Large lending institutions are beginning to benefit from the rise in home prices by selling repossessed properties, or REO’s, at an accelerated rate.
Investopedia explains REO (Real Estate Owned) as “If the property is real estate owned, the bank will then go through the process of trying to sell the property on its own. It will try to remove some of the liens and other expenses on the home, and then try to sell it on the market. Real estate investors will often go after these properties as banks are not in the business of owning homes and, in some cases, the house can be bought at a discount to its market value”.
Institutional investors had backed off the markets earlier this year, due to bidding wars, but have recently shown a renewed interest. CNBC reports that, these investor purchases “represented 7.7% of all home sales in November, up from 6.3% a year ago”.
According to RealtyTrac, sales of bank owned homes accounted for 10% of all residential home sales in November. An increase of 9.1% in October and is the driving factor for the third consecutive month of increases in REO sales.
“Lenders are taking advantage of this environment to unload more of their bank-owned inventory and in-foreclosure inventory at the foreclosure auction,” said RealtyTrac’s Daren Blomquist
Blomquist further states that “as the backlog of distressed inventory available dries up in many of the markets with the most efficient foreclosure processes, namely California, Arizona and Nevada, with Georgia not far behind, overall sales volume is declining and will continue to do so until more nondistressed sellers enter the market.”
“We have seen an uptick in REO offerings, which is a little surprising for this time of the year,” said Rick Sharga, executive vice president at the online auction house, Auction.com.
CNBC reports, that “previously, mortgage servicers had put foreclosed properties up for sale at the full value of the loan, but those usually went back to the bank, as investors sought a larger discount. Ironically, as prices are rising, servicers are discounting the homes more”.
A midst the rush to invest, Fannie Mae has announced it is giving non-investors additional time to review its bank-owned properties before allowing investors to compete. Fannie Mae’s “First Look” program used to give owner-occupant buyers 15 days to make an offer before investors could bid. That has now been extended to 20 days. This could be in an effort to give the average consumers the needed time to secure financing. “The goal has always been to sell to owner-occupants whenever possible,” said Fannie Mae spokesman Andrew Wilson. RealtyTrac puts the all-cash sales at around 42% of the total distressed sales market.