Many Bank-Repossessed Homes Not in Foreclosure Listings

Mortgage lenders across the country are believed by some foreclosure analysts to have been keeping many of their repossessed homes from foreclosure listings.

According to Rick Sharga, top executive of foreclosure research firm RealtyTrac, there are about 600,000 foreclosed properties nationwide that mortgage banks have not disclosed and have not added to foreclosure listings. Sharga added about 80,000 of these undisclosed repossessed homes represent California foreclosures. If these properties are added to foreclosure listings in one move, there would be further price declines and chaos.

Sharga based his statements on his firm’s recent study of forclosures houses repossessed by banks and foreclosure listings in California and in three other states. The study found that only about one-third of the repossessed properties were listed in foreclosure listings.

In the San Francisco Bay Area, Chronicle contended that more than 33 percent of foreclosure properties in the area are hidden in shadow inventories–the term used in the industry to refer to bank repossessed homes not listed by the banks in foreclosure listings. Chronicle based its conclusion on MDA DataQuick’s study which found that mortgage lenders repossessed 51,602 houses and condo units in the area from January 2007 to February 2009, but posted only 30,823 units in foreclosure listings.

Real estate brokers say mortgage banks typically post their repo homes in foreclosure listings within one or two months after repurchasing the foreclosed homes. These foreclosed homes are usually bought immediately and closed within a month, completing the process of repossessing to registering in the books as resold in only 3 months.

Tom Kelly, a spokesperson for banking corporation Chase, avoided responding to the issue of shadow inventory when interviewed. He said banks are not keen on holding a lot of foreclosed homes and want to sell them quickly in ways most profitable to the banks.

In California, there are about 100 homes in shadow inventory, according to Sean O’Toole, chief executive of MDA DataQuick. The MDA report showed 65.5 percent of repo homes in the 18-month period ended this January had been recorded by banks as resold in March.

Among the reasons listed by foreclosure analysts why mortgage banks are not adding all their repo homes to foreclosure listings are the inability of bank systems to accommodate large volumes of repo homes that they need to prepare for sale, the need for banks to control their balance sheet losses and banks’ recognition of the adverse price impact of sudden addition of thousands of foreclosure properties to foreclosure listings.

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