Bank recoveries hit a new record for the second month in a row

Bank repossessions, actual home foreclosure and conversion to REO (real estate ownership), hit a record high in May 2010 for the second month in a row, according to foreclosure experts RealtyTrac. Lenders recovered a total of 93,777 homes, a 1 percent increase from April and a 44 percent increase from May last year.

At the same time, new foreclosure activity declined slightly from month to month (but was still above May of last year). Experts, however, see that small decline as a sign that banks are too busy dealing with old foreclosures to start new ones.

According to Rick Sharga, Senior Vice President of RealtyTrac, “… lenders are focusing on processing bad loans they already have rather than initiating new foreclosures. They are managing inventory to avoid a free fall in home prices.” .

Real estate analysts have long expected that REO owners will be forced to finally deal with this “phantom inventory” of REO properties, some estimate to be in the millions. More than 3 million homes are expected to receive foreclosure notices during 2010, compared to 2009. In May, Nevada continued to have the highest foreclosure activity and Vermont the lowest of the 50 states.

How will banks manage this huge backlog of REO homes? Bank of America is reportedly encouraging short sales and other foreclosure alternatives, but that still won’t prevent the sheer volume of foreclosures coming through the pipeline.

“It won’t be enough to offset all the loans from foreclosure,” says Bob Caruso of Lender Processing Services. “The volume keeps coming in so strongly that short sales will be only a small fraction of the loans that are obtained.”

Additionally, the government’s Affordable Home Modification Program (HAMP), which was supposed to help homeowners avoid foreclosure and subsequent conversion to REO properties, has been shown to only postpone the inevitable. That will lead to more foreclosures in the coming months. HAMP has also tightened its criteria, making it difficult for homeowners to participate due to the program’s high failure rate to date.

All of the above data continues to confirm that REO quotes will continue to rise throughout the remainder of 2010, as well as 2011 and beyond. Almost half of all potential home buyers are specifically interested in purchasing an REO home because of value, and REO sales are expected to be double what they were last year.

More and more REO professionals will continue to be called upon to handle these specialized real estate transactions in the months to come. Training to become an REO agent and learning how to get REO listings will be a great career option, as another recession currently threatens America in the coming months.