While the government, federal regulators and large private investors try to work out a plan for mass sales of foreclosed homes, large banks are already making deals, but they are not many, and still not close to having a solution.
The problem is, they are facing even bigger write-offs than they forecasted if they sell these distressed properties in bulk.
According to Rick Sharga of Carrington Mortgage Holdings, a private equity firm, “One of the things that might be holding these bulk sales back is that the assets might not have been fully written down by the banks.” He says that “The problem for the banks is that in that scenario, when they sell off these assets in bulk, they have to recognize pretty significant losses all at once, rather than spread those losses out over a longer period of time.”
Sharga’s company is in the middle of a dealing with a half billion dollar transaction with a major U.S. bank to buy foreclosed properties.
We still have no details about the deal until it is closed, but those contracts are still uncommon, even though there are lots of offers from investors, because the banks would have to assume bigger write-downs on the value of those properties from what was originally thought.
Bank executives will say that these write-downs are taken when the homes are taken back as REO (real estate owned), that is, when they are formally taken back by the lender. That value is based on the current market value of those properties. In certain markets, the bank will probably be able to sell REOs somewhat close to what the market value is. But if they decide to sell the properties in bulk to investors, they will have to give huge bulk discounts, which mean additional write-downs.
The same could be said of any of the bulk programs that the government offers, involving current and future REOs at Fannie Mae, Freddie Mac and the FHA.
An informant said that there was a big meeting last week in Washington, DC about just that. The players included Treasury and HUD officials, representatives of Fannie and Freddie and their conservator, the FHFA, along with private equity investors and housing non-profits.
