Will REOs Hamper a Housing Recovery?

The nation’s largest banks and mortgage lenders currently own
more than 872,000 homes
properties in which they repossessed
from foreclosure, according to RealtyTrac. That is nearly twice the amount they
repossessed in 2007, when the financial crisis began.

But the problem may get even worse: Banks are ready to
repossess another 1 million homes in foreclosure, RealtyTrac
reports.

The swelling number of
lender-owned homes has economists concerned because higher inventories of
distressed homes can depress overall home values. Economists say that it could
take lenders three years to sell their foreclosed home
inventory.

“It remains a heavy weight on
the banking system,” says Mark Zandi, the chief economist of Moody’s Analytics.

Indeed, the high number of lender-owned
homes stands to cost banks $40 billion in additional losses as they’re forced to
sell these homes at sharp discounts over the next two years, according to Trepp,
a real estate research firm.

Real estate
professionals told The New York Times that lenders seem overwhelmed by the huge
inventory of homes. They also say these lender-owned listings are often out of
date and overpriced by as much as 10 percent, and that lenders take too long to
accept an offer.

These homes also can sit
in limbo for nearly two years. It can take 400 days just for lenders to
foreclose on the home and then 176 days, on average, to sell it.

Source: “As Lenders Hold Homes in Foreclosure,
Sales Are Hurt,
” The New York Times
(May 23, 2011)

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