Shadow Inventory – The Flood that May Never Come

[Arraya]

It’s still pretending. You can change your accounting rules to pretend it does not cost you anything but reality will find an unpleasant way to manifest itself. Some way, some how. Once you start treating money like it is not real, it will eventually act that way.

No matter how much they don’t like it, real purchasing power of the market is going down hard and fast and borrowing money to try and pretend like it is not is counter productive and WILL at some point blow up in everybody’s faces. 1 years, 10 years it will happen and probably at a much higher cost than everybody thinks.

The cheaper way to accomplish the same thing is to just put a floor under pricing. Have every home get assessed and that is the floor price, it can’t sell for any less. Ridiculous, really? That is what they are trying to do anyway. Lets just do it at a cheaper cost to society and get it done with rather than allocating so much time and energy towards it.

[AK]

I agree duuuuude. I still see last summer’s foreclosures sitting vacant or just coming to market. And all the “insider” predictions of an imminent “flood” of REO properties have come to nothing.

One scenario I see: Prices propped up, but zero real appreciation for the next decade or so.

Another scenario: Deliberate inflation, more with houses released to market as the inflated prices near the break-even point.

[AK]

I agree duuuuude. I still see last summer’s foreclosures sitting vacant or just coming to market. And all the “insider” predictions of an imminent “flood” of REO properties have come to nothing.

One scenario I see: Prices propped up, but zero real appreciation for the next decade or so.

Another scenario: Deliberate inflation, more with houses released to market as the inflated prices near the break-even point.

[AK]

I agree duuuuude. I still see last summer’s foreclosures sitting vacant or just coming to market. And all the “insider” predictions of an imminent “flood” of REO properties have come to nothing.

One scenario I see: Prices propped up, but zero real appreciation for the next decade or so.

Another scenario: Deliberate inflation, more with houses released to market as the inflated prices near the break-even point.

[AK]

I agree duuuuude. I still see last summer’s foreclosures sitting vacant or just coming to market. And all the “insider” predictions of an imminent “flood” of REO properties have come to nothing.

One scenario I see: Prices propped up, but zero real appreciation for the next decade or so.

Another scenario: Deliberate inflation, more with houses released to market as the inflated prices near the break-even point.

[AK]

I agree duuuuude. I still see last summer’s foreclosures sitting vacant or just coming to market. And all the “insider” predictions of an imminent “flood” of REO properties have come to nothing.

One scenario I see: Prices propped up, but zero real appreciation for the next decade or so.

Another scenario: Deliberate inflation, more with houses released to market as the inflated prices near the break-even point.

[Arraya]

Another scenario: Deliberate inflation, more with houses released to market as the inflated prices near the break-even point.

Inflation with no job growth will not necessarily make home prices go up.

[Arraya]

Another scenario: Deliberate inflation, more with houses released to market as the inflated prices near the break-even point.

Inflation with no job growth will not necessarily make home prices go up.

[Arraya]

Another scenario: Deliberate inflation, more with houses released to market as the inflated prices near the break-even point.

Inflation with no job growth will not necessarily make home prices go up.

[Arraya]

Another scenario: Deliberate inflation, more with houses released to market as the inflated prices near the break-even point.

Inflation with no job growth will not necessarily make home prices go up.

[Arraya]

Another scenario: Deliberate inflation, more with houses released to market as the inflated prices near the break-even point.

Inflation with no job growth will not necessarily make home prices go up.

[davelj]

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.

[davelj]

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.

[davelj]

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.

[davelj]

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.

[Author]

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