Banks Sitting On An Inventory Time Bomb

[BuckNaked]

http://www.cnbc.com/id/28898377

Banks Sitting On An Inventory Time Bomb
Posted By: Diana Olick

An interesting little factoid from RealtyTrac, the online foreclosure sale site that tracks all kinds of foreclosure data.

Apparently about 70 percent of foreclosures in its database have not yet been listed on the MLS. I'm wondering why? Why are the banks sitting on all these properties instead of listing them for sale?

Okay, a couple of posibilities:

* The inventory of foreclosed properties has just exploded so rapidly and in such high volumes that the banks can't process it all as fast as they would like to.
* In a lot of cases it's taking longer to process the foreclosures themselves and the homes are getting trashed. Before the bank puts the house up for sale it has to do all the repair work, and now more repair work is needed.

Now here's a possibility that is a bit more disturbing. Rick Sharga of RealtyTrac says he can't get anyone to confirm it but he can't get anyone to deny it either:

"The lenders are simply trying to defer the losses to a later date, because having to recognize the losses short term might pose severe risks to the banks in question."

What does that mean? Well, when the properties are taken back by the bank at auction, they are often taken back for the value of the mortgage on the property. The bank puts in the bid for the value of the current mortgage and essentially pays itself back what it lost on the loan, and of course gets the house for all its trouble. In good times, the bank could profit by selling that house for more than the value of the loan, but not these days. The trouble now is just the opposite. On so many of these foreclosed homes, the property is actually worth far less than the mortgage on it. So the bank is taking it back at the mortgage value and not writing it down.

"Untold numbers of these properties sitting on banks accounting ledgers where the imputed value is considerably higher than the market value," says Sharga. And unfortunately nobody knows what that market number is.

I could see this causing a lot of additional damage both to banks and home prices if this were to be looked at a lot more closely and being more widely reported... good times...

 

[Slew Foot]

I know this is true, here in Sacramento I know a few people who havent paid their mortgage in months and havent even been contacted by the bank yet.

My guess is that the banks are trying to hold off long enough until they can get the government to take them off their hands.

 

[NaughtyGeek]

Originally posted by: Slew Foot

My guess is that the banks are trying to hold off long enough until they can get the government to take them off their hands.

+1 Why take a loss when it's not only possible but likely that you can get the tax payers to eat it?

 

[StageLeft]

Not convinced based on that, yet. Tons of conjecture. That 70% rate...what rate is it normally?

There is a foreclosed house a street over from me. I know the people who are interested in buying it and the home "owner" apparently is being a bit of a pain with the showing. He has the only house in my area I know of with the siding blown off on one side. The house is listed at about 60% of what it should be. I bet the inside is a nightmare. I don't know why "owners" would trash a house since it can still come back to bite them.

We looked at a foreclosed house once and they'd clearly vandalized it, like breaking the toilet in ways nobody could through normal use. Fugging animals. Clothed monkeys.

 

[theeedude]

That's why I am not buying yet. The longer they take to write down these losses, the longer the recovery will be delayed.

 

[IceBergSLiM]

how is this not fraud?

 

[Dissipate]

Goodbye Citigroup, goodbye Bank of America?

 

[compuwiz1]

My sister, who had financial circumstances change drastically, has not made a house payment in almost 2 years. Forclosure has still not been completed. It has me going, WFT? :shocked:

 

[Jhhnn]

They're attempting to limit supply, keep prices up.

 

[Ozoned]

Regardless of how bank handles inventory, wouldn't PMI cover the banks loss? Imagine all of the fees and additional interest a bank could add on by holding a property.

 

[Jhhnn]

Originally posted by: Ozoned
Regardless of how bank handles inventory, wouldn't PMI cover the banks loss? Imagine all of the fees and additional interest a bank could add on by holding a property.

PMI has increasingly been underwritten by the banks themselves- financial supermarkets, right? It's just a way to beat more cash out of buyers at this point.

The bank takes money out of one pocket and puts it into the other...

 

[BoberFett]

Originally posted by: Ozoned
Regardless of how bank handles inventory, wouldn't PMI cover the banks loss? Imagine all of the fees and additional interest a bank could add on by holding a property.

Like social security, there's no money in the "PMI" funds. That was all just lumped in with revenues and spent on fancy toilets and big bonuses. They never figured they'd actually have to pay out on it.

 

[Thump553]

Banks have to commence foreclosures and proceeed with collateral liquidation with specified reasonably prudent time limits or face very tough questions from the banking regulators.

It is possible that the regulators may have relaxed the rules somewhat in certain areas because pushing the foreclosures and liquidations through at a "normal" pace in these unusual circumstances would lessen the bank's recovery, I don't know-but it's not the usual practice.

I wouldn't characterize this as a time bomb. It's evidence that the problem is severe and will take time and a prolonged upswing to resolve.

 

[Robor]

Hmmm... If this is true it sounds like banks would be more willing to work with homeowners who are upside-down on their mortgages.