The REO Urban Legend

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I’m seeing more and more qualified home buyers holding back from actually buying based on the continueing folk legend that Banks are restricting the release of REO properties to avoid a glut of inventory which would drive prices down. The story is that a huge surge of new REO’s are coming to market in the fall and that will be the time to be a Buyer.

I believe this is total nonsense as the Banks have no sensible reason tho do this, and a very strong financial reason to do the exact opposite.

It has always been my understanding that once an NOD (Step 1 in the actual foreclosure process) is recorded the Bank has an official “Non Performing Asset” which must be excluded from their FDIC required reserves, and must be replaced immediately from other assets. This inevitably reduces the amount available for new lending.

If this is so then the Banks are strongly motivated to get whatever they can, as quickly as they can, for any REO properties they hold. The money recieved can then go back into the “Funds Available for Lending Pool” from where it can be loaned out to create new mortgages i.e. “Performing Assetts”. This is how banks make profits.

Can anyone comment on my understanding of this and offer suggestions on how we can counter this market distorting perception.

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