As the saying goes, it was the best of times and the worst of times. Nowadays it might be the best of times to purchase a home if you have the cash but if you're a bank it might be the worst of times to sell. Recently, an appraiser used to searching for comparable sales on the local realtor MLS (multiple listing service) noticed an interesting anomaly on two online foreclosure websites(Realtytrac.com and ForeclosureRadar.com). The appraiser noticed that the numbers of foreclosures on online sites and the MLS database greatly differed.
He discovered that the number of foreclosures posted in Online sites far exceeds the sum of listings and sales found in the realtor multiple listing system. Roughly 70% of foreclosures in the onlines database ARE NOT listed in the MLS system. Why? He reasoned that perhaps 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. Can this be true? Are zombie banks holding back these houses from being sold because the banks are insolvent and can't afford to take the loss? Or is something else happening? Here are three other possible ways to explain the disconnect.
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. Online websites do not differentiate short sales from foreclosures. A short sale takes place when an owner owes more than the selling price, and wishes to sell the property at fair market value. The lender may agree to reduce the principal to help the owner do so, but it takes on average about nine weeks to review and approve a short sale package. During this time to an Online website, the property will be counted as a foreclosure and at the same time not show up in the MLS statistics as either an active listing or a closed sale.
3. Loan Modifications. To an online Foreclosure website, someone trying to modify their loan might appear to be in foreclosure because they may have missed making several payments. The online site will show a property as being in foreclosure even if the lender has agreed to postpone the late payments. And the property will not show up in the realtor's MLS database because the owner has no intention of selling.
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?
He discovered that the number of foreclosures posted in Online sites far exceeds the sum of listings and sales found in the realtor multiple listing system. Roughly 70% of foreclosures in the onlines database ARE NOT listed in the MLS system. Why? He reasoned that perhaps 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. Can this be true? Are zombie banks holding back these houses from being sold because the banks are insolvent and can't afford to take the loss? Or is something else happening? Here are three other possible ways to explain the disconnect.
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. Online websites do not differentiate short sales from foreclosures. A short sale takes place when an owner owes more than the selling price, and wishes to sell the property at fair market value. The lender may agree to reduce the principal to help the owner do so, but it takes on average about nine weeks to review and approve a short sale package. During this time to an Online website, the property will be counted as a foreclosure and at the same time not show up in the MLS statistics as either an active listing or a closed sale.
3. Loan Modifications. To an online Foreclosure website, someone trying to modify their loan might appear to be in foreclosure because they may have missed making several payments. The online site will show a property as being in foreclosure even if the lender has agreed to postpone the late payments. And the property will not show up in the realtor's MLS database because the owner has no intention of selling.
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:
Robert Boog is a Real Estate broker and author of three books on selling Real Estate. His most recent is called Mortgage Modifications Made Easy. An excellent free report on loan modifications for a limited period can be found at his website
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