Are Zombie Banks Just Waiting for a Bailout?
An old real estate axiom goes that once a home has gone through foreclosure, and the sooner a lender can sell the property the better. After all, a non-performing asset is bad for a lender's books and the sooner the escrow closes, the quicker the lender will be able to recover his losses. However, recently an appraiser paired the online foreclosure databases (found at either Realtytrac.com or ForeclosureRadar.com ) against the statistics found in the local Realtor MLS (multiple listing system) inventory, and noticed something rather peculiar: the datasets don't reconcile.
In most cases, the number of foreclosures far exceeded the sum of listings and pendings found in the multiple listing system. Rick Sharga of Realtytrac recently spoke with CNBC's Diana Olick and said that roughly 70% of foreclosures in their database ARE NOT listed in the MLS and that banks might be trying to defer the losses to a later date, because having to recognize the losses short term might pose severe risks to the banks in question. Is this true? Are zombie banks holding onto the properties because they are insolvent and can't afford to take the loss? Or are these banks stalling in the hope of reanimating home prices? Or is something else happening? Here are three possible explanations.
1.Erroneous Foreclosure Data. The numbers reflected by Realtytrac.com and Foreclosureradar may not be giving a true and accurate picture of foreclosures. Internet companies are great at tracking raw data, however, they may be counting a property as a foreclosure twice: once when the homeowner has missed three payments (as in a Notice of Default) and twice: when the property has been sold at auction. Also a homeowner who reinstates his loan months earlier will often still be counted as a foreclosure on an online site.
2. Short Sales. When a lender reduces the principal balance of a loan so that the property can be sold at fair market value, it's called a short sale. Believe it or not, some lenders can take over six months to approve an owner's short sale application. During this time period, the auction date for a property may be waived by the lender or extended in order for the owner to close escrow. Therefore the home may show up as a foreclosure on an online site " yet not show up as either a listing or closed sale on the realtor's database.
3.Loan Modifications. In addition to short sales, many properties will show up as foreclosures in Realtytrac because the owners are behind in their payments when in reality the owners are simply in limbo waiting for his zombie lender to modify the loan. Owners are often told to miss a few payments to obtain a loan modification, the approval may take several weeks and the property will not be a part of any MLS statistic.
Naturally this does not explain everything. There will still be homes that fall through the cracks; damaged properties with toxic mold for example, that will be placed on hold while the lender settles with a knuckle-dragging, insurance company. There may also be a logic explanation for the disconnect that might have more to do with the government regulations that banks have to follow than anything else. But the idea of a Night of the Living Dead scenario, filled with understaffed zombie bank personnel walking the earth while they are doing the best they can under these current challenging circumstances, that umm, that could never happen, could it?
In most cases, the number of foreclosures far exceeded the sum of listings and pendings found in the multiple listing system. Rick Sharga of Realtytrac recently spoke with CNBC's Diana Olick and said that roughly 70% of foreclosures in their database ARE NOT listed in the MLS and that banks might be trying to defer the losses to a later date, because having to recognize the losses short term might pose severe risks to the banks in question. Is this true? Are zombie banks holding onto the properties because they are insolvent and can't afford to take the loss? Or are these banks stalling in the hope of reanimating home prices? Or is something else happening? Here are three possible explanations.
1.Erroneous Foreclosure Data. The numbers reflected by Realtytrac.com and Foreclosureradar may not be giving a true and accurate picture of foreclosures. Internet companies are great at tracking raw data, however, they may be counting a property as a foreclosure twice: once when the homeowner has missed three payments (as in a Notice of Default) and twice: when the property has been sold at auction. Also a homeowner who reinstates his loan months earlier will often still be counted as a foreclosure on an online site.
2. Short Sales. When a lender reduces the principal balance of a loan so that the property can be sold at fair market value, it's called a short sale. Believe it or not, some lenders can take over six months to approve an owner's short sale application. During this time period, the auction date for a property may be waived by the lender or extended in order for the owner to close escrow. Therefore the home may show up as a foreclosure on an online site " yet not show up as either a listing or closed sale on the realtor's database.
3.Loan Modifications. In addition to short sales, many properties will show up as foreclosures in Realtytrac because the owners are behind in their payments when in reality the owners are simply in limbo waiting for his zombie lender to modify the loan. Owners are often told to miss a few payments to obtain a loan modification, the approval may take several weeks and the property will not be a part of any MLS statistic.
Naturally this does not explain everything. There will still be homes that fall through the cracks; damaged properties with toxic mold for example, that will be placed on hold while the lender settles with a knuckle-dragging, insurance company. There may also be a logic explanation for the disconnect that might have more to do with the government regulations that banks have to follow than anything else. But the idea of a Night of the Living Dead scenario, filled with understaffed zombie bank personnel walking the earth while they are doing the best they can under these current challenging circumstances, that umm, that could never happen, could it?
About the Author:
Bob Boog is a real estate broker and author of three (3) books on selling real estate. His latest is called Mortgage Modifications Made Easy. An informative free report on loan modifications for a limited period can be found at his website
posted by Debt Consolidation Loan at
12:48 AM
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