There have been a lot of accusations on the blogs and on the air that banks are holding on to REO (bank-owned) foreclosed properties because they don't want to put them on the market and push home prices ever lower.
In digging into this, I got a few interesting answers:
Bank of America:
- Foreclosure sales have been abnormally low since we learned of the pending implementation of the administration’s Making Home Affordable program. From that point, we delayed the initiation of foreclosure proceedings and sales for customers that may eligible for a loan modification under MHA. As a result of this policy, our foreclosure sales in recent months have been as little as half the normal pace we experienced before.
- Until a foreclosure is completed, Bank of America continues to exhaust every possible option to qualify customers for modification or other solutions.
- Now that Making Home Affordable programs are operational, we do project an increase in foreclosures as we exhaust every available option to qualify customers for modifications and other solutions.
- While we have very strong loan modification programs now available, unfortunately, these foreclosure projections reflect the increasing number of customers who will not qualify for loan modification because they have suffered major life events servicers can’t solve...primarily unemployment and underemployment.
- We do not hold foreclosed properties off the market. The vast majority of mortgages serviced by Bank of America are owned by third-party investors. We have an obligation to them to prepare foreclosed properties for market and sell them as efficiently as possible.
Then I spoke with Ted Jadlos of LPS Applied Analytics. He says there is no clear evidence of purposeful accumulation by the banks of these foreclosed properties. They are, he believes, working through the huge onslaught of new defaults as fast as possible, but it takes time. He says they are selling REOs at a fast clip as well, within about three months of taking them as REO.