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It's coming, no question.

Today's report from RealtyTrac serves as a warning to big banks, Fannie, Freddie and local communities; The foreclosure glut is coming, and they'd better be ready to get rid of that glut in a big way.

2010 saw a record number of bank repossessions, over a million, even with a big drop in volume toward the end of the year, thanks to the robo-signing scandal and ensuing foreclosure freezes.

"Early indications in January were that this robo-signing related delay will be over by the end of first quarter if not sooner," says RealtyTrac's Rick Sharga. "I think we're going to see a significant spike in foreclosure activity early in 2011, and that will contribute in part to 2011 being a record year."

Sharga estimates as many as a quarter of a million foreclosures that should have happened in 2010 will now be pushed into the 2011 numbers, and added to an already huge supply of bank owned properties. The four biggest banks already have close to $7 billion worth of foreclosed properties (REO) on their books, and Fannie and Freddie have about $24 billion collectively. While REO sales make up about one third of all sales in the current market, there is an estimated 3 year supply.

There are obviously many incentives to buy REO's, number one being the price discount, as well as some other programs offered by the government; but there are a lot more downsides.

Just today I read an article in the Wall Street Journal of witches in Salem being hired to remove the negative spirits from foreclosed homes.

Other similar burgeoning businesses include Feng Shui experts, etc.

There's always somebody ready to profit from distress.

HousingWire today reports on a study by Field Asset Services that finds rehabbed REOs spend five fewer months on the market, 69 days compared to 222 days. Many investors buy foreclosures and do the rehab themselves, but for regular home buyers, clearly having the home renovated, with no sign of the preceding trouble, is a huge added value. Through its Neighborhood stabilization Program, the Department of Housing and Urban Development has provided $7 billion in grants to local governments and nonprofits; that money can be used to rehab foreclosed properties, or, to bulldoze them.

I also know there have been many discussions brewing within the government and at the banks with hedge funds looking to buy up bulk foreclosures. So far no big deals we know of, but they're coming for sure. The government may even be considering incentives to get more investors to buy foreclosures, which I blogged about last month.

As the numbers mount, the GSE's and the banks will have to put more resources into unloading these properties, especially as new Spring organic housing supply comes on the market. If they choose to slash prices even more, the dip in overall home prices may fall deeper than expected.

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