patrick.net

I've seen the OP ask this same question in a few threads over the past month, but haven't seen it answered (seriously anyway).

I can't speak for the prevailing wisdom on patrick.net, but the summary reflects what I've believed for over 2 years now. However, the last few months have started to shake my confidence that this is what's really happening. I would not have expected the banks to let inventory get to such crazy low levels if they were simply holding back tons of free and clear REO inventory (in the area I've been following, with my search filters in place, inventory has gone from a consistent 25-30, to 5-10, with a bump in $/sqft as you would expect). My guess (and it's an uneducated guess) is that accounting gimmickry may be at play.

tatupu70 says

It seems that the prevailing wisdom on pat.net is that banks are purposely holding back releasing foreclosures onto the MLS in hopes of limiting inventory and artificially raising prices. A couple of questions for folks here then:

First, is my summary accurate?

They are mostly limiting inventory while waiting for federal insurance to pay out the losses. As soon as big brother pays the bill, which I believe comes from FN or FR only than these foreclosures go on the market.

CA, Seattle, and parts of north east have a heavy amount of inventory that is backlogged in foreclosure process.

FortWayne says

They are mostly limiting inventory while waiting for federal insurance to pay out the losses. As soon as big brother pays the bill, which I believe comes from FN or FR only than these foreclosures go on the market.

Do you have any links for this? It's the first I've heard of it, but certainly possible.

tatupu70 says

Their ploy succeeded and inventory is crazy low in many markets.

You are probably looking on marketing platforms like Redfin, which isn't a real MLS. Many real estate brokers do not list on Redfin. You should look at a real MLS instead, a lot more inventory there.

I don't know your location, but out in our neighborhood there are many foreclosures and of course as any place lots of bottom feeders trying to flip while the rates are still low allowing for that. It's a bit frightening, because once rates rise a lot of stupid buyers here are going to be strangled with payments they can't afford yet again, and this time there won't be a bailout.

tatupu70 says

FortWayne says

They are mostly limiting inventory while waiting for federal insurance to pay out the losses. As soon as big brother pays the bill, which I believe comes from FN or FR only than these foreclosures go on the market.

Do you have any links for this? It's the first I've heard of it, but certainly possible.

This was on Wall Street Journal about a month ago. Also on the morning news as well. That's where I got that info from.

FortWayne says

You are probably looking on marketing platforms like Redfin, which isn't a real MLS. Many real estate brokers do not list on Redfin. You should look at a real MLS instead, a lot more inventory there

No--inventory is definitely low in many markets.

tatupu70 says

FortWayne says

You are probably looking on marketing platforms like Redfin, which isn't a real MLS. Many real estate brokers do not list on Redfin. You should look at a real MLS instead, a lot more inventory there

No--inventory is definitely low in many markets.

I wouldn't really know that, I just know parts of CA and some commercial side in IN.

It's too simplistic to say that the banks are holding back the wave of foreclosures. As an agent who sold REOs for banks back in 2007 and 2008, I can tell you that they were trying to get them foreclosed and resold as fast as possible. Why? Because, at that time, this was the most profitable thing they could do.

What really happened is that Uncle Sam changed the rules of the game to where banks profited more by NOT foreclosing on properties in the first place. They changed "mark-to-market" accounting to "mark-to-fantasy" accounting, where banks could hold failed loans on their books at full value (this is why we haven't seen any more massive write-downs since 2008 or so). Uncle Sam also began offering incentives to banks to modify. And, Federal, State, and Local governments all began implementing rulers to make it more costly to foreclose in the first place (like the new CA bill). Additionally, there are talks of new programs and incentives all the time... why foreclose on a house when Uncle Sam may soon pay you to write down the principal instead?

Add all of this up, and banks make more money (or preserve more money), by simply waiting.

Until the rules change again, there won't be any massive wave of foreclosures hitting the market.