RealTown's RealTalk

For months I have been hearing that there is a huge amount of homes that have either been foreclosed by the bank and are not being released to the market, or they are not yet foreclosed but the bank is holding off on completing the foreclosure for some reason. At least once or twice a week I receive an email from some REO school indicating that the "Shadow Inventory" is about to hit... I have heard local REO agents state that most of the REO agent teams are beefing up their staffs to handle the huge wave that is about to come upon us. The other day someone told me that there are over 750,000 foreclosed homes that have not been released into the market.

Then there are those that say that there really is not a big buildup of shadow inventory at all, and some will even show numbers that purportedly support this.

In our area (Arizona) the number of REO properties is way down, and most REO agents report that the REO listings are now just trickling in to them.

Is the existance of a huge "Shadow inventory" just a myth? Is there collusion among the banks to keep the properties off the market for some reason? Or are we about to be flooded with REO inventory?

Anybody out there have any verifiable information as to what is really going on?

Richard Park
John Hall & Associates
Tempe, AZ

"I haven't seen a large amount of properties that become REO at the auction
NOT show up in the MLS relatively soon. I have to draw the conclusion that
here in Myrtle Beach I am not seeing any hold back of REO properties on the
oceanfront"

My interpretation of 'Shadow Inventory" is the inventory that has NOT been
foreclosed on due to a number of reasons. Mainly, that there are not enough
Federal judges to handle the number, therefore the lenders are allowing the
defaulting homeowner to remain in the home with the understanding that they
will continue to maintain it and keep the utilities on. Rather than take the
final step, it is cheaper in the long run to let a family that has fallen
behind to remain in the property than it is to have it sit vacant and deal
with vandalism and frozen pipes. The lenders have nothing to gain by
flooding the market with even more foreclosures but have everything to gain
by putting new ones on the market to replace those that have sold.
Additional 'Shadow Inventory" is the homeowners who are reading the news,
seeing announcements that sales are up 9% with prices climbing as well, and
deciding that it is now time for THEM to put their property back on the
market.

Gene Carey
www.ShowcaseYourHome.com

the question on every agents mind:

"Is the existance of a huge "Shadow inventory" just a myth? Is there collusion among the banks to keep the properties off the market for some reason? Or are we about to be flooded with REO inventory?"

It all boils down to whom you talk too. As you've obviously found out. The first thing you have to ask yourself, why would it be ((((shadow inventory))) That sounds so conspiratorial if you ask me. As if the banks were attempting to take over the real estate industry. Haven't we all heard that one before? So if that is true then that explains why they made the shady loans in the first place, right? I contend that this real estate melt down was nothing more than a "will planned" organized assault on John Q Public from the get go. . Think about it for a second. The Banks and the Government.are the biggest beneficiaries of all the misery and plight we find ourselves in. Do we all remember the first 700 billion dollar bail-out by the former President? Now take into consideration the second 700+ billion bail-out by the current sitting President. Was this a bail out or a pay back. It seems to me the only winners were the banks who had all those mortgage backed securities that were not showing enough profit in the 401s and IRAs. So what's the problem, why all the foreclosures? If the lenders (investors) got bailed out, AND THEY DID!!! Then why foreclose the properties? The only recipients of the bail-out, or what ever you want to call it, were the BANKS and their high rolling securities investors. And who provided that money? Why it was Government elected Representatives who appointed experts in the field of economics to show us the way out of this economic nightmare. The only problem the banks have is finding credit worthy borrowers. So here we go again but this time it's all in the name of "economic stimulation" and finding gullible buyers who haven't owned a home in the past 3 years who are obviously broke and don't have any money other than the possibility of a tax credit because they pay so much in taxes. So maybe it's a good idea that the banks who are now the deed holders hold off until the economy turns around? Or we can wait for the wealthy to pay up their fair share of taxes revenues that are going to be redistributed in the name of the "Unaffordable Crowd". Savvy buyers know that buying depreciating real estate is not a good investment until the market turns. That's like going long on a stock while all the indicators show the market declining. The Banks have been bought off so they have no compelling reason to unload their worthless property. Most of the people I know that have purchased in the last 3 years are NOT HAPPY even though they purchased at what would have been considered a premium buy with low interest rates, especially will located properties. We will never find a market bottom or a shadow of turning until we find buyers who have job security, credibility, cash for closing and down payment. The 100% interest only ARM financing makes no since in a downward market! And every tax credit is nothing more than taxes that are being redistributed to those who can't afford a home, at least in the last 3 years. Generally in the past Real Estate Recovery was the first indicator of a turn around in a recession. Unfortunately the reason we are in a recession is because of Real Estate not in-spite of Real Estate. People have always bought Real Estate because it provided two fundamental benefits that no other investment could provide regardless of your net worth. 1) A place to keep your stuff. 2) A place to build equity (investment) NOT IN THE PAST 3 YEARS. Real Estate eventually goes up in value over time, even during down times real estate was always stable enough to turn the economy around within an 18 month cycle. From 1980-2000 the average 30 year loan was in the double digits (10-12% range). It wasn't until the Fed started lowering the prime to unrealistic lows that created the buying frenzy that started just after 911. (single digits 9-6%) By 2005 the $200k home that sold in 2000 was selling for more than $500k. Unfortunately most of those loans on those 2000 sales were hovering in the 10% 30 year fixed rate category. In 2005 the average loan was just under 5% with many in the lower fives with with ARMs and 100% financing. These low interest rates didn't happen because the people demanded it! This happened because of irresponsible people at the Federal level wanted to create an environment of security all being fueled by the "rights to home ownership" organizations that pressured lenders and mortgage companies to comply with lower rates (affordable) plus lower lending standards OR ELSE!! Ask any banker out there. They'll tell you, either they placed the loans or they were out of business! Don't ask don't tell was the lending policy. If it was good enough for the Military it was good enough for the Banking Industry. But Real Estate being the massive industry that it is never felt the decline until almost the end of 2006. The actual melt down had begun in mid 2005. Everybody believed it couldn't happen to them, during which time the Government kept telling us everything was OK. But they were wrong. Couldn't they see the declining number of sales during 2006 compared to 2005? All being fueled by lower offers? Buyers were beginning to see the picture and by mid 2007 it was way to late to do anything about it.

Are there people out there that still think this was all an accident and nobody had a clue? This current situation we find ourselves in is nothing more than the results of 500 or so people in Washington who claim to represent our best interest, but they didn't seem to know, right? Meanwhile we elected them and they spend our money to prop up the Transportation Industry (automobiles), Insurance Industry (AIG the insurance company for mortgage back securities and mortgages in general), Banking Industry (Federal Reserve System) Now they plan to stake a claim on our Unaffordable Health Industry. How are they going to do all this? The old fashion way TAX and SPEND. It all starts with UN AFFORDABILITY then it moves to Government Intervention on behalf of the all the "have nots" and unfairness of the wealthy who get all the tax breaks! Haven't we all heard this chorus? We've been hearing it since the Great Depression. When has anything ever been AFFORDABLE in life. I remember when the Gas Embargo of the 70s was going to destroy Detroit, almost did but not because we couldn't afford it. It was because the Government couldn't afford to pay for all it's "problem solving: programs that were generated through the Great Society of the 60s generation. America had gotten drunk on the freedom of transportation and at the same time the Government needed a cash cow what better cash cow than emission control for our own good. Doesn't any of this today, sound like the same old music of yesterday but with a more hip beat (((environmentalism)))). Why is there always a catastrophic situation happening that is always going to be fixed by of some will intended bleeding heart representative out of Washington who claims to have experts looking out for our best interest and the global community at large. If we all want to discuss "affordability" lets discuss a Government that we obviously can't afford. I think if we continue on this New Normal we may become the next Lost Society. Shadow Inventory, I DON'T THINK SO! 'MANIPULATED'. Perhaps!

Right, I do not see any of the situations here in Houston that Gene described. I've never seen a defaulting loan be allowed to remain in the house... although some are led down the primrose path, led to believe that the bank might be sympathetic and let them restructure their loan, which if they have just lost their employment, and are job-hunting, the banks won't do. They are often very surprised when the foreclosure happens, because they thought the bank was "working with them", when in fact, the bank was just gathering intel.

The definition of "Shadow Inventory", as I understand it, means the homes that the lenders are sitting on, so as not to flood a nghbrhd where they already have several REOs..... not other banks' REOS, just their own.... AND
properties that are deep into the REO pipeline, but not yet for sale.

While doing BPOs, in certain recently constructed subdivisions, I do see quite a few abandoned homes with shaggy yards that seem to be somewhere in the foreclosure process. These are usually what is called an REO-driven nghbrhd, where maybe 80% of all sales are REOs, and maybe 50% of listings are REOs. Whether the banks are sitting on it, or finalizing the procedure, is anyone's guess.... and presumable that's why the question was asked, to see if any of the REO agents are aware of an actual instance of a lender withholding an REO from being placed on the market.

Personally, I don't think inventory is being withheld, here. I do "interior reports" on many homes that have obviously been very recentlly vacated. The banks just throw them on the market as fast as they can, because we have lots of investor-buyers, and the banks simply want to get these properties off the books.

To withhold inventory, the banks would have to CARE about revenue. They don't. They are underpricing most all REO listings to Below Bargain Prices to ensure a quick sale. They want a contract within 30days, and even better within 7 days.

With all the shaggy-looking abandoned houses I see, this is the Shadow Inventory that will soon be hitting the market... but again, only in certain areas, and NOT typical of Houston overall. Many nghbrhds are very healthy, and do NOT need to be listed at Below Bargain Prices, but the banks don't seem to be advised of that, or else, they just don't don't care.

Lindy in Houston

I live in the Fort Lauderdale, FL area, and find that the number of REO's on the market is significantly less than the number on the market last year. There are actually more buyers here that want to buy a foreclosure than there are homes on the market. Foreclosures come on the market and nearly all of them have multiple offers within a week. Even within a day or two. It's becoming the "norm" for REO agents to get 10, 20 or more offers on a property. One agent told me he had 46 offers...

When I hear that there have been record numbers of foreclosure filings for months at a time, yet the REO's coming on the market are just dribbling in a few at a time, I have to wonder what's going on!!! Many Brokers that had 50-100 REO listings last year, have 5-10 now. So I really do wonder what the banks are doing!

~Debbie Bates, Realtor, ePRO, GRI

Herman Group Real Estate

954-557-7036

debbie@SouthFLHomes.com

Debbie writes in part...

SNIP>>> Many Brokers that had 50-100 REO listings last year, have 5-10 now. So I really do wonder what the banks are doing!

TomS :-) Replies... I am an REO agent and there has been a moratorium on the banks releasing listings at the request of the administration since June of 2009 and all of my asset companies keep telling us that they will be released soon.

You are correct that the numbers are down. I can only assume that the administration is trying to stabilize the housing market and fact is they are only creating a false market. As soon as the banks can no longer hold these properties and release them into the market housing prices will again drop and the market will again become unstable.

One other thing that one of my mortgage brokers told me is that the banks can not afford to write off any additional debt until next year and it is better for them to hold non-preforming debt then it is to write it off right now.

Tom Scaglione, e-PRO, REALTOR(r)
Future Home Realty, Inc.
Certified REO Specialist