Shadow Inventory
Shadow inventory are the homes that the banks are holding off of the market in order to manipulate their balance sheets. It is speculated that this “Shadow” inventory is the next leg down in the residential real estate market. On the surface it does appear there is a disconnect from what is listed to what is on the County records. In the weekly Distressed Property Report last Saturday there were 24 forclosed homes in East Bellevue, i.e. those which the bank has taken title, and only four bank owned homes listed in the MLS. On the surface you would think that inventory was being held back. However what is not shown is that some of these homes have a “RIght of Redemption”. This means that after the sale the borrower has the right to buy the property back by curing the deficiency from the loan amount to what the house could potentially sell for. This can tie a property up for up to 18 months.
What I am seeing at the street level is that many of the mortgage servicers are overwhelmed and just are having a hard time handling the volume. When the Glass-Stegall act was repealed the banking industry changed from a branch manager based system to the present “call center” model where everything is handled in out of area call centers. By seeking to auotmate the system and only allowing a person with little authority to cite policy does not allow for the individual uniqueness of each human situation. Short sale approvals that should happen quickly just bog down. Even offers on lender owned homes are not processed promptly if the offering price is not within the 3% of the list price usually allowed by the call center worker. The focue becomes on the process and not results.There are not enough supervisors in the world to handle each of the unique situations. In many cases the notices are automated and the call center worker has no idea of what is going on. In one case I saw everything automated by a computer on a foreclosure and it took a series of phone calls before the institution servicing the loan realized that the loan had been served a Notice of Default and that a Trustee Sale date had been set. Even then it took about three calls and forwarding of the recorded Notice of Trustee Sale to convince the insitution the loan was scheduled for a sale. After the Notice of Default is sent then the loan is transferred to “special credits” and a whole new drill starts. These insitutions are very poorly managed, inefficient and just keep racking up losses for the loan holder. In the name of efficiency and cost they have done just the opposite by being penny wise and pound foolish.
Insitutions such as Chase and Bank of America have a huge resource in their branches. In my personal opinion they should take a lot of the decision making and put it back into the branches, even on loans that have been sold and they are servicing. The branch manage will get to know the individual situation of the borrower. local community. The branch manager also knows the local market and community much better than some call center worker, some of which are located offshore.
Until the problems of “call center” banking are addressed you will continue to have these back logs of back owned homes which seem to take forever to bring to the market.