It is better to insist that your lender perform in a timely fashion than ask the bank on a REO for an extension. The banks usually are interested in closing as soon as they can. I think 2 weeks extension requested by your lender appears too long. On the other hand the bank may review your case and as She-lee suggested if everything looks good they may compromise.
It is my experience with REO properties that if you have been moving forward with inspections, signing escrow documents, applying for your loan in a timely fashion, removing contingencies, getting the appraisal, etc. and then you ask for an extension on closing due to the lenders need for additional time (and make sure you do this in writing), they will usually grant the extension. I have a client who just closed on an REO purchase from Countrywide. The original closing date was May 23 and they closed on June 6. The bank signed the extension of time request at closing.
Also, make sure you read your bank addendum carefully. Some REO banks put a per diem in there for late closings. I have been told this is not enforceable if you are getting an FHA loan, however, you want to let your lender know about this. Let them know that you will expect them to pay the fees, as you were ready to close and they were not. Maybe this will speed them up.
Wishing you many happy years in your new home and Dare to Dream.
Real Estate Consultant
RE/MAX Palos Verdes Realty