"4 weeks and then all hell breaks loose"

[RobertLarsen_IHB]

I was just disproving the conspiracy theory purely through numbers, because it is really the only way you can. People can talk all day long about economics and if we are at the bottom, but I was able to account for over half of the REOs on FR, and the remaining were all acquired by a bank within the last 3 months. Like I said, I will keep watching the list for the next 2 months and we will see how many are left bank owned after that. If they are all acquired, does that not disprove the Shadow Inventory conspiracy theory?

Liquidity? Having 500 vacant properties on your spreadsheets is a sure way to dry up liquidity.

 

[Geotpf_IHB]

I finally went through the list of REO according to FR, so kindly sent by awgee, and here are my findings.

Of the 70 total REOs listed in zip code 92656 by Foreclosure Radar...

4 were duplicates

5 Auctions

1 Pre-Foreclosure

3 Not shown to be owned by the bank according to title

28 listed on the MLS

________________

Total of 41

Of the remaining 29...

1 was taken by the bank between 8/15/2009 and 8/30/2009

8 were taken by the bank between 8/1/2009 and 8/15/2009

9 were taken by the bank between 7/15/2009 and 7/31/2009

3 were taken by the bank between 7/1/2009 and 7/15/2009

6 were taken by the bank between 6/15/2009 and 6/30/2009

0 were taken by the bank between 6/1/2009 and 6/15/2009

2 were taken by the bank between 5/15/2009 and 5/30/2009

* The results of the remaining 29 show the date that the most recent bank took possession of the property.

What was interesting to me was to see the number of properties exchanging hands between banks. Quite a few properties have been owned by 3,4, and even 5 different banks. I'm assuming that they were a part of a larger asset bundle purchase.

As I've been saying before it does take a pretty long time for banks to list properties on the market, between 30-90 days. The oldest REO that I could find was on 5/26/2009. I plan on keeping the list of REOs and checking every 15 days to see what has happened to the remaining REO properties. My guess is that the majority of them will sell or transfer to another bank within the next 2 months.

This jives with what I was thinking and arguing in the other thread, if I understand you correctly. You are basically saying that in that zip code, there are no bank owned properties that have been banked owned for more than three and a half months and are not listed on the MLS. There were no properties owned by the same bank for six months or a year, in that ZIP code. Is that correct? I think three months is a reasonable time to do all the things required to prep a propetry for sale.

That is, there's no shadow inventory-everything bank owned (in that ZIP code) is either on the market or has been owned by the bank for such a short time that it's likely that it will be on the market soon.

Now, there is a very large pre-shadow inventory (properties in default but that have not had an auction occur), of course. But once the bank actually takes a propetry back, it goes on the market fairly quickly.

 

[RobertLarsen_IHB]

I finally went through the list of REO according to FR, so kindly sent by awgee, and here are my findings.

Of the 70 total REOs listed in zip code 92656 by Foreclosure Radar...

4 were duplicates

5 Auctions

1 Pre-Foreclosure

3 Not shown to be owned by the bank according to title

28 listed on the MLS

________________

Total of 41

Of the remaining 29...

1 was taken by the bank between 8/15/2009 and 8/30/2009

8 were taken by the bank between 8/1/2009 and 8/15/2009

9 were taken by the bank between 7/15/2009 and 7/31/2009

3 were taken by the bank between 7/1/2009 and 7/15/2009

6 were taken by the bank between 6/15/2009 and 6/30/2009

0 were taken by the bank between 6/1/2009 and 6/15/2009

2 were taken by the bank between 5/15/2009 and 5/30/2009

* The results of the remaining 29 show the date that the most recent bank took possession of the property.

What was interesting to me was to see the number of properties exchanging hands between banks. Quite a few properties have been owned by 3,4, and even 5 different banks. I'm assuming that they were a part of a larger asset bundle purchase.

As I've been saying before it does take a pretty long time for banks to list properties on the market, between 30-90 days. The oldest REO that I could find was on 5/26/2009. I plan on keeping the list of REOs and checking every 15 days to see what has happened to the remaining REO properties. My guess is that the majority of them will sell or transfer to another bank within the next 2 months.

This jives with what I was thinking and arguing in the other thread, if I understand you correctly. You are basically saying that in that zip code, there are no bank owned properties that have been banked owned for more than three and a half months and are not listed on the MLS. There were no properties owned by the same bank for six months or a year, in that ZIP code. Is that correct? I think three months is a reasonable time to do all the things required to prep a propetry for sale.

That is, there's no shadow inventory-everything bank owned (in that ZIP code) is either on the market or has been owned by the bank for such a short time that it's likely that it will be on the market soon.

Now, there is a very large pre-shadow inventory (properties in default but that have not had an auction occur), of course. But once the bank actually takes a propetry back, it goes on the market fairly quickly.

Correct, with one addition; properties are also sold at auction on the courthouse steps. Homes that are scheduled for foreclosure auction never reach the MLS.

 

[Geotpf_IHB]

I finally went through the list of REO according to FR, so kindly sent by awgee, and here are my findings.

Of the 70 total REOs listed in zip code 92656 by Foreclosure Radar...

4 were duplicates

5 Auctions

1 Pre-Foreclosure

3 Not shown to be owned by the bank according to title

28 listed on the MLS

________________

Total of 41

Of the remaining 29...

1 was taken by the bank between 8/15/2009 and 8/30/2009

8 were taken by the bank between 8/1/2009 and 8/15/2009

9 were taken by the bank between 7/15/2009 and 7/31/2009

3 were taken by the bank between 7/1/2009 and 7/15/2009

6 were taken by the bank between 6/15/2009 and 6/30/2009

0 were taken by the bank between 6/1/2009 and 6/15/2009

2 were taken by the bank between 5/15/2009 and 5/30/2009

* The results of the remaining 29 show the date that the most recent bank took possession of the property.

What was interesting to me was to see the number of properties exchanging hands between banks. Quite a few properties have been owned by 3,4, and even 5 different banks. I'm assuming that they were a part of a larger asset bundle purchase.

As I've been saying before it does take a pretty long time for banks to list properties on the market, between 30-90 days. The oldest REO that I could find was on 5/26/2009. I plan on keeping the list of REOs and checking every 15 days to see what has happened to the remaining REO properties. My guess is that the majority of them will sell or transfer to another bank within the next 2 months.

This jives with what I was thinking and arguing in the other thread, if I understand you correctly. You are basically saying that in that zip code, there are no bank owned properties that have been banked owned for more than three and a half months and are not listed on the MLS. There were no properties owned by the same bank for six months or a year, in that ZIP code. Is that correct? I think three months is a reasonable time to do all the things required to prep a propetry for sale.

That is, there's no shadow inventory-everything bank owned (in that ZIP code) is either on the market or has been owned by the bank for such a short time that it's likely that it will be on the market soon.

Now, there is a very large pre-shadow inventory (properties in default but that have not had an auction occur), of course. But once the bank actually takes a propetry back, it goes on the market fairly quickly.

Correct, with one addition; properties are also sold at auction on the courthouse steps. Homes that are scheduled for foreclosure auction never reach the MLS.

Good point to include those in the picture as well.

 

[tiggr_IHB]

This jives with what I was thinking and arguing in the other thread, if I understand you correctly. You are basically saying that in that zip code, there are no bank owned properties that have been banked owned for more than three and a half months and are not listed on the MLS. There were no properties owned by the same bank for six months or a year, in that ZIP code. Is that correct? I think three months is a reasonable time to do all the things required to prep a propetry for sale.

That is, there's no shadow inventory-everything bank owned (in that ZIP code) is either on the market or has been owned by the bank for such a short time that it's likely that it will be on the market soon.

Now, there is a very large pre-shadow inventory (properties in default but that have not had an auction occur), of course. But once the bank actually takes a propetry back, it goes on the market fairly quickly.

Correct, with one addition; properties are also sold at auction on the courthouse steps. Homes that are scheduled for foreclosure auction never reach the MLS.

So is there just a major semantical disconnect here? I've been under the impression that the "Shadow Inventory" (as referenced in the threads here; NOT as defined by CR) included all of the houses which have received Notices of Default through to actual Foreclosure. From what you guys are saying, it sounds as if you're only counting stuff that has been taken back by the bank, I guess the last part of the process. Maybe I missed a part of the argument.

Now, if you're going to divide it up into "pre-Shadow" and then "Shadow," and if you're agreeing (Geotpf, at least) that there is a large "pre-Shadow" inventory, doesn't this, in the end, result in the same large downward pressure on prices? Particularly once the bulk of defaulted loans get processed?

I have to admit that I'm a "Shadow-Inventory" believer, although it's mostly on faith. I can't understand how, with all the defaulting and stuff going on, inventory in Irvine is so low (in the houses I'm looking at) given the carnage in other parts of CA. Not that I'm a conspiracy theorist, mind you - I just also have a firm belief in the incompetence and self-serving nature of the system. That being said, wouldn't the banks exert control over the process in deciding when they begin the foreclosure process? The process may itself proceed relatively quickly and uniformly once started, but it can only happen when the banks begin the process - acting as gatekeepers as you will.

Disclaimer- My knowledge on all this stuff is purely water cooler stuff. Stuff I hear on NPR, evening news, headlines on MSN or Yahoo, and the stuff I read here. It's mostly supposition with a light seasoning of talking out my ass. I don't know any insider bank/mortgage info, nor do I know anyone in the business. But I find this all terribly interesting... (at least until I buy a house).

 

[RobertLarsen_IHB]

This jives with what I was thinking and arguing in the other thread, if I understand you correctly. You are basically saying that in that zip code, there are no bank owned properties that have been banked owned for more than three and a half months and are not listed on the MLS. There were no properties owned by the same bank for six months or a year, in that ZIP code. Is that correct? I think three months is a reasonable time to do all the things required to prep a propetry for sale.

That is, there's no shadow inventory-everything bank owned (in that ZIP code) is either on the market or has been owned by the bank for such a short time that it's likely that it will be on the market soon.

Now, there is a very large pre-shadow inventory (properties in default but that have not had an auction occur), of course. But once the bank actually takes a propetry back, it goes on the market fairly quickly.

Correct, with one addition; properties are also sold at auction on the courthouse steps. Homes that are scheduled for foreclosure auction never reach the MLS.

So is there just a major semantical disconnect here? I've been under the impression that the "Shadow Inventory" (as referenced in the threads here; NOT as defined by CR) included all of the houses which have received Notices of Default through to actual Foreclosure. From what you guys are saying, it sounds as if you're only counting stuff that has been taken back by the bank, I guess the last part of the process. Maybe I missed a part of the argument.

Now, if you're going to divide it up into "pre-Shadow" and then "Shadow," and if you're agreeing (Geotpf, at least) that there is a large "pre-Shadow" inventory, doesn't this, in the end, result in the same large downward pressure on prices? Particularly once the bulk of defaulted loans get processed?

I have to admit that I'm a "Shadow-Inventory" believer, although it's mostly on faith. I can't understand how, with all the defaulting and stuff going on, inventory in Irvine is so low (in the houses I'm looking at) given the carnage in other parts of CA. Not that I'm a conspiracy theorist, mind you - I just also have a firm belief in the incompetence and self-serving nature of the system. That being said, wouldn't the banks exert control over the process in deciding when they begin the foreclosure process? The process may itself proceed relatively quickly and uniformly once started, but it can only happen when the banks begin the process - acting as gatekeepers as you will.

Disclaimer- My knowledge on all this stuff is purely water cooler stuff. Stuff I hear on NPR, evening news, headlines on MSN or Yahoo, and the stuff I read here. It's mostly supposition with a light seasoning of talking out my ass. I don't know any insider bank/mortgage info, nor do I know anyone in the business. But I find this all terribly interesting... (at least until I buy a house).

I'm guesing you're referring to Calculated Risks 4 categories of Shadow Inventory: REOs, Foreclosures in process, New high rise condos, and Homeowners waiting for a better market. I personally just include REOs as the only guide to shadow inventory because it's the only true indication of inventory. Pre-foreclosure that isn't listed yet isn't inventory yet, because the homeowner still has options. Pre-foreclosure adds ambiguity to what can and cannot be considered inventory. New high rise condos is along the same lines. The developer doesn't necessarily have to sell, they could decide to transform into apartments and rent them out. Homeowners waiting for a better market, to me, sounds like the writer of that article was trying a little too hard to add another category. No matter what market we are in, there will always be homeowners waiting to sell. And, at some point, every homeowner is going to sell.

REOs are the only true and best way to analyze the shadow inventory theory, because there is far less grey area.

 

[CapitalismWorks_IHB]

I was just disproving the conspiracy theory purely through numbers, because it is really the only way you can. People can talk all day long about economics and if we are at the bottom, but I was able to account for over half of the REOs on FR, and the remaining were all acquired by a bank within the last 3 months. Like I said, I will keep watching the list for the next 2 months and we will see how many are left bank owned after that. If they are all acquired, does that not disprove the Shadow Inventory conspiracy theory?

Liquidity? Having 500 vacant properties on your spreadsheets is a sure way to dry up liquidity.

Some basic accounting may help clear up your confusion on how delaying disposition of real estate can maintain capital ratios/liqudity. Banks are required by the FDIC/Fed to maintain capital ratios relative to loans balance in order to limit the risk of institution going bankrupt from non-performing loans. As loans/assets deteriorate the loans are normally repriced at "market value" with a direct hit to capital reserves. For levered institutions (read: all banks), small increases in non-performing assets can have dramatic consequences for capital ratios. Banks that fail to maintain adequate capital ratios can be barred from making new loans, shut down completely, are given specific operating instructions. You can imagine that maintaining adequate capital ratios is a central goal of any bank, as insufficient capital general means closing the doors or being taken advantage of in the M&A market.

All corporations must assign values to their assets using GAAP. Generally speaking there three main methods for recording the value of an asset/liability, Book, Market, and Model (myth). Until recently banks were forced to hold the majority of their investment assets (e.g. mortgage bonds and real estate) at market price. As a result of the extreme illiquidity across major markets, the result was a dramatic real time hit to asset prices directly threatening capital ratios. The regulators got together and decided that by forcing banks to recognize market prices on the balance sheet the volatility in the market became a self-feeding death spiral for banks. In order to short-circuit this negative feedback loop banks were given a free pass on mark to market accounting for a range of assets, and are currently allowed to hold assets a a book or realizable value. Obviously this is a significant departure from previous rules, as results in some perverse incentives.

For real estate, the implications are the banks can avoid current recognition on their balance sheet for impaired assets even if market value are far below book carrying value, therby avoiding the threat to capital ratios. Second, since any difference between book and market must be eliminated upon sale of the asset, the banks have a powerful incentive to retain real estate assets (read keep off the market) that are trading significantly below carrying value.

 

[RobertLarsen_IHB]

I was just disproving the conspiracy theory purely through numbers, because it is really the only way you can. People can talk all day long about economics and if we are at the bottom, but I was able to account for over half of the REOs on FR, and the remaining were all acquired by a bank within the last 3 months. Like I said, I will keep watching the list for the next 2 months and we will see how many are left bank owned after that. If they are all acquired, does that not disprove the Shadow Inventory conspiracy theory?

Liquidity? Having 500 vacant properties on your spreadsheets is a sure way to dry up liquidity.

Some basic accounting may help clear up your confusion on how delaying disposition of real estate can maintain capital ratios/liqudity. Banks are required by the FDIC/Fed to maintain capital ratios relative to loans balance in order to limit the risk of institution going bankrupt from non-performing loans. As loans/assets deteriorate the loans are normally repriced at "market value" with a direct hit to capital reserves. For levered institutions (read: all banks), small increases in non-performing assets can have dramatic consequences for capital ratios. Banks that fail to maintain adequate capital ratios can be barred from making new loans, shut down completely, are given specific operating instructions. You can imagine that maintaining adequate capital ratios is a central goal of any bank, as insufficient capital general means closing the doors or being taken advantage of in the M&A market.

All corporations must assign values to their assets using GAAP. Generally speaking there three main methods for recording the value of an asset/liability, Book, Market, and Model (myth). Until recently banks were forced to hold the majority of their investment assets (e.g. mortgage bonds and real estate) at market price. As a result of the extreme illiquidity across major markets, the result was a dramatic real time hit to asset prices directly threatening capital ratios. The regulators got together and decided that by forcing banks to recognize market prices on the balance sheet the volatility in the market became a self-feeding death spiral for banks. In order to short-circuit this negative feedback loop banks were given a free pass on mark to market accounting for a range of assets, and are currently allowed to hold assets a a book or realizable value. Obviously this is a significant departure from previous rules, as results in some perverse incentives.

For real estate, the implications are the banks can avoid current recognition on their balance sheet for impaired assets even if market value are far below book carrying value, therby avoiding the threat to capital ratios. Second, since any difference between book and market must be eliminated upon sale of the asset, the banks have a powerful incentive to retain real estate assets (read keep off the market) that are trading significantly below carrying value.

Okay, I get that. But, it still looks like banks are trying to sell their existing REOs as quickly as possible. If they wanted to delay the sales they would just let the homeowners stay in them as long as possible and not be bribing people to vacate the properties. The only time I've seen banks give homeowners an extension on foreclosure is when they are trying to work out a short sale. Short sales are extremely more beneficial and less expensive than foreclosure for both homeowners and banks.

And, it still doesn't change the fact that the small sample population I used showed that there is no huge backlog of REOs.

 

[SoCal78_IHB]

Short sales are extremely more beneficial and less expensive than foreclosure for both homeowners and banks.

"If the mortgage is covered by private mortgage insurance (PMI), the lender actually makes more money by foreclosing than by accepting the short sale. If they foreclose, the shortfall at the auction is covered by the PMI company. If they accept a short sale, PMI does not pay out." - Today's blog post entitled "Short Sale Gambit": "The Private Mortgage Insurance Problem".

 

[awgee_IHB]

And one of the motivations for avoiding foreclosure auction as long as possible is that since banks are not required to strictly adhere to GAAP and have their own set of rules, (which confuses me and obfuscates the truth), they can keep assets off balance sheet. As soon as the property is foreclosed or sold, the asset is valued and the appropriate amount is subtracted from whatever security may be holding a "piece" of that asset or condition of that asset in an off balance sheet security. It is not illogical for the banks to desire to keep assets from being valued. The securities using those assets as collateral and condition were placed off balance sheet for a reason, and that reason does not improve as the assets are written down.

Is this making sense? The banks are not being illogical in procrastinating foreclosures, but the reasons are complicated, as complicated as the securities using those properties as collateral. Imagine MBSes "sliced up" and the cash flow delegated to off balance sheet CDOs. If you put a CDO off balance, it means you want it in the dark. When the properties that make up the MBSes are valued at much less than they were at the time of sale of the MBS and the subsequent dicing for the CDO, the value is exposed to the light, and the bank must increase its capital reserves.

I feel like I am making this more complicated, but I do not know how to make it simple. I find it confusing.

 

[awgee_IHB]

I was just disproving the conspiracy theory purely through numbers, because it is really the only way you can. People can talk all day long about economics and if we are at the bottom, but I was able to account for over half of the REOs on FR, and the remaining were all acquired by a bank within the last 3 months. Like I said, I will keep watching the list for the next 2 months and we will see how many are left bank owned after that. If they are all acquired, does that not disprove the Shadow Inventory conspiracy theory?

Liquidity? Having 500 vacant properties on your spreadsheets is a sure way to dry up liquidity.

Some basic accounting may help clear up your confusion on how delaying disposition of real estate can maintain capital ratios/liqudity. Banks are required by the FDIC/Fed to maintain capital ratios relative to loans balance in order to limit the risk of institution going bankrupt from non-performing loans. As loans/assets deteriorate the loans are normally repriced at "market value" with a direct hit to capital reserves. For levered institutions (read: all banks), small increases in non-performing assets can have dramatic consequences for capital ratios. Banks that fail to maintain adequate capital ratios can be barred from making new loans, shut down completely, are given specific operating instructions. You can imagine that maintaining adequate capital ratios is a central goal of any bank, as insufficient capital general means closing the doors or being taken advantage of in the M&A market.

All corporations must assign values to their assets using GAAP. Generally speaking there three main methods for recording the value of an asset/liability, Book, Market, and Model (myth). Until recently banks were forced to hold the majority of their investment assets (e.g. mortgage bonds and real estate) at market price. As a result of the extreme illiquidity across major markets, the result was a dramatic real time hit to asset prices directly threatening capital ratios. The regulators got together and decided that by forcing banks to recognize market prices on the balance sheet the volatility in the market became a self-feeding death spiral for banks. In order to short-circuit this negative feedback loop banks were given a free pass on mark to market accounting for a range of assets, and are currently allowed to hold assets a a book or realizable value. Obviously this is a significant departure from previous rules, as results in some perverse incentives.

For real estate, the implications are the banks can avoid current recognition on their balance sheet for impaired assets even if market value are far below book carrying value, therby avoiding the threat to capital ratios. Second, since any difference between book and market must be eliminated upon sale of the asset, the banks have a powerful incentive to retain real estate assets (read keep off the market) that are trading significantly below carrying value.

Okay, I get that. But, it still looks like banks are trying to sell their existing REOs as quickly as possible. If they wanted to delay the sales they would just let the homeowners stay in them as long as possible and not be bribing people to vacate the properties. The only time I've seen banks give homeowners an extension on foreclosure is when they are trying to work out a short sale. Short sales are extremely more beneficial and less expensive than foreclosure for both homeowners and banks.

And, it still doesn't change the fact that the small sample population I used showed that there is no huge backlog of REOs.

I can not speak for every place, but recently the banks have gotten much better about putting REO on the market in the area I watch. Until two weeks ago, I could point out homes in Coto in which the foreclosed on owners were still living. Only about a quarter of the REOs in Coto were on the market or in escrow. Right now, more than half are.

 

[CapitalismWorks_IHB]

I was just disproving the conspiracy theory purely through numbers, because it is really the only way you can. People can talk all day long about economics and if we are at the bottom, but I was able to account for over half of the REOs on FR, and the remaining were all acquired by a bank within the last 3 months. Like I said, I will keep watching the list for the next 2 months and we will see how many are left bank owned after that. If they are all acquired, does that not disprove the Shadow Inventory conspiracy theory?

Liquidity? Having 500 vacant properties on your spreadsheets is a sure way to dry up liquidity.

Some basic accounting may help clear up your confusion on how delaying disposition of real estate can maintain capital ratios/liqudity. Banks are required by the FDIC/Fed to maintain capital ratios relative to loans balance in order to limit the risk of institution going bankrupt from non-performing loans. As loans/assets deteriorate the loans are normally repriced at "market value" with a direct hit to capital reserves. For levered institutions (read: all banks), small increases in non-performing assets can have dramatic consequences for capital ratios. Banks that fail to maintain adequate capital ratios can be barred from making new loans, shut down completely, are given specific operating instructions. You can imagine that maintaining adequate capital ratios is a central goal of any bank, as insufficient capital general means closing the doors or being taken advantage of in the M&A market.

All corporations must assign values to their assets using GAAP. Generally speaking there three main methods for recording the value of an asset/liability, Book, Market, and Model (myth). Until recently banks were forced to hold the majority of their investment assets (e.g. mortgage bonds and real estate) at market price. As a result of the extreme illiquidity across major markets, the result was a dramatic real time hit to asset prices directly threatening capital ratios. The regulators got together and decided that by forcing banks to recognize market prices on the balance sheet the volatility in the market became a self-feeding death spiral for banks. In order to short-circuit this negative feedback loop banks were given a free pass on mark to market accounting for a range of assets, and are currently allowed to hold assets a a book or realizable value. Obviously this is a significant departure from previous rules, as results in some perverse incentives.

For real estate, the implications are the banks can avoid current recognition on their balance sheet for impaired assets even if market value are far below book carrying value, therby avoiding the threat to capital ratios. Second, since any difference between book and market must be eliminated upon sale of the asset, the banks have a powerful incentive to retain real estate assets (read keep off the market) that are trading significantly below carrying value.

Okay, I get that. But, it still looks like banks are trying to sell their existing REOs as quickly as possible. If they wanted to delay the sales they would just let the homeowners stay in them as long as possible and not be bribing people to vacate the properties. The only time I've seen banks give homeowners an extension on foreclosure is when they are trying to work out a short sale. Short sales are extremely more beneficial and less expensive than foreclosure for both homeowners and banks.

And, it still doesn't change the fact that the small sample population I used showed that there is no huge backlog of REOs.

The belief that banks are working through there REO pipeline as quickly as possible misses the entire point. Apart from being patently false. If you understand how the incentives for banks are altered by the suspension of mark-to-market requirement, then only a fool would believe that banks aren't doing everything in their power to preserve their capital ratios. Of course, there are limitations and competing interests (e.g. Servicers (often the same as the bank), Investors in the securities backed by the mortgage assets).

The HAMP program provides a perfect cover for banks to delay the foreclosure process, to the benefit of their own capital ratios, while maintaining the appearance of acting in the best interest of the homeowners under the direction of the Feds. In reality, loans beyond 3 months past due are rarely if ever cured, however that does not prevent banks from "seeking to keep people in their homes". This delay tactic is critical because it was simply not a feature of previous housing busts, and seems to providing some (ahem) false signals to the market.

Examples

10 night sky in the 92657. Purchased at auction in May.

19 Long Bay Drive also REO as of May.

We are beyond 90 days on both these properties. According to my sources no one has been seen working to "recondition" these homes. When are they coming on market?

 

[irvine_home_owner_IHB]

Liquidity? Having 500 vacant properties on your spreadsheets is a sure way to dry up liquidity.

[excellent description of capital ratios and mark to market]

Okay, I get that. But, it still looks like banks are trying to sell their existing REOs as quickly as possible.

Oh sure... when a smart guy explains it... you get it. ;-P

(graph had explained this previously but actually reading CapWorks' version helped me more)

If they wanted to delay the sales they would just let the homeowners stay in them as long as possible and not be bribing people to vacate the properties.

Wait... isn't this why you hear the stories of people still living in their homes months (even years) after they stopped making payments and got their first NOD.

The only time I've seen banks give homeowners an extension on foreclosure is when they are trying to work out a short sale. Short sales are extremely more beneficial and less expensive than foreclosure for both homeowners and banks.

And how long have those short sales took? Yet another stall tactic.

Pre-foreclosure that isn’t listed yet isn’t inventory yet, because the homeowner still has options. Pre-foreclosure adds ambiguity to what can and cannot be considered inventory

I think downplaying the importance of the pre-foreclosures isn't really helping your stance here. As far as I know, when FR.com lists a house as pre-foreclosure, the NOD is 90+ days. That means the homeowner hasn't paid in 3 months... are the chances more or less likely that the house will end up as a loan mod... or a short sale/foreclosure?

 

[RobertLarsen_IHB]

Do you know anyone living in a house years after they stopped paying or have you just heard it from a friend of a friend? And, if so, what percentage of foreclosed homes do you think that is? .1%? Either way, it's not a statistically significant percentage. I know of people being paid to vacate a bank owned property, not people living payment free for 2 years.

To just qualify for a short sale, a bank likes to see that you haven't paid your mortgage for 3+ months. And again, a short sale is an entirely different scenario than a foreclosure. Banks would love for every homeowner to be able to complete a short sale instead of a foreclosure, because it allows them to use TARP money. Why do you think banks are trying to persuade homeowners to complete a short sale rather than have it foreclosured. People can now get a new loan 18 months after completely a short sale. Plus, the banks will take off the missed mortgage payments from your credit report.

I have no doubt that there will be more REOs in the future, but only because there are more defaults, not because of the bank conspiracy.

Now answer my questions:

1) Why would a bank pay thousands of dollars to bribe an occupant to leave? The occupant is upkeeping the home, and paying for utilities. It's much better for a neighborhood to have people living in the homes, rather than have the homes vacant. They would be able to bypass mark-to-market accounting for the timebeing.

2) Did my analysis of 92656 not prove anything? If there is a huge surplus of REO inventory, not on the market, where is it? Why were all of my datapoints within 3.5 months? Where are the 12+ and 24+ month old REOs.

3) If the remaining 29 REOs not listed on the market are sold within the next 2 months, does this not further disprove the shadow inventory theory?

4) Why is cash still king in the bank owned market place? Loans would allow a bank to hold onto the property for another 30-45 days.

 

[awgee_IHB]

Pre-foreclosure that isn’t listed yet isn’t inventory yet, because the homeowner still has options. Pre-foreclosure adds ambiguity to what can and cannot be considered inventory

I think downplaying the importance of the pre-foreclosures isn't really helping your stance here. As far as I know, when FR.com lists a house as pre-foreclosure, the NOD is 90+ days. That means the homeowner hasn't paid in 3 months... are the chances more or less likely that the house will end up as a loan mod... or a short sale/foreclosure?

Since I have been watching with actual data, and not just third hand info, it becomes apparent which NODs will eventually go to auction and which have a better chance of rescinding or canceling. The NODs on properties which have a large amount owed and for which the property value is less than the total loan amounts have a much better chance of receiving an NTS and eventually going to auction.

 

[tiggr_IHB]

After reading CapWorks excellent description, wouldn't this also make pre-FC (i.e. at least 90+ day NODS) more important to count?

I mean, (and correct me if I'm completely off base here) including only the foreclosed properties in the count as "shadow inventory" is like a shop saying that what's in stock is only on the shelves, and not counting the palettes and crates sitting in the loading dock, not yet unpacked. I agree that it's much less quantifiable, and that the CR guy was a bit reaching in trying to drum up his Shadow Inventory number. But nonetheless still worthwhile to consider.

edit: took too long to post. I guess the number can be quantified, at least roughly.

 

[awgee_IHB]

Do you know anyone living in a house years after they stopped paying or have you just heard it from a friend of a friend? And, if so, what percentage of foreclosed homes do you think that is? .1%? Either way, it's not a statistically significant percentage. I know of people being paid to vacate a bank owned property, not people living payment free for 2 years.

To just qualify for a short sale, a bank likes to see that you haven't paid your mortgage for 3+ months. And again, a short sale is an entirely different scenario than a foreclosure. Banks would love for every homeowner to be able to complete a short sale instead of a foreclosure, because it allows them to use TARP money. Why do you think banks are trying to persuade homeowners to complete a short sale rather than have it foreclosured. People can now get a new loan 18 months after completely a short sale. Plus, the banks will take off the missed mortgage payments from your credit report.

I have no doubt that there will be more REOs in the future, but only because there are more defaults, not because of the bank conspiracy.

Now answer my questions:

1) Why would a bank pay thousands of dollars to bribe an occupant to leave? The occupant is upkeeping the home, and paying for utilities. It's much better for a neighborhood to have people living in the homes, rather than have the homes vacant. They would be able to bypass mark-to-market accounting for the timebeing.

2) Did my analysis of 92656 not prove anything? If there is a huge surplus of REO inventory, not on the market, where is it? Why were all of my datapoints within 3.5 months? Where are the 12+ and 24+ month old REOs.

3) If the remaining 29 REOs not listed on the market are sold within the next 2 months, does this not further disprove the shadow inventory theory?

4) Why is cash still king in the bank owned market place? Loans would allow a bank to hold onto the property for another 30-45 days.

First, let us not exaggerate. No one said years.

I do know of three properties in which the previous owners kept living in the home after the home went back to the bank. The total time from payment stoppage to the occupants leaving was about 18 months, and in one of the properties the occupants are still there. This thread got me interested, so I checked it out on FR, which it was listed on previously, but it has vanished. It was not listed for sale the entire time it was, or is, REO. IrvineRealtor is currently checking for me to see if it is in escrow or what its possible status is.

3 REOs in two years is about 15% of the REO property in this neighborhood, just a guess. For giggles I will check on the current inventory of REO and see what the approx time from non-payment to listing for sale is.

I dunno, 3.5 months of inventory sounds like a lot to me when more is coming on line every month.

Or maybe one of you who has access can find out what happened to 6 Via Presea, 92679

 

[RobertLarsen_IHB]

After reading CapWorks excellent description, wouldn't this also make pre-FC (i.e. at least 90+ day NODS) more important to count?

I mean, (and correct me if I'm completely off base here) including only the foreclosed properties in the count as "shadow inventory" is like a shop saying that what's in stock is only on the shelves, and not counting the palettes and crates sitting in the loading dock, not yet unpacked. I agree that it's much less quantifiable, and that the CR guy was a bit reaching in trying to drum up his Shadow Inventory number. But nonetheless still worthwhile to consider.

edit: took too long to post. I guess the number can be quantified, at least roughly.

I was just trying point out that there is no huge backlog of REOs and that banks are not hoarding inventory for a later day. We are current when it comes to pre-foreclosure and foreclosure properties, not to say there will not be more in the future. But, there is no such stockpiling going on. The increasing number of delinquencies will not be enough to send the market spiralling down.

Here's a good article about it:

http://www.cnbc.com/id/32630317

As for the store analogy, if it's sitting on the loading docks, you can't buy it. What's in the store, is the standing inventory.

 

[CapitalismWorks_IHB]

After reading CapWorks excellent description, wouldn't this also make pre-FC (i.e. at least 90+ day NODS) more important to count?

I mean, (and correct me if I'm completely off base here) including only the foreclosed properties in the count as "shadow inventory" is like a shop saying that what's in stock is only on the shelves, and not counting the palettes and crates sitting in the loading dock, not yet unpacked. I agree that it's much less quantifiable, and that the CR guy was a bit reaching in trying to drum up his Shadow Inventory number. But nonetheless still worthwhile to consider.

edit: took too long to post. I guess the number can be quantified, at least roughly.

I was just trying point out that there is no huge backlog of REOs and that banks are not hoarding inventory for a later day. We are current when it comes to pre-foreclosure and foreclosure properties, not to say there will not be more in the future. But, there is no such stockpiling going on. The increasing number of delinquencies will not be enough to send the market spiralling down.

Here's a good article about it:

http://www.cnbc.com/id/32630317

As for the store analogy, if it's sitting on the loading docks, you can't buy it. What's in the store, is the standing inventory.

Except there is a cost of carry on that inventory on the docks, just like there is a cost of carry for non-performing loans on properties that are not being disposed of in the most expedited manner.

Your link goes a long way to supporting my argument that banks are using the HAMP/modification myth in order to delay foreclosures.

As for your questions.

1) Banks pay occupants of foreclosed homes to Not Destroy the Home upon exit. If a former homeowner can live rent free for a period of time then why would he trash his home. However, once it becomes apparent that the bank is planning on moving the property the incentives change. Simple enough, yes?

2) I do not contend with your REO/MLS listing observation. My point is that rate of homes reaching the REO/MLS phase is far slower than it should. See the article you linked.

3) See Above.

4) ?

 

[RobertLarsen_IHB]

Do you know anyone living in a house years after they stopped paying or have you just heard it from a friend of a friend? And, if so, what percentage of foreclosed homes do you think that is? .1%? Either way, it's not a statistically significant percentage. I know of people being paid to vacate a bank owned property, not people living payment free for 2 years.

To just qualify for a short sale, a bank likes to see that you haven't paid your mortgage for 3+ months. And again, a short sale is an entirely different scenario than a foreclosure. Banks would love for every homeowner to be able to complete a short sale instead of a foreclosure, because it allows them to use TARP money. Why do you think banks are trying to persuade homeowners to complete a short sale rather than have it foreclosured. People can now get a new loan 18 months after completely a short sale. Plus, the banks will take off the missed mortgage payments from your credit report.

I have no doubt that there will be more REOs in the future, but only because there are more defaults, not because of the bank conspiracy.

Now answer my questions:

1) Why would a bank pay thousands of dollars to bribe an occupant to leave? The occupant is upkeeping the home, and paying for utilities. It's much better for a neighborhood to have people living in the homes, rather than have the homes vacant. They would be able to bypass mark-to-market accounting for the timebeing.

2) Did my analysis of 92656 not prove anything? If there is a huge surplus of REO inventory, not on the market, where is it? Why were all of my datapoints within 3.5 months? Where are the 12+ and 24+ month old REOs.

3) If the remaining 29 REOs not listed on the market are sold within the next 2 months, does this not further disprove the shadow inventory theory?

4) Why is cash still king in the bank owned market place? Loans would allow a bank to hold onto the property for another 30-45 days.

First, let us not exaggerate. No one said years.

I do know of three properties in which the previous owners kept living in the home after the home went back to the bank. The total time from payment stoppage to the occupants leaving was about 18 months, and in one of the properties the occupants are still there. This thread got me interested, so I checked it out on FR, which it was listed on previously, but it has vanished. It was not listed for sale the entire time it was, or is, REO. IrvineRealtor is currently checking for me to see if it is in escrow or what its possible status is.

3 REOs in two years is about 15% of the REO property in this neighborhood, just a guess. For giggles I will check on the current inventory of REO and see what the approx time from non-payment to listing for sale is.

I dunno, 3.5 months of inventory sounds like a lot to me when more is coming on line every month.

Or maybe one of you who has access can find out what happened to 6 Via Presea, 92679

On 05/08/2009, Bear Stearns Series 2006-Sd2 took over the trustee's deed from Quality Loan Service Corp.

And, it's not 3.5 months of inventory, it's just 29 properties. 3.5 months is just how old the oldest existing bank owned property in that area is.