Based on the current volume of new Notice of Defaults (NOD) we can expect this REO market to continue well into the year 2012.  When a homeowner receives an NOD it takes a minimum of 90 days to file the ensuing Notice of Trustee Sale (NOTS) and that begins a three week public posting period before the actual Trustee Sale is held.  If the homeowner files a BK the Trustee Sale can be postponed for up to another 90 days.  With that in mind let's take a look at the estimated peak of the resets of the largest bulk of payment option ARM loans, which is going to take place sometime between August and October of 2008, and its effect on future REO inventory.  Once a payment option ARM loan resets, the homowner's payment will double or even triple.  In most cases, these homeowners were never qualified to make this type of pament and with no equity left in their home they will suffer a huge financil burden.  If they don't have savings or other means of bailing themselves out the only option remaining is to wait out the painful process of foreclosure.  By doing the math based on normal timeframes for most financial istitutions, we can assume that it will take at least 12 months before the homeowner will lose their property.  That means that the largest bulk of REO properties will arrive between October and December of 2009.  Now let's discuss the other variable involved in placing an REO on the open market- the eviction process.  Once a home goes REO and that home is occupied, it can take up to 9 months to get the property vacated and ready for the market.  If we add that time frame into the equation we can adjust our peak of REO inventory to sometime in the middle of 2010. 

One more thought: Picture, if you will, a large bell shaped curve.  The bottom left side of the curve will be the beginning of this REO market, the highest point in the curve will be the peak of REO inventory discussed above, and the bottom right side of the curve will be the end of this REO cycle.  If the beginning of this REO cycle was approximately August of 2005 (approximately five years before the peak of the REO inventory), then it is entirely possible that we will still have a significate amount of REO invenory in the year 2015.