at most and probaby 10k or less if it’s the interest on the mod, I’d try that one first, because Bank A’s job isn’t to correct the market, it isn’t to decide who to reward, it isn’t to let patient and prudent people buy houses, bank A’s job is to make money or lose as little as possible.

[temeculaguy]

http://www.cnbc.com/id/32630317

diana just released an article referencing the conspiracy theories on blogs about banks sanbagging inventory. FWIW I do not believe they are sandbagging properties they have taken back already, based on my research, they sell them once they process them, however I do think they are purposely moving slow on the actual foreclosures because it pencils out better. The article points out a couple of things, that it takes a while to process a foreclosure, that their goal is to not foreclose if they can find another option and finally that the final step in the forclosure process is down about 50% in the past few months as they were waiting on yet another gov’t program. We’ve seen this happen a few times, as soon as some new program is in the pipeline, the banks hold off on the final step, then after they realize it’s mostly smoke and mirrors, they start to foreclose again.

One element the conspiracy theorists fail to adress is that most of the banks conducting the forclosures are just servicers of the loan, it isn’t their money to lose, it’s a third party investor or many third party investors. The other issue that never gets addressed is that there are many banks in competition, who would love to screw each other. If I was bank A and I could screw bank B and C out of existence by dumping all my foreclosures at once, I’d do it, so would they. But if I was bank A and I could foreclose now and lose my investors 300k or modify the loan, take in a grand less per month for the next three years, then back to full price and even tack back on the lost interest. I’d lose my investors 36k at most and probaby 10k or less if it’s the interest on the mod, I’d try that one first, because Bank A’s job isn’t to correct the market, it isn’t to decide who to reward, it isn’t to let patient and prudent people buy houses, bank A’s job is to make money or lose as little as possible.

[Author]

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