Hidden Repossession Property Inventories to Flood Market

Hundreds of thousands of repossession property units are hidden from investors, home buyers and analysts, according to Steven Hagenbuckle, top executive of private equity fund Terracap Partners.

Hagenbuckle said that these hidden foreclosure properties are real estate-owned and are due to be released to the market in the next several months.

From May 2008 to May this year, there were 3,734,711 foreclosure actions filed, according to Hagenbuckle. He said out of these filings, about 985,571 are real estate-owned, which is nearly 27 percent of the total foreclosure filings. Hagenbuckle claims that these REO repossession property units have not been released to the public, while the rest of the foreclosures have been offered for sale through foreclosure listings.

Most banks bundle repossession property units into packages of about 50 units and then offer them for bidding through private channels, according to Hagenbuckle. Typically, these foreclosure properties are sold at a discount of 40 to 60 percent to investors.

But sometimes, according to Hagenbuckle, banks manage the sale of their repossession property units in various areas through foreclosure listings or multiple listing services in these areas. The banks use these foreclosure listings for properties that do not get attention from private investors.

Additionally, Hagenbuckle said, the private investors who acquired foreclosure properties from the banks typically release these units to the market 3 to 6 months after their purchase at much higher prices.

Hagenbuckle explained that large numbers of repossession property units were hidden and are due to flood the housing market in the coming months because the foreclosure moratoriums imposed by state governments, various government agencies and financial institutions distorted the listing schedules of the investors.

For instance, Hagenbuckle said, Florida imposed a moratorium that lasted until the middle of January while Fannie Mae and Freddie Mac lifted their moratoriums at the end of March. California started another three-month moratorium that took effect on June 15.

Several of the country’s biggest financial institutions also imposed and then later lifted foreclosure moratoriums, such as Bank of America, Wells Fargo, JPMorgan Chase and Citigroup.

All in all, if these foreclosure properties are released and added to the market which is already full of repossession property inventories, home prices will fall down further. Based on the Standard & Poor’s/Case-Shiller 20-City Home Price Index, home prices declined in April by more than 18 percent on a year-over- year basis.