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Is There Really A Shadow REO Inventory, Part Two?

By
Real Estate Broker/Owner with Mike Bell, REO Broker - Realty World MBA

No doubt there is a shadow inventory.  In fact, our sources indicate a substantial, almost incredible number of foreclosed homes in the national bottleneck.  Our original post on this topic was Shadow Inventory, yes.  Banks holding back, not likely”.  As indicated, this was posted in rebuttal to the referenced WSJ article, last July. 

 

Of course a lot can change in 6 months.  Since then we have come to believe that Fannie Mae is, in fact, deliberately holding back inventory, a probable attempt to stabilize or stimulate values, another ill-fated artificial manipulation of the marketplace.  Only government-sponsored entities (GSE) can get away with holding non-performing debt rather than having to liquidate it.  Apparently the recent near collapse of Fannie and Freddie did little to cure their attitude.  How can you hold onto to non-performing debt and survive?  Obviously you can't.

 Dancing With Freddie Mac & Fannie Mae

The fallout of this strategy of the GSEs is that the major banks like Wells and BofA now have to follow suit, whether they want to, or whether it makes good business sense, or not. 

It's amazing how resilient and patient these guys are.  First they absorb all the bankrupt competition and all the non-performing debt.  Then, the government traps then into partnership through TARP and forces them to take bailout money they don't want.  Then, moratoriums and intervention handcuff them and prevent them from doing any sensible business at all.  In the meantime, the media vilifies them and the public hates them.

But these guys are the only hope.  They are the only survivors amongst dozens of bankrupt banks.  They survive through fiscal responsibility and good management, two concepts that seem to elude all federal agencies.

Fannie Mae and Freddie Mac were saved from bankruptcy by bailout from the federal government, the largest debtor in the world.  The only reason the federal government isn’t not bankrupt already is because they can print money (see our blog "What Is The FED?, Part Two" 10/3/09).  These are proven fiscally irresponsible agencies.  They maintain the illusion of being in control of our economy.  They are manipulating national housing, foreclosure and lending laws, with no consistent vision or policy.  This is a disaster.

The irony in San Jose and Silicon Valley is that Fannie and Freddie haven’t been much of a player here.  For the past 10-12 years our average values were above FNMA limits.  All these ’05 loans that are foreclosed are from non-GSEs, yet our marketplace is captive to their manipulations. 

So, we wait.  In the meantime it’s a warzone: lots of buyers, no inventory.  It’s all in the bottle.  Heck of a recovery strategy.  Let it out!  We can sell it! NOW!

If the federal government, the Federal Reserve, Fannie Mae and Freddie Mac would get out of the way, maybe we can get out of this mess. Maybe we wouldn't have gotten into it in the first place.  Let the banks do their job.

 

 

 

Show All Comments Sort:
Joe and Molly Murphy
Coldwell Banker - Bradenton, FL
Put our Team to work for your Family

great points.  There is a ton of "in process" foreclosures.  The quicker we can work through the inventory, the faster the recovery

Dec 19, 2009 08:25 AM
Sandy McAlpine
RE/MAX EXECUTIVE - Cornelius, NC
Search Lake Norman Homes For Sale - Lake Norman NC

This post really caught my eye. Although, I thought that the banks wanted the bailout? Didn't they have to apply for it? Fannie mae and Freddie Mac must be holding inventory so that current sellers and distressed sellers can get out of foreclosure. But, yes, we would love the inventory - as buyers and agents.

Dec 20, 2009 05:19 AM
Donny Coram
The Integrity Team @ Keller-Williams - Colorado Springs, CO
Real Estate the right way
As the last poster mentioned, the inventory is better served by being on the market in the normal quantity in which they are foreclosed. The short term gain of holding the inventory will be trumped by the longer term impact of flooding the market with foreclosures that have to be sold eventually anyway. No worries though, when It gets here, we WILL sell it. Then who be credited with the markets' recovery? Tighter underwriting guidelines? Lower interest rates? I think not......
Dec 20, 2009 05:31 AM
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

If there is no inventory in your area, the banks may be waiting for prices to rise before releasing some of their inventory?! Since all real estate is really local, it would make sense to release homes in areas where the inventory is low, which is not the case here. We have almost a year's worth of houses on the market on Fleming Island.

Dec 20, 2009 05:45 AM
Jeff Launiere
Future Home Realty - Tampa, FL
Jeff Launiere

And now we are finding out that Fannie Mae and Freddie Mac are requesting another $800 billion bailout. Also the FDIC is trying to raise their reserves by 35% and are adding 1,600 employees which is a sign that they are expecting incredible numbers of bank failures in 2010.

Sandy Aichner stated "This post really caught my eye. Although, I thought that the banks wanted the bailout?"

Sandy, actually Hank Paulson and the Feds forced all the major banks to take TARP funds. They asked the to take TARP funds and the reason was that if only certain banks were given TARP funds then everyone would know who the weak banks were. If people knew who was really weak investors would sell the stock and depositors would take their money out of the bank driving these banks out of business and it could create a panic.

The biggest problem and complaint from the banks who did not ask for the funds, but were forced to take them is that the Obama administration is now requiring them to follow the TARP rules they created. These rules of course are that they are restricted in the salaries and bonuses by the Pay Czar and also have to follow other stringent requirements. These new rules were forced on them after they had agreed to take the funds, and of course if these banks had been told about these rules they would not have taken the funds. Now many banks are giving back TARP funds, even some banks that are likely still weak so they can run their own companies rather than having the Federal Government and Congress being the CEO's.

Dec 20, 2009 06:16 AM
Joetta Fort
The DiGiorgio Group - Arvada, CO
Independent Broker, Homes Denver to Boulder

"we have come to believe that Fannie Mae is, in fact, deliberately holding back inventory"  

I have to ask - based on what? Have you uncovered some fact you didn't know before? Do you have links? You don't say why you've come to believe this.

Dec 20, 2009 06:35 AM
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

What about the program to rent out foreclosed homes?  Do you see this as a move by the government to own much of the former private property in this country?

Dec 20, 2009 06:55 AM
Nancy McNamee
Keller Williams Realty - Roseville, CA

We keep hearing the same thing.  Since there is nothing "normal" about this market, how can we expect a "normal recovery?"

Dec 20, 2009 07:04 AM
John J. Woods
Big Dog Press, LLC - Winder, GA
Going where no man has gone before - wouldn't you?

A provocative post, but 'where's the beef?'  I tend to agree with Joetta.  Who's to say that part of the problem with inventory is that no one in any aspect of the real estate or lending businesses has ever experienced this type of inventory before and really hasn't got a handle, yet, on the trained manpower requirements and systems needed to deal with it.  Many factors come into play here, and that's just one of them.  I'd be very curious to see your bibliography.


Remember -- Think twice, push "Send" once.  Blogging, posing, commenting:  It's all 'never having to say you're sorry', because it won't make any difference

-- it's FOREVER!

 

Dec 20, 2009 07:15 AM
Beverly of Bev & Bob Meaux
Keller Williams Suburban Realty - West Orange, NJ
Where Buying & Selling Works

This is one of those situations where Monday morning quarterbacking is what's going to work best. Twenty or 50 years from now we can read analysis, sit through college courses, etc. on what happened to cause the great 'almost' depression part deux. Until then, these are theories and such that we don't  know all the facts about. I wish I could be in Bernanke's mind for a day.

Dec 20, 2009 07:33 AM
David Whitehead
RE/MAX Pace Realty - Crown Point, IN

Good post I think they should get rid of Bernanke but they probably won't.

Dec 20, 2009 08:05 AM
Mike Warfel
Mike & Rita Warfel Real Estate LLC - Avoca, MI
Associate Broker

Yes I agree both with the post because it sounds likely and to the need for the source of your facts. If you can prove where this "holding back" info came from please do.

thank you

Dec 20, 2009 01:51 PM
Mike Henderson
Your complete source for buying HUD homes - Littleton, CO
HUD Home Hub - 303-949-5848

The million dollar question then is, when will they release it?

Dec 20, 2009 03:29 PM
PHIL MCGREEVY
Chesapeake, VA

I am sure there is some merit to all the many 'Theories and rumors' available to satisfy our search for the Devil to blame.[Obama and the Government in this case]

I don't have the time[or skill] in my life to research and investigate the absolute.

But based on my 'Experiential Wisdom' the root will come from those in authority to make a difference

and their collective greed,deception and a big dose of incompetence.

My guess is when the Fear of doing the right thing overcomes the fear of doing nothing things will turn,

slowly though do to the Devils right hand incompetence.:)

PHIL

 

Dec 20, 2009 09:31 PM
Mike Bell
Mike Bell, REO Broker - Realty World MBA - Santa Clara, CA

It's important to distinguish what we believe form what we can prove, and opinion from fact.  We believe that Fannie is holding inventory in an attempt to stimulate pricing.  We can't prove it, but somebody can.  Our own market observations and discussions with other REO brokers accros the country reinforce our belief.  We also believe that major banks are influenced by political pressure to follow FNMA's lead in the marketplace.  We can't prove it, but somebody can.

The point is, it's unlikley that the shadow inventory is going to flood the marketplace all at once.  It would be like an economic tidal wave.  Of course, some brilliant economic minds think that that's eaxclty what should happen.  Let it crash.  It would hurt, but we would recover faster. At the current pace, we'll stay in this foreclosrue cycle for a very long time.

As Bev Meaux mentions, maybe we'll get to the truth in 20-50 years.

And to Phil McGreevy . . . what?!?

Dec 21, 2009 12:53 AM
Lyn Sims
Schaumburg, IL
Real Estate Broker Retired

I'm not sure I agree with some of your points.  The banks are incompetant and what makes you think they don't already know, right now, about inventory?  Why don't you post about you trying to find out personally where all 'that inventory' is?  Mike Bell foreclosure detective?

Dec 21, 2009 03:09 AM
George Wilson
Lincolnton, NC - Lincolnton, NC

I agree with some of your points but I think the "shadow inventory" is probably local at best. I read a short article in the AARP magazine about homeowners who walked away from their homes after receiving a foreclosure letter and found out that the servicer never finished the process (article link). I think this is probably where some of your "shadow market" has vanished to but the mortgage note still exists or how else can they validate the credit reporting histories. I agree with Lyn in that the banks know what their inventory is and probably has it broken down by marketplace. If the banks are following a supply and demand formula then they would hold back in markets that are saturated in foreclosures but release to the markets where they are down or non-existent. IMHO.

Dec 21, 2009 06:59 AM
Anonymous
Anonymous

Prove it....if you only think they are holding inventory, why start a panic rumor of your own?  Provide the facts please.

Dec 22, 2009 02:59 AM
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