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The following theories and conclusions (aka opinions) are based on my own personal observations.

So, for the last 2 years, I have been noticing a trend in my neighborhood (a neighborhood that is/was riddled with foreclosures and short sales). More and more, I have been noticing that neighbors who are not current and have not paid their mortgage in at least 9 months (some close to a year) still have not been officially "foreclosed" by the bank. In fact, one house that is a few doors down, sits vacant because the owner strategically defaulted and walked away almost 1 year ago. However, all that is happened to that house is the bank has sent someone over to change all the locks, repaint certain interiors, and put a lock box on the doors. The house has NO sign of having been foreclosed other than a montly visit by caretakers who spruce up the yard, cut the grass and take care of odds and ends. In fact, the house even remains in the old owner's name according to property records, even though he has stopped paying and has not been to the property in almost 1 year.

Back when the housing bubble burst in 2008, a house like this would have been quickly labeled a "foreclosure" and put up on the market (signs and stickers on the house would have immediately given away that it was a foreclosure). Today, this house sits vacant with no signs (other than the ones mentioned) that it is in the bank's control. It's not even listed for sale yet. It may not have even gone through the process of being transferred to the bank's name yet.

A few doors down from this house sits another house where the owner occupant refuses to pay his mortgage. It's been going on for approx. 9 months and the owner has accepted that they will eventually be foreclosed, but as of right now, they are just waiting patiently and living for FREE!

Presently, there is only 1 home (that is a foreclosure) listed for sale in the neighborhood. This home has been on the market for the better part of 6 months. It's paltry asking price is 1/3 of what many of the homes would be valued at if the foreclosure was NOT on the market. Normally at this time of the year, there would be at least 4 - 5 foreclosures in listed for sale in my neighborhood alone. However, oddly enough, there is only 1 for sale.

After talking with a few agents who sell homes in my city, I realized that short sales are taking over 1 year to close in some cases and it's not unusual for the process to drag out over 9 months in most cases.

What's more is that a lot of homes that are currently on the market (foreclosures, short sales, etc.) are receiving multiple offers on the lower end of the market, sometimes exceeding the asking price by about 10% and still not closing for another 9 - 12 months (this is true esp if it was a short sale).

In fact, I would say that there are more short sales these days than there are foreclosures (which is very odd).

Based on all of this, I have concluded that banks are engineering a stealth shadow inventory of homes by NOT foreclosing on homes as rapidly as they once were, thereby giving the market a sense of a rebound and a false sense of urgency to buy now before inventories dry up. They are prolonging the short sale process by taking longer to review short sales and in some cases out right rejecting the short sale only after months and years have passed. This in effect takes the property "off the market" during the review process and further drives up bids on the properties that are still listed for sale.

Foreclosures are being stalled (at least the official bank control of houses that have been abandoned). These empty homes remain empty for the better part of 12 months and remain "off the books" of the bank by remaining in the previous owner's name until the bank is ready to put the house up for sale. The banks are controlling how many houses they put up for sale (again to give the appearance that inventories of foreclosures have dried up). Where before they would have 4 foreclosures on the market at any given time, they now only have 1 (even though there may be 3 or more ready to go up for sale).

For deadbeat homeowners, they are allowing an owner to remain in their homes much longer than before even if he/she has stopped paying the mortgage. This again keeps the inventory at bay and creates the illusion that there are NOT that many homes available for sale.

For short sales, they are dragging out the process and allowing homeowners (some of whom are no longer paying their mortgages) to remain in the house while they play the "review" game and take an abnormally long time to approve or reject a sale.

And to top all that off, agents are now encouraging buyers who are in the market (most of whom are speculators and investors who are buying up a "portfolio" of homes with the expectation of a rebound) to bid more than the asking price of a house to ensure the closing of a sale. Some neighborhood listings have 1 official foreclosure and 5 short sales. Almost all go into a "pending sale" or "pending lender approval" status within a few days of being listed. Some (I would say a majority) return to market a few months later for not having closed for a bunch of reasons. When they do return to market, they may be listed at a slightly higher price (or lower price if the sale was too high to begin with). The listing agents take longer than usual to return phone calls or inquiries into bank controlled properties (again building a false sense of urgency in the under-educated public).

We've returned to the days where a "credit" bidder is bidding against a "cash" bidder. The credit bidders are over bidding for properties they would never be able to afford under normal circumstances and will probably end up strategically defaulting some day in the not too distant future (if given the chance to close).

It is my opinion that banks want cash buyers, but they are entertaining credit bidders in an effort to inflate closing prices on their properties and get cash buyers to pay more for the property.

Welcome to the new bubble.

Buyer beware!


With QE infinity, expect a lot more bankster games in the near future.

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Big banks rigging the market? Nahhhhh...

I dunno, I don't really buy it.

The scenario you describe would mean that big banks are colluding on a local level, which would require far more coordination and competence than any bank I've ever dealt with has demonstrated. Furthermore, what incentive do the banks have to collude? Sure none of them want to flood the market, but they're cutting into their own profit margins to potentially allow a competitor to unload their toxic properties in exchange for the hope and promise that they'll do the same. I don't think they'd go for it.

I do think they collude at a national level, CEOs meeting behind closed doors and all that. But at a local level, no.

Here's another question. You say that they are keeping these houses off the books, so to speak, by not repossessing them, which is certainly true, but how is this better for the banks than holding toxic loans?

It is happening the same way you explained here in Central FL. But for all those homes they keep of the books and the owners have stopped paying, they still have to cover taxes, insurance and HOA. In the short term there is cost associated with those fees and upkeep, but I figure it is better for them than to be loosing 100,000 to 200,000 per home if this homes go to market.

Most cash buyers in this area are offering 60,000 to 75,000 for homes appraised for 100,000 to 130,000, that went for more than double from the current appraised price during 2005-06. So more than really a collusion, you have different banks thinking the same way without agreeing to do the same.

MilleniumBuc said:   ..So more than really a collusion, you have different banks thinking the same way without agreeing to do the same.And this can easily be precipitated by underwriting requirements. It's not as if your local bank keeps the mortgages they write.

Here in NYC and the burbs there are multiple offers on properties already. Mortgage companies have tightened the eligibility
criterias and yet - prices are being bid up. Unemployment is quite high in the area as well - it's a mystery to me - how the
hell properties are being bought and by whom?? I must be far off that QE3 vein... way way off...

they call it a healing process

New scam I read about that's going to be voted on in Florida is to expand Homestead exemption to investors, basically cost-shifting the tax burden from investors over to private home owners. I didn't read specifics but it has to do with offering property tax breaks to people who own 2nd or 3rd homes at the expense of raising taxes for people with only one home. Of course, it's not being mentioned as a tax increase but the lost tax revenue has to come from somewhere.

Put your $$$ with your blog.

Not to pick on the OP, but it's always a crapshoot when one tries to gauge macroeconomic trend by personal observation. Add on that your preexisting basis and you get the prefect science of reading the tea leaf.

There's not much in your observations that I would call new or changed behavior. Especially regarding agents. They always want buyers to bid high. Slow to return calls about bank owned properties? Just look at your own observations - these can take a year to close, but more often just fall through after a few months. If you were paid on commission, those would be bumped to the bottom of your priorities every time too.

vstrt said:   Today, this house sits vacant with no signs (other than the ones mentioned) that it is in the bank's control. It's not even listed for sale yet. It may not have even gone through the process of being transferred to the bank's name yet.

These empty homes remain empty for the better part of 12 months and remain "off the books" of the bank by remaining in the previous owner's name until the bank is ready to put the house up for sale.

do you think the banks have some magic power to delay the recording of a sheriff's sale and subsequent transfer of ownership?

banks initiate foreclosure...owners often fight it or delay it for months or even years...then once it becomes the bank's again, they still have to wait for the sale to record, which can take 2-6 months, depending on where you are.

i bought 3 REO's in 2011, 2 of which I had to wait about 4 months EACH for the previous sale to be recorded before i could close. banks MIGHT be just waiting it out, because prices are increasing and they might get more 4 months from now (and it'll close at the same time anyway)

vstrt said:   Based on all of this, I have concluded that banks are engineering a stealth shadow inventory of homes by NOT foreclosing on homes as rapidly as they once were, thereby giving the market a sense of a rebound and a false sense of urgency to buy now before inventories dry up.
It is certainly true that they are not foreclosing as quickly, but the reason is not to "engineer a stealth shadow inventory".

Banks know that foreclosing in an area already rife with homes for sale will usually lead to the home sitting empty for a long time. This is turn leads to the property losing value due to lack of maintenance and the possibility of looters or squatters. The bank in many cases is better off letting someone who defaulted live there for free, and hopefully do at least basic upkeep and maintenance, until the market improves.

In some cases this strategy still results in vacant homes, such as the one you mentioned. Even then, the bank may be better off not being the owner of record. If someone gets hurt on the property and sues the property owner, or the city has to mow down weeds and bill the owner, or anything similar, then the bank would rather such headaches land on the defaulting owner, not the bank. The longer the house is likely to sit on the market, the more likely that foreclosure will be detrimental to the bank.

Some of my thoughts on how the rebound or normalization is going to occur - a bit of a counter

The interest rates are so low that it is driving a demand for real assets.

Inflation of raw materials is getting to the point where people cannot put a new house up for less than 120%-140% of the current properties avaialbe. This shifts the buyer pool of potential builders to buyers into existing homes.

Jobs are going to rebound but in different sectors, it will take time for the intellect trickle to come through but many of those who went back to school for disciplines that are in demand, around 2008-09, will be coming onto the workforce and will want housing.

More and more quantitative easing is being done to prop home prices at any cost in addition to programs that seem to sprout up each month to give people the opportunity to refi ect...


Ov course there may be regions that never spring back but in general I think we will see good things over the next 5-10 years.

JTausTX said:   I dunno, I don't really buy it.

The scenario you describe would mean that big banks are colluding on a local level, which would require far more coordination and competence than any bank I've ever dealt with has demonstrated. Furthermore, what incentive do the banks have to collude? Sure none of them want to flood the market, but they're cutting into their own profit margins to potentially allow a competitor to unload their toxic properties in exchange for the hope and promise that they'll do the same. I don't think they'd go for it.

I do think they collude at a national level, CEOs meeting behind closed doors and all that. But at a local level, no.

Here's another question. You say that they are keeping these houses off the books, so to speak, by not repossessing them, which is certainly true, but how is this better for the banks than holding toxic loans?


The collusion would not necessarily be with the banks locally, but could be with the guarantors on the national level. Fannie, Freddie, HUD, etc. may all have their own systems for foreclosure and short sale in place. They are the ones pulling the strings. But behind all of them is now the Federal Reserve who is buying mortgage backed securities (i.e. QE Infinity).

Either way, whether there is collusion or not, they are certainly behaving in a manipulative manner in my neighborhood and city.

The manipulation in and of itself is bad enough. But to pawn off the manipulation onto another generation of unsuspecting buyers is just insane and crazy. It seems the game plan here is for perpetual manipulation because as soon as this new generation default and get foreclosed, they will need another round of manipulation to keep the shirade going.


It makes sense. With interest rates so low, there is little incentive for banks to move to liquidate these properties, especially when doing do would flood the market and sharply lower sale prices. If interest rates were 8%, it would be a totally different story. The banks are just adapting their game to the artificial economic controls put in place by the fed.

If I had to wager between a brilliant strategy by the banks to ensure they are able to rig the market for the most profitable results, or complete ineptitude to process paperwork and make a decision in under a year.....my life savings would be on the latter.

F the banks. No bank has cared about the actual occupants of these properties since George Bailey closed his savings and loan. They look for every angle to exploit and turn a profit, and so should we.

Say's law:

Economists of the Austrian School, notably Ludwig von Mises, have linked these fluctuations in business cycles to the creation of central banking and its monopolized control of fiat money and prime interest rates. In their view, credit expansion, with central banking / Federal Reserves altering interest rates beyond what the free market would normally bear leads the market into malinvestment. This malinvestment creates the boom and bust bubble cycle, particularly in long-term sectors of the economy, such as in the recent United States housing bubble which has been linked to the Federal Reserve money/credit expansion of the 20012004 period (which itself was an emergency response intended to add liquidity into the market after the dot-com bubble collapsed).[8][9] According to laissez-faire economists such as Friedrich von Hayek, massive waves of unemployment, as in economic recessions and depressions, can be traced back to state intervention in the market, which effectively blocks the natural balance in means of production achieved through Say's law.

Here in Northern Nevada, various investment companies are buying up hundreds of homes all at once at cheap prices. This is causing home prices for regular people to rise. I read recently of an investor that had bought thousands of acres of land, including hundreds of homes, all in one transaction for a bank. They are then sitting on the houses causing an artifical shortage of homes. If there is a buck to be made, people will find a way.

my house in florida hasnt had a mortgage payment made in 2.5 years. In forclosuer in court but still in my name. I dont know per se if banks are doing thjs to create a sense of urgency ... more just not enough ppl to OD the work and lack of the bank wanting to pay the lawyer fees.

vstrt said:   This home has been on the market for the better part of 6 months. It's paltry asking price is 1/3 of what many of the homes would be valued at if the foreclosure was NOT on the marketIf its price is so low, why has not anyone grabbed it? Or it much smaller than the other surrounding homes?

Lets not forget that any foreclosure that happens by the end of the year, the difference to make up the negative is not taxable. But resuming next year, once the law sunsets, if not extended, those will be considered taxable gains. I don't know how the banks have a money making angle on that, but the if there is, they probably already know it.

I am seeing the exact opposite here.

New construction has started to make a comeback. At a pretty good pace.

Short sales don't sit on the market long, the rental market is strong.
New construction homes also don't sit on the market long. I've seen companies open new neighborhoods and before the first house is finished 4-5 lots have been sold. In the completed projects 95% of the homes already have a sold sign on them as well.

So Company A has an inventory of Product B. Rather than selling all of Product B at once they carefully release inventory to maintain a higher price. Company A makes more money due to higher sale prices.

How does this not apply to almost every other company in existence? Why are the "evil" banks the exception to this rule?

If you want to see the scope of the issue in your area, search Zillow with only foreclosures in the filter. It will show current foreclosures and foreclosures not yet for sale. It is eye opening to say the least. There are a lot of homes that are in the process of foreclosure but off the market.

I hate my neighbor.. she's been squatting on and off for 3 years. The house was listed in the bank's name for a year, now it's back in her name. I really, really hate how banks are allowing this behavior so easily. Honest people always take the hit.. Son of a..

Good obeservation and very detailed. But sounds like a conspiracy theory.

Is this really surprising? The government and federal reserve are trying to recreate the precise conditions of the housing bubble. They see reasonable housing prices as a problem, not a solution. If they had their way we would have the hyper inflationary housing price increases from 2002-2007.

When we bought our house, it didn't show us as owners on the PVA website for several months. Unless Op is watching actual upcoming property auctions this may be the case. I find it unlikely that the bank is doing any work to the house, even the exterior, without having official claim to the property.

Short sales are almost always priced below market, and below what they expect as a final offer. Because they're underwater the bank is going to get every penny of the sale price anyways. Short-sales are sometimes more of a "Reserve Auction". They see who offers the most then tries to get the bank to take it.
Even if this wasn't the case, people sometimes price below market because it creates competition between interested buyers, and can create a higher final price.

americano said:   Good obeservation and very detailed. But sounds like a conspiracy theory.
Agree.

Banks are slow to foreclose because they are overwhelmed. With the volume of requests, and with tons of lawsuits (and new laws) surrounding foreclosures ... robosigning, problems with MERS, various state requirements that may not have been met. Also, there are Attorney Generals investigating and eyeing the banks closely. So, the banks are being a bit more careful with their process; meanwhile lawsuits are stopping or delaying some foreclosures.

Banks don't want to own homes. As soon as they have them, they are liable for property taxes, HOA/COA dues, maintenance/winterization requirements, following city bylaws and fines, liability for accidents, squatters, vandalism, eviction, damage and so on. None of these things are good for the ROI.

Can confirm same behavior in NY. But in NY the ultimate welfare tax anyone who works to death state it takes almost 2 years after you stop paying to foreclose and if there is no equity the bank will take there sweet time and or the deadbeat can play all kinds of games with shortsales and HARP ect to stay even longer. But at end of the day it's simple, once bank forecloses the loss has to be realized, so rather then do that .gov changed rules so bank can basicly keep a dilapidated house with mold and water damage that has been abandoned for years on the books at mark to fantasy price. I think the most sinister part of this is that if you have anykind of equity the bank will come after you like a rabid dog, so basicly they reward the deadbeat with mortgage free tax free living for years, and the guy who has been paying on time for a decade and may have had some bad luck will get thrown out as quickly as possible....

"Buy now or be priced out forever" has been replaced with "Buy now or you won't get a good rate on the loan". Wonder what will happen to housing demand once rates start rising.

What state are you in OP?

There are judicial and non-judicial states. Banks need court approval to foreclose in judicial states, whereas in non-judicial states, foreclosures usually are processed without court supervision.

This could have something to do with your perception of "stealth shadow inventory".

Could it not be that banks are so backed up with loan processing they are concentrating resources on new loans and not losing on foreclosures?

The average cost to the to foreclose is 50K per house on average. Course that is with EVERYTHING done by the book. So as I do agree with OP about a shadow market. The banks aren't in a hurry to pay 50K if the house won't sell quickly. In very nice neighborhoods where houses are still selling quickly. Believe me the banks are hurrying to foreclose.

In Detroit for example, there's thousands of houses abandoned but not foreclosed. Some owners are pleading for the bank to foreclose. The banks won't foreclose in these bad areas of Detroit because theres not a prayer of selling them. So the owners although they abandoned these houses for a couple years or more still owe property taxes.

While it is possible and plausible that banks are slowly marketing the shadow inventory, some of the points you make in your post do not make sense.

1. House is foreclosed, but property records still show the old owner. That means the house is NOT foreclosed on,

2. Banks keep the bad properties off their books. Hmm. Once the mortgage goes 30,60,90 days unpaid, I think that loan has to be marked as distressed. At that point, the bank has to write some loss off that loan. It does not matter that they have foreclosed or not,

3. Have you thought about the possibility that some banks don't have enough staff to push the foreclosure pipeline forward. I know recruiters in some top banks, and they can't hire loss mitigation people fast enough. You need a lot of people: (1) reviewers of loan modifications, (2) decision-makers for foreclosures, (3) short-saler reviewers.

4. Is your state judicial or not? Maybe foreclosures are harder to accomplish from legal point of view in your state?

5. Private investors are not stupid. Just because the bank wants to squeeze more money does not mean that cash paying private investor is going to pay that much. The cash paying investor has a dominant strategy: if future cash flow exceeds his rate of return on capital, then buy. Otherwise, hold.

tolamapS said:   While it is possible and plausible that banks are slowly marketing the shadow inventory, some of the points you make in your post do not make sense.

1. House is foreclosed, but property records still show the old owner. That means the house is NOT foreclosed on,

2. Banks keep the bad properties off their books. Hmm. Once the mortgage goes 30,60,90 days unpaid, I think that loan has to be marked as distressed. At that point, the bank has to write some loss off that loan. It does not matter that they have foreclosed or not,

3. Have you thought about the possibility that some banks don't have enough staff to push the foreclosure pipeline forward. I know recruiters in some top banks, and they can't hire loss mitigation people fast enough. You need a lot of people: (1) reviewers of loan modifications, (2) decision-makers for foreclosures, (3) short-saler reviewers.

4. Is your state judicial or not? Maybe foreclosures are harder to accomplish from legal point of view in your state?

5. Private investors are not stupid. Just because the bank wants to squeeze more money does not mean that cash paying private investor is going to pay that much. The cash paying investor has a dominant strategy: if future cash flow exceeds his rate of return on capital, then buy. Otherwise, hold.
I think your analysis is inaccurate because you are failing to account for these bundled mortgages the fed are buying at a rate of $40BB per month. Do you think the banks are selling the fed their highest quality note bundles, or their most distressed bundles? At the end of the day, the fed will hold the notes on virtually all the real estate in the country if they continue this QE infinity for about 25 years. So who takes a loss when your mortgage is owned by the fed and you default? Absolutely no one.

I see one major flaw in your argument. You don't take into account people purposely sabotaging the foreclosure and short sale processes to enable them to live rent free for longer. This could explain why people are able stay in their homes 1, 2, or even 3 years without making a payment. There are some really interesting strategies that people are using, just search for the HAMPster Wheel Game.

Skipping 82 Messages...
I have made two offers in the Chicago area in the last month, for asking price plus 5-8% typically. All offers went to asking + 10-15% above, to mostly cash investor offers.

The inventory shortage has raised prices of 2BDRM 2BATH condos 100K in some cases over the last 6 months. People are beginning to charge 25-30K for parking spaces downtime now, whereas they have been thrown in during the last 4 years.

Welcome back bubble, welcome back.



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