Ghost REO inventory. Where is is?

I went to the California Association of Realtors (CAR) convention in Aneheim last week. In my last blog I shared with you Leslie Appleton's real estate market forecast and hope the information was interesting to you. I also sat in on a REO/Distressed property session and remembered a comment that really was helpful in making sense of the ghost REO inventory that we hear about. What is ghost inventory? It's the hundreds of thousands of properties that have been in the foreclosure process, but for one reason or another the banks have not yet completed the foreclosure process which is the trustee sale.

You hear about ghost inventory quite a bit, but you really don't hear about why the banks may be holding off on the trustee sales. The session I attended shed some light on this question! Once a bank disposes of an asset/liability they are required to show this gain/loss on their financials. If a bank forecloses on a large number of properties in a given month, their books would show a tremendous loss! Stockholders would be very unhappy don't you think? So, what have the banks done to prevent this? They have regulated the homes that have been sold at a trustee sale so that they wouldn't show a over zealous loss in a given period.

What does this mean to you and me? It might give us a little bit of better understanding on why a bank may hold off on the trustee sales or not agree to a short sale. One bright side to the story is that regulating the number of foresclosures has created a bit of stability in the market. On the other hand, this behavior will extend the period of time we will see distressed properties as a significant force in our real estate market. Any thoughts? Let me know. Thanks, Crista :)