Banks Hoarding Homes

The New York Times is accusing banks of hoarding residential real estate they foreclosed upon, creating a glut of shadow inventory.

They own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac, a real estate data provider. In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead.

We all know the horror stories of banks foreclosing when people miss even just one mortgage payment, so why would banks be hording and stockpiling a massive housing inventory when excess inventory will only lower prices further?

The article reports banks can expect another $40 billion in losses due to depressed prices. The article goes onto blame a lack of staffing as the reason for the excess inventory of bank owned properties, yet buried is this:

Most of the major lenders outsourced almost every part of the process, be it sales or repairs. Some agents complain that lender-owned home listings are routinely out of date, that properties are overpriced by as much as 10 percent, and that lenders take days or longer to accept an offer.

Calculated Risk says RealtyTrac's inventory estimates are too high.

But with such great losses and a vicious cycle of lowering home values further, the real question is why banks have not helped home owners stay in their homes in the first place?

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The banks are not helping

The banks are not helping people stay in their homes because the banks or the mortgage servicing company makes more money by foreclosing. Which is both wrong and needs to change IMHO.

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Cutting at the profit line

Banks (and similar holding companies) tend to wait until the difference in total payments from the mortgage holder and the value of the mortgage is less than the value of the estate on file. At this point, the bank can just close the mortgage, foreclose the house, and actually make more money than they would had they just let the owner pay the dues on the mortgage.

I agree with Mark Brian. This is a system that needs to be changed, else Rent.com might take giant leaps towards the most visited site online.

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