Bank REOs, What is Actually Going On?

What is going to happen to all the delinquent Bank Owned REOs?Banks pulled one of the greatest magic tricks of all time. They made millions of Bank Owned REOs disappear. We all know that all great magicians make things re-appear afterwards. It seems that the banks are about to make the REOs re-appear now.

I’ve been saying it since March when the markets started creeping up as inventory levels shrunk due to the disappearance of the bank owned REOs; something still has to happen with all these delinquent homes. While we know there are plenty of alternatives to foreclosure and taking properties back (short sales, give them away, rent them, reduce principal), these alternatives cannot work for every asset.

Many of the millions of delinquent homes will still be foreclosed on. Whether the process begins to speed up or not is yet to be determined, and is also unlikely. Unless banks, courts and sheriff departments all staff up, the foreclosure process will continue to sputter along like a car stuck in the mud.

Furthermore, we know for a fact that there are hundreds of thousands if not millions of homes already foreclosed on and sitting vacant on the banks books. When will these hit the REO market and what are they waiting for?

The answer to the first question is a little easier than the second. According to Real Estate Insider News, the banks will be releasing REO produce immediately and over the next 180 days. They further predict that the trend will continue into 2013, giving the market plenty of additional inventory.

What are they waiting for? Everyone will have a different answer. I work with several large banks regularly, and I do not think they have been “waiting” for anything. They are thrilled that the markets have ticked up and are cognizant of the reasons for that. They know they are in a position where they can control inventory and therefore the markets. They like this power, but still do not want these assets sitting on their books. They want cash. Cash to lend and invest. This is what banks do, they use their cash to make more money.

The delay has not been because the banks do not want to sell the homes; rather it’s been a delay in the overall process. States are constantly changing laws as it relates to foreclosures and evictions. This causes several processes to have to start over a couple times. Courts are delayed which takes more time to get evictions underway, and then the process is further exacerbated by the sheriff department having more evictions than they can handle.

Nonetheless, this seems to finally be the time when the REOs are coming back. This will likely cause a slight down tick in real estate prices. So long as people do not start freaking out and talking about a “triple dip” the down tick should be exactly that, a slight down tick on the road to a full recovery.

The best advice I can give is do not try to time the market. Many investors give the same advice about other investments such as stocks or bonds. You should be purchasing things that are going to prevail and be good investments anyways. Do not try to find the exact bottom. Where real estate prices are now, even if they do fall another 3-5%, your long term investment is still safe. Do yourself a favor, contact us today to discuss how you can capitalize on these REOs that are going to be coming back.

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