Waiting to catch a wave? Surge of REO listings is unlikely.

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There should be an easy way to settle this. Trustee sales are public record. REO sales are public record. Take the number of trustee autions that took place (not notice of trustee sales, actual auctions that happened) in a geographic area during a given time period, subtract the number that actually sold to a third party (and therefore didn't become bank owned), and then subtract the number of new REO listings (or you could use the number of REO sales) during that period. Obviously, near the end of the period, some houses haven't had a chance to be listed, but at the beginning there were some new REO listings that had auctions from before the time period, so those two should balance out. If the number is small, I'm right. If the number is large, graphrix is right.
 
Elizabeth Warren was on KPCC yesterday. The topic?



<a href="http://www.scpr.org/programs/patt-morrison/2009/08/12/tarp-cop-troubled-assets-still-lurking/">http://www.scpr.org/programs/patt-morrison/2009/08/12/tarp-cop-troubled-assets-still-lurking/</a>



<blockquote>The economic green shoots are sprouting, the market has rebounded and even the unemployment figure seems to be holding steady?and yet, the ghosts of economic crisis past are still lurking in our midst. A new report by the Congressional Oversight Panel, the independent Congressional committee tasked with monitoring TARP, economic regulation and the overall recovery, says that banks? bad assets are still rotting away on the books. Will the toxic remnants of this crisis haunt the American economy for the foreseeable future?</blockquote>


You'll be able to Podcast it tomorrow, and you can stream it right now if you like.



The gist was the "rotting fish" that caused this problem is still there and still rotting away. And thanks to the repeal of "Mark to Market" accounting, everybody got to "forget" about it. Sorta.
 
Another way to check ancedotely is to drive around and see if you can find bank owned properties yourself. They are pretty obvious. First of all, they are vacant. It's possible that a tenant or former home owner still lives in a house when it goes to auction, and there are legal ways for them to delay getting kicked out for awhile-but that's hardly the bank's fault if the occupant is playing that game. Second, they will have the sheriff's department post a no tresspassing sign in the window. Does anybody see massive numbers of vacant houses, with sheriff's department eviction notices in the window, but without lock boxes and for sale signs, in their neighborhood? I sure don't.
 
[quote author="Geotpf" date=1250231875]There should be an easy way to settle this. Trustee sales are public record. REO sales are public record. Take the number of trustee autions that took place (not notice of trustee sales, actual auctions that happened) in a geographic area during a given time period, subtract the number that actually sold to a third party (and therefore didn't become bank owned), and then subtract the number of new REO listings (or you could use the number of REO sales) during that period. Obviously, near the end of the period, some houses haven't had a chance to be listed, but at the beginning there were some new REO listings that had auctions from before the time period, so those two should balance out. If the number is small, I'm right. If the number is large, graphrix is right.</blockquote>


Ugh... you are killing me. I already did this, and posted it for you in two other threads. But you have to shift the REOs back 120 days because that is how long it takes for the banks to turn around and sell them, which are known as REO sales. If you do that, you have roughly 10,000 REO sales according to the MLS, and 18,000 homes that went back to the bank that would be considered REO. 18,000 - 10,000 = <strong>8000</strong> REOs that the banks have yet to sell.



How many freakin times do I have to repeat this to you? There are <strong>8000</strong> REOs sitting on the banks books in Orange County.
 
[quote author="Geotpf" date=1250233949]Another way to check ancedotely is to drive around and see if you can find bank owned properties yourself. They are pretty obvious. First of all, they are vacant. It's possible that a tenant or former home owner still lives in a house when it goes to auction, and there are legal ways for them to delay getting kicked out for awhile-but that's hardly the bank's fault if the occupant is playing that game. Second, they will have the sheriff's department post a no tresspassing sign in the window. Does anybody see massive numbers of vacant houses, with sheriff's department eviction notices in the window, but without lock boxes and for sale signs, in their neighborhood? I sure don't.</blockquote>


In Coto de Caza, there are approx. 15 REOs. 2 of those are listed for sale. 1 is in escrow.
 
Welp, maybe I'm wrong.



In any case, it makes absolutely no sense for a bank to go through the trouble of foreclosing on a house and then letting it sit there. No sense whatsoever. I can think of reasons why they would delay foreclosing, but once they take it back, assuming it doesn't need massive repairs and there are no tenants or other legal issues, it's simply illogical to hold on to it for any length of time. Maybe the banks are even stupider than I thought.
 
[quote author="graphrix" date=1250235113][quote author="Geotpf" date=1250231875]There should be an easy way to settle this. Trustee sales are public record. REO sales are public record. Take the number of trustee autions that took place (not notice of trustee sales, actual auctions that happened) in a geographic area during a given time period, subtract the number that actually sold to a third party (and therefore didn't become bank owned), and then subtract the number of new REO listings (or you could use the number of REO sales) during that period. Obviously, near the end of the period, some houses haven't had a chance to be listed, but at the beginning there were some new REO listings that had auctions from before the time period, so those two should balance out. If the number is small, I'm right. If the number is large, graphrix is right.</blockquote>


Ugh... you are killing me. I already did this, and posted it for you in two other threads. But you have to shift the REOs back 120 days because that is how long it takes for the banks to turn around and sell them, which are known as REO sales. If you do that, you have roughly 10,000 REO sales according to the MLS, and 18,000 homes that went back to the bank that would be considered REO. 18,000 - 10,000 = <strong>8000</strong> REOs that the banks have yet to sell.



How many freakin times do I have to repeat this to you? There are <strong>8000</strong> REOs sitting on the banks books in Orange County.</blockquote>


Can you repeat that just one more time? Haha!
 
[quote author="Geotpf" date=1250243051]Welp, maybe I'm wrong.



In any case, it makes absolutely no sense for a bank to go through the trouble of foreclosing on a house and then letting it sit there. No sense whatsoever. I can think of reasons why they would delay foreclosing, but once they take it back, assuming it doesn't need massive repairs and there are no tenants or other legal issues, it's simply illogical to hold on to it for any length of time. Maybe the banks are even stupider than I thought.</blockquote>


Do you understand how capital ratios work at banks? Do you understand how mark to market accounting works? And, do you understand how mark to market accounting can make a bank's capital ratios high enough to not collapse?



Here, let me explain it, because after what you said I don't believe you would have said that if you did understand.



Lets say Bank of Panda has marked to market $100bil of REO on their books. But they are on the brink of keeping their tier 1 capital ratio if they were to lose just $20bil in assets. Ah! Now here comes the rub... the value of the REOs if they were to sell them today is really worth $60bil. Not only would they lose their tier 1 capital ratio, but they would fall more than $20bil below what they need to maintain their tier 1 capital ratio. Now what happens if they drop below the required capital ratio? The bank panics and scrambles to raise cash, but then there is a run on the bank because people feel that since they don't have tier 1 capital ratios and that they will go bust. And... then you have another Bear Stearns. Even if there isn't a run on the bank, trying to raise capital is difficult at best in that scenario, so most likely it would just be taken over by their governing agency. This is Citi's problem right now, but it ain't just $100bil, and not all of it is technically on their books. Did you click on the link to the <a href="http://www.worldaffairscouncil.org/index.php?eid=2756">WAC event called "Dead Banks Walking"</a> and read who the speakers were? Those three guys said pretty much what I am saying, and where I got the off the books assets that they have.



Now... for JPM/Chase... think about it for a minute. Have you ever worked for a company that has merged with or sold to another company? I have, and it is usually a mess. Systems aren't the same, company policies aren't the same, people constantly saying "well... that's now how we do it.", and people get laid off, etc. They took on two of the biggest (by size and by how crappy they were) dogs in the sector, so multiply what ever you have experienced or can imagine in a merger/sale and multiply it by about 20. Can you now understand why it will take them 6-9 months just to get a home on the market? Just wait until they do smooth things out and start to catch up...



It might not make sense to you, but it doesn't have to. 3+ years ago did 100% stated income loans and stated income Option ARM loans sold by people who just wanted their 3% YSP that had no clue why the minimum payment rate was only 1% make sense to you? Me either, the banks never had made sense have they?
 
[quote author="Geotpf" date=1250243051]Maybe the banks are even stupider than I thought.</blockquote>


That's part of it. The second part is a big game of chicken. First "dead bank walking" to admit to the problem won't get helped. I think they are making a huge error thinking there's any help coming other than being nationalized.
 
Just to throw more fuel on the fire, here's a post from Jim the Realtor yesterday. Now, he's talking San Deigo County and not Orange County, but the numbers can't be that different on a percentage basis.



<a href="http://www.bubbleinfo.com/2009/08/my-moneys-worth/">Link</a>



<blockquote>Shortly thereafter the meeting was adjourned, and I had a word with the chairman, Kurt Kinsey, who is a like-able guy and a 22-year veteran realtor. We discussed the vaunted Shadow Inventory, and I mentioned the recent foreclosureradar stats to back up my thought that banks are not sitting on REOs. The real shadow inventory are those who have received their notices of default, but haven?t been foreclosed yet.



Here are today?s numbers for SD County:



NODs = 11,700



NOTs = 8,595



REOs = 4,161, including 71 properties foreclosed today.



We know that a bulk of the 20,295 defaulted properties are in the loan-mod process, but I told Kurt that I think at least half of those could get foreclosed on during the next six months, and that demand is so strong that there should be a buyer for every one.

</blockquote>


So, according to his numbers, there are just under five times as many properties in San Deigo County that are in default than there are bank-owned properties (including ones on the market or not).
 
Have you seen the stats on re-defaults on the loan mods? They are over 80%. I expect that number to get worse as values continue to slide. That means loan mods DON'T WORK. That means there's 16,000 properties in the pipeline called loan modification waiting to come to the market as must move inventory.



People who get loan mods are the "Delay, Pray, maybe STAY" version of "Amend, Pretend, Send" group. Malibu Renter is correct, housing is a woefully inefficent market filled with amatuers.



On edit, I pulled that 80% number out of hot air apparently because I can't find my cite. I did find this:



<a href="http://www.calculatedriskblog.com/2009/07/researchers-few-preventable.html">http://www.calculatedriskblog.com/2009/07/researchers-few-preventable.html</a>



For the tl,dr. crowd, CR's comments (which I agree with):



<blockquote>I'd argue for a third reason: If it became widely known that lenders routinely reduce the principal balance for delinquent borrowers with negative equity, this would be an incentive for a large number of additional homeowners to stop paying their mortgages.



These economists would argue that the lenders are behaving rationally and that <em>foreclosure - when all costs are considered - is frequently the least costly alternative</em>.



</blockquote>
 
I asked Jim a follow up, and he said that around half of REO listings in San Deigo are currently listed or pending, and most of the rest appear to be in the process of being prepped for sale. That sounds right to me and is what I've been arguing, although graphrix disagrees strongly.
 
[quote author="Geotpf" date=1250292675]I asked Jim a follow up, and he said that around half of REO listings in San Deigo are currently listed or pending, and most of the rest appear to be in the process of being prepped for sale. That sounds right to me and is what I've been arguing, although graphrix disagrees strongly.</blockquote>


I only disagree with you because the math <strong>18,000 - 10,000 = 8000 REOs</strong> proves that you are wrong. And you can cite Jim all you want, but San Diego is about a year ahead of OC in this housing cycle in terms of sales, prices, and foreclosures. I can give you real examples of REOs that have been foreclosed on over 120 days ago that are not on the market. Not only that, but IR2 posted the REO sales numbers from the MLS, and DQ's foreclosure numbers are easy to find, so you could do the math yourself.



And when I say that the reason why I know these numbers is because it impacts me and not just to post on IHB that you are wrong... more REOs not on the market or sold impacts me in a negative way. So why... why... would I have motive to exaggerate the number? Are you getting it now? There is a reason why I know so much about foreclosures, and it isn't just to post about them on IHB.
 
Is 8000 even a huge number? Orange County is large. It seems to usually take months to assess, repair, and list a property. Some properties are very hard to sell (like a half finished housing division, vacant land, houses in very poor condition, all sorts of things), and the bank may not bother to even attempt to sell those through normal channels because they know they will have little chance of selling them. Maybe (and you would certainly know more than me) this is just the number that are in the pipeline on every given month.



In any case, the number of people in default must dwarf that 8000 number.
 
G - Stop arguing with him. He does this. No matter how much evidence you put forth or how much sense you make, he will come up with something else to fit his preconceived paradigm. Forget it. It is like trying to have a conversation with you remember who. He does the same thing with his opinion on the occurrence of loan mods, completely ignoring all evidence to the contrary of his opinion.

He just bought a home this year. Wouldn't you be a little weird if you had just bought a home?
 
I find it interesting that we are debating about something that should be a verifiable fact. It isn't like we are debating religion; there either is a large number of REO coming or there isn't. The fact that there is not much accurate data coming from the banks strongly implies there are a huge number of homes coming soon.
 
<em>"Today, we are going to examine one zip code in Riverside where officially on the MLS 459 properties are listed but on foreclosure records, we see 1,319 distressed properties!"</em>











<em>"We ran our estimate for Southern California and came up with a figure of 40,000 homes that are hidden on the bank balance sheet."</em>







The above is from an article on <a href="http://www.doctorhousingbubble.com/">Dr. Housing Bubble.</a>
 
U.S. FORECLOSURE ACTIVITY INCREASES 7 PERCENT IN JULY

By RealtyTrac Staff



U.S. Foreclosure Activity Up 32 Percent from July 2008

Over 360,000 Households Receive Foreclosure Filings, Setting New Record





I know you all saw the <a href="http://www.realtytrac.com/ContentManagement/PressRelease.aspx?channelid=9&ItemID=7192">report </a>on Thursday... but I can't seem to find any thread covering it, may as well... another post wouldn't hurt...
 
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