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Santiago Ken…, Real Estate Pro in Chicago, IL

I notice that there are a lot of houses already foreclosure by banks and never came to the market LOW INVENTORY CONTROL PRICES

Asked by Santiago Kensel Sanchez, Chicago, IL Tue May 21, 2013

The banks are tried to control the prices with the extrategic of not listed the properties that they have , then the buyers frustrated always are into a multiple offers situation and in a lot cases over paid for houses in the Chicago area
What do you think about this fact?

Sorry for misspelling English is third lenguaje

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Hi Santiago,


the bank appears to be holding a lot the inventory to increase prices of the current inventory coupled with the Fed's appeal to assist homeowners. There will be a steady REO inventory for years to come.

good luck in the Chi
1 vote Thank Flag Link Tue May 21, 2013
I don't think banks have any strategy in sitting on homes that are in inventory. It is in their best interest, as well as their shareholders interest, to get rid of these properties as soon as possible. They may be putting a certain number of homes each month for sale but I don't think they would sit on a huge inventory. No one really knows what is going on internally with the banks but it appears they have delayed foreclosing on a lot of properties in order to make their books look better. From what I hear in the news, the number of people behind on their payments has dropped this year from last year and a lot of non-performing loans have started performing again.

The simple fact is that the market is improving which is why there are multiple offers. I am getting multiple offers on non-foreclosed properties because housing inventory has shrunk.
1 vote Thank Flag Link Sun Jun 16, 2013
I agree with you, April.
Flag Sun Jun 16, 2013
I doubt there is a conspiracy, worked for one of the 800 pound gorillas for almost 20 years and I promise you one thing for sure, interdepartmental communication is a myth. My guess is more along the lines of chaos or incompetency. Twice in the last year I caught banks trying to sell homes they didn’t own. There are also a lot of issues to get the title to a point that it is insurable for a buyer. You don't want the bank to sell you a home before they get the title mess cleaned up, tell them to take their time.

But hey, if you are limiting your home search to just trouble properties you should expect to wade through a bunch of stuff. There must be a reason a buyer would limit search parameters to just other people’s train wrecks. It looks odd from the other side of the fence. Anyone want the banks to cover their reo losses with money from your personal checking account?

Jim Simms
NMLS # 6395
JSimms@cmcloans.com
Financing Kentucky One Home at a Time
Web Reference: http://jamessimms.com/
1 vote Thank Flag Link Wed May 22, 2013
As always, a very thoughtful and informative answer from Don Pasek. Don, if you ever decide to start a real estate blog, let me know. I want to subscribe.
1 vote Thank Flag Link Wed May 22, 2013
Banks cant release these properties to quickly onto the market or prices will plummet. The banks will continue to release them but at a slow place to show growth in prices in the market.
1 vote Thank Flag Link Wed May 22, 2013
Hi, Santiago:

What a range of opinions on this question! I do agree at least in part with most of the answers, too.

It's true that once a bank has control of a property through foreclosure, it can hold or sell the property as it sees fit. Bank managers (or in some cases, receivers) have a fiduciary obligation to reduce losses as much as possible to protect investors. This means holding one or more properties until a sale would yield the highest price and return possible.

I'm just as frustrated as everyone else over the lack of inventory, but I do acknowledge that property owners have a right to do what they wish with their holdings. If a bank doesn't want to sell, it just doesn't have to.

In theory, releasing only a certain number of properties strategically makes financial sense from the bank's perspective. In practice, it may not always have the desired effect.

I think an issue that's much more important is what happens to that foreclosed property up until the time the bank decides to list and sell it. In many communities across the country, banks have done little to protect such properties from deterioration or complete destruction.

After evicting the former homeowner and boarding them up, the grass grows high, the scavengers pull off the boards to get at any metal, and oftentimes squatters will occupy the premises. Criminal elements sometimes use the vacant buildings as bases for their operations.

Neighbors suffer. Prices stay low in these communities, even for those who have paid their mortgage on time, and buyers steer clear of blocks that have numerous empty foreclosed properties. Taxes go unpaid for years, leaving local municipalities struggling to meet obligations.

Some cities have taken to fining bank-owners who do not keep up the property. Usually, this doesn't solve the problem, as in some foreclosure-prone neighborhoods, the fines can quickly add up to more than the property's market value, making it unlikely to sell. It's a downward spiral, sometimes ending in demolition.

The one comment below with which I don't agree is that the federal government is at fault because of a change in regulations regarding foreclosure notices. The change mentioned in the article my colleague linked was one of the changes caused by the "Robosigning" scandal of several years ago, in which banks, reacting to the steep increase in delinquencies, decided to cut corners with documentation and due process.

The new regulations aim to avoid such a scandal in the future. The banks knew it was coming, so they should have been prepared. Note that the article mentions that Bank of America did not stop foreclosures, as they believed they were in compliance.

The sheer number of REO properties held by certain banks is reason for pause with regard to the control these banks have over the U.S. mortgage market and on specific communities as a result. It begs the question of whether these banks have any reason to act differently, since their primary motivation is profit, not community development.

In years past, most homeowners obtained a mortgage from a bank nearby their home. In many cases, that bank held the mortgage for the entire term. These community-based banks therefore had a vested interest in the well-being of the community about them.

Due to deregulation and the cut-throat competition that has come with it, most community-based banks have disappeared (that is, have been acquired by the big banks), and most mortgages come from large banks or investment groups. These big players have little incentive to think about anything other than covering their own losses and finding new ways to make more profits, since they do not engage and identify with specific local communities.

I realize that we need a modern, national banking system to serve the financing needs of the American people most efficiently. What we also need are sensible regulations that prevent the abuse of mortgage borrowers and leave the federal government on the hook (through the FDIC) when things go wrong. We also need revised and improved regulation of the maintenance and security of vacant foreclosed property to protect the surrounding communities from unwarranted harm.

Regards,

Don Pasek, CIPS, TRC, ADPR
Omniterra Real Properties
Chicago
1 vote Thank Flag Link Wed May 22, 2013
Great observation what are your sources that tell you they never came on the market?
1 vote Thank Flag Link Tue May 21, 2013
Santiago,

This is true in many markets. I am seeing it first hand here in California. This low inventory is a buyer's and buyer's agent worst home buying nightmare.

Homes hit the market and within a matter of a day or two can have multi offers.

Some believe the banks holding their inventory is good, because it is making home prices rise, and some markets are benefiting from the rise in property values.

I am not sure it is a god thing.We need more inventory, and if banks have it, I for one sure wish they would release some of it.


By the way English is my first and only language, and I make plenty of spelling/ typing errors:)

Much Success to You!
Kawain Payne, Realtor
Prudential California Realty
1 vote Thank Flag Link Tue May 21, 2013
I agree with the comments that the bank inventory will ebb and flow over many more years.
1 vote Thank Flag Link Tue May 21, 2013
There is another side to this story.
If you been reading your news releases
Just reelased:

By E. Scott Reckard
May 19, 2013, 12:04 p.m.

Sales of homes in foreclosure by Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. ground nearly to a halt after regulators revised their orders on treatment of troubled borrowers during the 60 days before they lose their homes.
READ THE REST OF THE STORY
http://www.latimes.com/business/money/la-fi-mo-banks-foreclo…

I can imagine if the banks were aware the adminsitration was 'monkeying' with the rules, they just might slow down before they get betrayed by those dolts in DC.

The invisible inventory is being sold out the back door to institutional and program buyers. That IS he most efficeint way to solve the foreclosed home issue. If you are looking to purchase such homes, you need to recalibrate WHER you will look for them. You local real estate professional will prove ESSENTIAL.
1 vote Thank Flag Link Tue May 21, 2013
If the banks took this approach from 2007-2010, they would not of sunk the value of residential real estate from 40-60% in the country. Back then, it was foreclosure and go to REO ASAP. Not a fan of the banks, but if they doing what you say, then maybe they learned a lesson.
1 vote Thank Flag Link Tue May 21, 2013
Personally, although it's frustrating, I don't blame the banks for slowly releasing the properties to control supply.

These are companies that have an obligation to their stakeholders to be as profitable as possible. They are not in the business to ensure that buyers in this market get a "steal of a deal" on a house. They are in business to make money, and recoup as much loss as possible from the people who defaulted on their previous obligations.

If all the lenders released a flood of inventory into the market at once, it would be counterproductive to what they are trying to accomplish.

I agree with Suzanne in that it would be nice if there was a slightly better "balance", or a more consistant system/flow of these properties into the marketplace. Not saying it's necessarily "fair", but it doesn't surprise me...
1 vote Thank Flag Link Tue May 21, 2013
No conspiracy, just the way it goes in a judicial foreclosure state. If any inventory is being kept off the market it is the low end, less desirable properties with problems and in areas of low demand. That is not why inventory is so low.
We have a lack of listings because prices are still too low. Too many homeowners are still underwater or not going to sell at the bottom. It will be like this for a while.
1 vote Thank Flag Link Tue May 21, 2013
Once the bank forecloses on the property, it is their asset. They will eventually sell it, since they are not property managers. As the owners of these homes, the banks (unfortunately) can dole them out at whatever pace they want. Most likely they have done their cost benefit analysis and if the numbers show that it is better to hold on to the home in Neighborhood X for Y days/months, then they will do it.

It is interesting though that as soon as some sales occur in a specific market, they are soon replenished with others.
1 vote Thank Flag Link Tue May 21, 2013
I agree completely.
Where is this "shadow inventory". The treatment of this by banks is strangeling the marketplace and threatens to drive some buyers out. People are fighting over short sales - ridiculous.

But in most cases these buyers are paying higher than list, but not overpaying. These distressed properties are often still below market.

We need a balance - not too much inventory to reduce prices again but a little more inventory. We need a normal in this market.
1 vote Thank Flag Link Tue May 21, 2013
Santiago,

Honestly I think is stinks. While we do need the housing market in Chicago to stabilize inventory for he fist time buyer is very low and as you said they are getting in a multiple offer situations. In some cases the properties are not appraises for the final price.

The taxpayers bailed the banks out and I feel they should release the inventory so the first time buyers get a fair chance. They are using an artificial scarcity to drive prices up. Just another way to manipulate the market, sound familiar…

Of course this is my opinion.
1 vote Thank Flag Link Tue May 21, 2013
There are a lot of factors playing out in the market place. The banks have been working through the bubble. I hope that time works to the advantage of the individual buyers and sellers. But history will be the final arbiter. Good luck to all of us. Patience and discipline.
0 votes Thank Flag Link Wed Jul 10, 2013
Many things are happening behind the senses that we as realtors and the public are not aware of until it gets announced in the paper. For example BOA and Cit just recently settled with Fannie Mae. In both settlements Fannie received cash from both banks and agreed to repurchase loans back from Fannie. These types if negotiations have certain implications for the banks and spur new strategies. One of those strategies is selling bulk to investors. I am seeing a lot of bulk buyers entering the market with a lot of cash on hand. I suspect this affecting the inventory coming out to market . It is my opinion that the market is now being driven by investors who see the opportunity to buy low sell high in the near future. Many of these investors are the same people who caused the crash in the first place.

Jack Lewitz
608-309-5334
0 votes Thank Flag Link Wed Jul 10, 2013
Plenty of investors buying again and prices are continuing to firm up. The economy is reviving a bit too. Latest news in south Florida is that it is a Seller's Market? What do the rest of you think?
0 votes Thank Flag Link Sun Jun 16, 2013
Activity is picking up everywhere. I am seeing a lot of action throughout south Florida. Buying frenzy? Is anyone else seeing this. It is a Seller's market right now.
0 votes Thank Flag Link Tue Jun 4, 2013
Your point is well taken....Everyone is asking, what has become of the "shadow inventory?" This being those foreclosed homes that banks are allegedly sitting on and wait to release to the market.

The reality of this situation is easily seen. There are certainly additional properties out there that will be coming onto the market in the future but before the lender can put them on the market there is much to be done. Many of these properties have been neglected and need work in addition to the now bank/seller needs to make arrangements for future buyers to have a clear title with the purchase of the property. This all requires time.

Additionally, compared to 2-3 years ago when lenders didn't take "short sales" seriously, banks are not viewing this as an acceptable solution to their problem and are working more responsibly in bringing these sales to a successful conclusion. This in itself, has done wonders to decrease the steady and overwhelming flow of foreclosures.

The housing dilemma was a HUGE problem but is now one that is moving in the right direction. I have never been one to "beat the drums" for banks but giving credit where it is due is important and I for one can't criticize them for how they have handled the inventory issue.....there are far too many other topics that deserve that type of attention.

Respectfully,

Bill
0 votes Thank Flag Link Sun May 26, 2013
Banks are working out their foreclosures in many ways. This could help keep the shadow inventory down and keep sales on a good pace.
0 votes Thank Flag Link Sun May 26, 2013
Thanks for all your comments ! i am with Nocholas R , Don Pasek is really an amazing writer, I like how you express yourself through this posts
0 votes Thank Flag Link Wed May 22, 2013
There are different reasons why banks do not list their home for sale.
Property might have sold at sheriff sale, bank sold notes in bulk sale to investors, they have might have title issues. They don't necessarily hold the shadow inventory.
0 votes Thank Flag Link Tue May 21, 2013
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