Investors buying pools of foreclosures

stepping_up_IHB

stepping_up_IHB

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We know that there are a lot of foreclosures out there that are not on the market. I've heard several people say that the banks are holding them back. If this is the case, why?



I've also heard realtors say they won't be coming on the market because they are being sold in pools to investors. This makes even less sense because I would think these are cash deals and buying at auction would be better? Even if they are, what are these investors planning on doing with all these homes?
 
[quote author="stepping_up" date=1244179607]We know that there are a lot of foreclosures out there that are not on the market. I've heard several people say that the banks are holding them back. If this is the case, why?



I've also heard realtors say they won't be coming on the market because they are being sold in pools to investors. This makes even less sense because I would think these are cash deals and buying at auction would be better? Even if they are, what are these investors planning on doing with all these homes?</blockquote>


Just ask graphrix ;-P
 
None of the explanations make sense. There are buyers for a lot of the inventory here if they would just release it and let's get it over with. It gives me a really uneasy feeling that all this inventory is somewhere for a reason that I can't understand. As much as I'm relieved by signs that the worst of everything might be behind us, this whole lot of inventory in a black hole really makes me nervous.



Kind of off topic here, but I expected a contraction in the economy in '07 and really was convinced that Q1 2008 was going to be a meltdown, but the CFO's didn't and I was pleasantly surprised. We had alert buttons kick in the day AIG was about to fail in Sept and then meltdown up until recently. It seems that in the media the whole doom and gloom has given way to "it's almost over." What I find really odd is that CFO's attitudes seem to jive with media rather than the real fundamentals. I know expectations are highly influential with the direction of the economy but I'm kind of thinking that CFO'sand CEO's are less financial gurus and more follow the herd of the media mentality.
 
The explanation that makes the most sense to me is the following:



1. It's a bird in the hand. Say they get 70% of what they could get selling them on the open market by bundling them. But that 70% is guaranteed, plus their costs are lower.

2. They can get them off their books quicker. They are so busy now that they have tons of bank owned properties they don't have the manpower to properly prep them for sale on a one by one basis. So they dump the problem on to somebody else in one big SPLURT.
 
[quote author="Geotpf" date=1244198408]The explanation that makes the most sense to me is the following:



1. It's a bird in the hand. Say they get 70% of what they could get selling them on the open market by bundling them. But that 70% is guaranteed, plus their costs are lower.

2. They can get them off their books quicker. They are so busy now that they have tons of bank owned properties they don't have the manpower to properly prep them for sale on a one by one basis. So they dump the problem on to somebody else in one big SPLURT.</blockquote>
No bulk investor will pay 70 cents on the dollar....think 30-50 cents on the dollar. One of my former clients picked up 200 properties from Countywide earlier this year (properties were in various states). I believe that he paid like 30 cents on the dollar (in terms of the loan amount). The banks have to recognize those huge losses at the time of the sale. His game plan is to put them out on the market and sell them for a decent profit.
 
[quote author="Geotpf" date=1244198408]The explanation that makes the most sense to me is the following:



1. It's a bird in the hand. Say they get 70% of what they could get selling them on the open market by bundling them. But that 70% is guaranteed, plus their costs are lower.

2. They can get them off their books quicker. They are so busy now that they have tons of bank owned properties they don't have the manpower to properly prep them for sale on a one by one basis. So they dump the problem on to somebody else in one big SPLURT.</blockquote>


OK, that I get. However, the people (realtors) who are spouting this theory are screaming that these foreclosures are NOT coming to market because these pools of investors are buying them. So, these investors buy them and then what? Let them sit empty and deteroriate until appreciation returns in 2011 or later? I doubt that. Instead, if they truly are buying them, then they are going to put them on the market and voila there is sudden inventory to end this supposed bear market.



Believe me, it's not just Irvine where it seems like suddenly the inventory has dried up. It's even over here in what you all consider the crap are of CM that there is no inventory.
 
[quote author="stepping_up" date=1244198822][quote author="Geotpf" date=1244198408]The explanation that makes the most sense to me is the following:



1. It's a bird in the hand. Say they get 70% of what they could get selling them on the open market by bundling them. But that 70% is guaranteed, plus their costs are lower.

2. They can get them off their books quicker. They are so busy now that they have tons of bank owned properties they don't have the manpower to properly prep them for sale on a one by one basis. So they dump the problem on to somebody else in one big SPLURT.</blockquote>


OK, that I get. However, the people (realtors) who are spouting this theory are screaming that these foreclosures are NOT coming to market because these pools of investors are buying them. So, these investors buy them and then what? Let them sit empty and deteroriate until appreciation returns in 2011 or later? I doubt that. Instead, if they truly are buying them, then they are going to put them on the market and voila there is sudden inventory to end this supposed bear market.



Believe me, it's not just Irvine where it seems like suddenly the inventory has dried up. It's even over here in what you all consider the crap are of CM that there is no inventory.</blockquote>


The investors are putting the homes on the market and the people, (realtors), are wrong. Why do you keep listening to realtors?
 
[quote author="usctrojanman29" date=1244198613][quote author="Geotpf" date=1244198408]The explanation that makes the most sense to me is the following:



1. It's a bird in the hand. Say they get 70% of what they could get selling them on the open market by bundling them. But that 70% is guaranteed, plus their costs are lower.

2. They can get them off their books quicker. They are so busy now that they have tons of bank owned properties they don't have the manpower to properly prep them for sale on a one by one basis. So they dump the problem on to somebody else in one big SPLURT.</blockquote>
No bulk investor will pay 70 cents on the dollar....think 30-50 cents on the dollar. One of my former clients picked up 200 properties from Countywide earlier this year (properties were in various states). I believe that he paid like 30 cents on the dollar (in terms of the loan amount). The banks have to recognize those huge losses at the time of the sale. His game plan is to put them out on the market and sell them for a decent profit.</blockquote>


I'm not saying 70 cents per loan dollar; I'm saying 70 cents per current fair market dollar (which is much lower). That is, lets say a bank owns 100 houses, and if they were all listed on the MLS today they would each sell for $200,000 on average, or twenty million total. They sell them to a group of investors for fourteen million; 70 cents on the dollar. The amount owed on the loans might have been forty million, so, going by that, the bank only got 35 cents on the dollar.
 
they estimate the "shadow inventory" to be around 500k to 1mil homes that the banks own but have not listed. you can see this by the number of foreclosures reported and the number of homes via MLS. the banks understand supply and demand and last yr i think it was them being retarded thinking they could hold until things pick up. now they realize not the case and cant dump cuz there is enough inventory for 9months LOL
 
[quote author="frugalwithclass" date=1244626968]they estimate the "shadow inventory" to be around 500k to 1mil homes that the banks own but have not listed. you can see this by the number of foreclosures reported and the number of homes via MLS. the banks understand supply and demand and last yr i think it was them being retarded thinking they could hold until things pick up. now they realize not the case and cant dump cuz there is enough inventory for 9months LOL</blockquote>


Actually what is really bizarre is that there is not enough inventory right now. Why they aren't putting them on the marke is a real mystery.
 
[quote author="frugalwithclass" date=1244629433]in what areas do you see low inventory ? just curious</blockquote>


I'll put that back to you, in what areas do you see lots of inventory? I follow CM and inventory is the lowest I've seen and on the opposite end of the spectrum (no pun intended) you have threads complaining about the lack of inventory in Irvine. The really high end seems to be the only market in OC right now that has more supply than demand. However, I do think something is fishy about this and I believe that there is a lot of shadow REO inventory that is not being made availablle for reasons that we can't understand.
 
In Yorba Linda there are very few bank owned properties for sale. Lots of short sales and lots of WTF prices on homes $850,000 and up. The banks are hanging on to this stuff and it is taking forever to come to market. Bank owned on Oaklawn in Yorba Linda was empty for almost a year. They seem to want to dole out one at a time and try to bring about a bidding war. I'm waiting till Fall/Winter to see how this plays out. I go see everything I can on open houses to get an idea of the neighborhooods and floor plans in certain areas of Yorba Linda. I just negotiated my lease till Feb. 2010 while I wait this thing out.
 
I have a theory why inventories are down almost everywhere. First, many organic sellers don't have no equity in their home to sell it so it stays off the market. Second, many people who need to sell can't because they don't have any equity and decide to stop paying and enjoy the live of free rent. Third, banks taking forever to get through the foreclosure process and finally put the house on the market. So that basically leaves short sales and sellers who have a good amount of equity that want to get WTF because they see that there is little inventory out on the market. If the inventory of homes grows (especially REOs), prices will begin to collapse again. I'm looking at homes in CM, HB, Tustin, Orange, etc and seeing 1,500sf homes with asking prices over $500k...no way am I paying that much for a home that needs $30-$40k in updating. These homes should be selling for about $300k.
 
[quote author="Geotpf" date=1244641550]I'll bet if interest rates keep rising inventory will recover. Right now, inventory is at record lows.</blockquote>


Why do you think that out of curosity?



I think once they start processing foreclosures and spitting out deadbeat homedebtors inventory will spike. Banks have never really lot thier special assets departments geared up for what they are facing.
 
[quote author="no_vaseline" date=1244673254][quote author="Geotpf" date=1244641550]I'll bet if interest rates keep rising inventory will recover. Right now, inventory is at record lows.</blockquote>


Why do you think that out of curosity?



I think once they start processing foreclosures and spitting out deadbeat homedebtors inventory will spike. Banks have never really lot thier special assets departments geared up for what they are facing.</blockquote>
As a side note, banks are beginning to hire "special assets" managers on the commercial and residential side. Three of the 10 consultants that I work with got full-time jobs as "special assets" managers in the past month so it's safe to say that the banks are gearing up to work through the crap. In good times, you didn't need much of an asset management side because even the crap would float up in a rising tide. Now that residential and commercial real estate loans are going down the crapper, bank are beginning to realize they need more staff because those loans needed to be touched a lot more often than performing loans. This will be good for consultants as well because some banks won't want to hire the full-time staff so they'll bring in temp staff to do it (it might end up that the consultants stay there for 1-2 years).
 
[quote author="no_vaseline" date=1244673254][quote author="Geotpf" date=1244641550]I'll bet if interest rates keep rising inventory will recover. Right now, inventory is at record lows.</blockquote>


Why do you think that out of curosity?



I think once they start processing foreclosures and spitting out deadbeat homedebtors inventory will spike. Banks have never really lot thier special assets departments geared up for what they are facing.</blockquote>


Simple. A lot of the current buyers on the low end are lown down payment FHAing long time renters. If interest rates go up to 6, 7, 8%, the rent vs. own math fails and they drop out of the market, continuing to rent. Demand drops, so supply increases. When the eight grand tax credit expires, even more of them will stop looking.



I see no specific evidence that the banks are stepping up the pace on putting houses on the market. But if they do, supply will increase even more.
 
A continued colapse in the prices at the bottom end never entered into your equation? Becuase you don't have to look very far (Lancaster, Hemet) to find prices back to pre 1989 levels. Sorry for baiting you but I think you rule out further price reductions at your own peril.
 
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