Banks find new know-how for marketing REO properties

Banks are not in the real estate business – this is the theory everybody knows, but the real estate market meltdown in the recent years has proved it to the banks more authoritatively. The foreclosure fiasco and the resultant heavy load of repossessed properties by lending banks have taught a bitter lesson to these financial institutions.

While the real estate boom was in existence between 2000 and 2005, banks diverted their funds mobilized through public deposits, in granting extravagant home loans through prime lending. They were blissfully hoping that the soaring property prices will go on forever and the interest income through these loans for 15 to 30 years was a hard one to forego.  Worse still they had the influx of funds from investors in other countries as well.

But once the housing markets started dipping and delinquencies were the order of the day, they found a large number of properties sitting as “deadweight” in their books in the form of REO – Real Estate Owned – properties repossessed by them. Added to their pressure was withdrawal of foreign funds all at a time, seeing the worsening situation of US housing markets.

At first the lending banks were not ready to compromise on the asking price of these REO properties. Now after two years the number of REO properties with banks has touched a record high, according to authentic real estate sites and there appears to be a changing trend. In the latest quarter ended March 2010, as many as 257,944 properties were repossessed by lending banks – an increase by 9 percent from the quarter ended December 2009 and a staggering 35 percent increase compared to the first quarter of 2009.

There is also a spectacular change in trend – nearly one-third of home sales represent properties in all stages of foreclosure – pre-foreclosure; scheduled foreclosure auction and REO properties after the public auction – in the first three months of this year.

This has become possible by the new-found know-how of supply and demand by the lending banks. They are no more strict in keeping the asking price of REO properties and the discount offered are up to 50 to 60 percent off the previous high values. Waiting for 30 to 60 days watching the market and then selling at a compromised price is only augmenting their losses ultimately. Real estate experts say that the overpricing of properties only leads to driving the first-time buyers and investors away.

Be Sociable, Share!

•