Seattle Bubble Forum Archive

The sluggish rate of sales of Real Estate Owned (REO) properties (that lenders wound up with after foreclosure) is leading me to question the conventional wisdom that assumes lenders are eager to rid themselves of foreclosed properties. The masses of REO homes that are piling up in many places of the country today would seem to indicate that lenders are not in a rush to unload them after all.

I can think of 2 good reasons for this reluctance to sell re-possessed homes at market prices.

1. The managers of these REO properties do not want to get blamed for taking big losses on the homes and want to wait until there is significant evidence that they have to lower the price. This "evidence" consists of a lengthy listing period, with slowly lowered prices. If the home finally sells after a couple years of continually slowly decreased prices the manager of this property can sufficiently protect herself from accusations (from upper management at the financial institution) that she is just letting the homes go at fire-sale prices.

2. Selling REO properties at significant losses could lead to even swifter property depreciations for a given area which could push even more home-owners into default. It might be tempting for a lender to help prop prices up to prevent further delinquencies from customers that are still current.

the meltdown that nobody's talking about yet except sniglet is the servicing meltdown.

I'd like to see some background analysis of the amount of non-performing assets a bank can hold before the federal (or state) regulators start doing whatever it is they do when a bank starts tipping towards insolvency.

I think that the bank executives are walking into a situation that they've never yet had to handle.

There is no way that all these servicing departments are set up to handle the number of defaults, foreclosures (or loan mods) and then REOs that are starting to come in.

I'm sure the third-party vendor management companies are also overwhelmed.