In today's real estate market are the banks land rich and cash poor?

Question

I have heard horrensous stories about how many forclosures there are and i know myself by the house values and purchasing prices differing so much, that it is a buyers market. It seems like we are in a depression?

Answer 1

As the previous poster noted, LTV may mean nothing down the rouad since so many properties may not hold value if the market goes south. That is a concern facing banks and the anticipate 3 in 10 of properties going into foreclosure. Banks that will fair better are those that offered largely conventional products. Even if LTV means squat, the borrower in the property may still able to service the current debt. Some banks might offer borrowers an opprtunity to pay down the debt to a more conforming LTV in exchange for a discounted rate. But for non conforming lenders who offered primarily creative type deals, will be hit pretty hard....

To mitiagte losses from R/E, many banks are re-aligning their portfolios.

Answer 2

First, very few banks hold on to the majority of loans they originate. Most residential loans are sold to the secondary market. The secondary market is made up of large investment companies that buy pools of loans that conform to Fannie Mae standards. They pay the banks and mortgage brokers a fee to take over the servicing rights to their loans. So, in answer to your question, no, banks are not land rich and cash poor. Even though foreclosure rates have risen, they are still not in a danger zone. We are not in a depression. Employment rates are high, interest rates are low, the economy is growing at a controlled rate. Real Estate values are being corrected in some locales due to hyper activity that pushed sale prices above real values. If you bought at the end of this market, you'll just have to be patient and wait until wages catch up with values. It will happen, it always does.

Answer 3

There is a definite increase on the inventory side for many but a recession? I don't think so. There are nowhere near the same inventory levels there were in the last down market of the early 90's in which home builder inventories hammered resale values.

Instead, this time we have pullback on resale values. I would consider it normal pullback for the run we had. In southern California homes more than doubled in a 4 year time span in south Orange County. A home that cost $400,000 in 1999 appraised for $1,100,000 in 2005! Now thats a HUGE jump. These same homes have pulled back to about $800K...you might say OUCH...thats a big pull back...are we in a recession? Too many other economic fators that lend to that conclusion. This guy still saw his home double in 5 years.

I write a blog on the subject of credit management, mortgages, real estate trends, etc. Check it out for more information that may be helpful.