New at TWI: Glut of Bank-Owned Homes Ravaging Communities

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The volume of bank-owned foreclosed homes — known as REOs,or real-estate owned properties — is growing at an alarming rate, compounding the foreclosure crisis by sticking hard-hit neighborhoods with vacant and often trashed homes that drive down property values even more. REOs are foreclosed homes that lenders take back after they don’t sell at foreclosure auctions or sheriff’s sales. They keep the homes in inventory until they can be sold again.

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The foreclosure crisis, however, is changing the REO process, with some banks holding off on following though with foreclosures or letting empty houses sit in limbo — where they deteriorate further — instead of selling them. Some banks can’t keep up with the sheer volume of foreclosures. But others are waiting for a better deal from the government for their toxic mortgage assets, avoiding booking losses so they can qualify for more bailout funds, or neglecting homes with little value, some charge – leaving the properties vacant and vandalized. And neighborhoods pay the price for it.

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Some 1.5 million foreclosed homes are expected to wind up as REOs this year, according to RealtyTrac, an online foreclosure database. Prior to the foreclosure crisis, bank REO volume totaled only about 160,000 in a normal year. In January, RealtyTrac already had 68,000 new REOs listed in its database, and the firm expects overall volume to double from last year, said RealtyTrac senior vice president Rick Sharga. REO inventory peaked last year at 900,000 properties in November. “The system is just overwhelmed,” Sharga said.