By withholding thousands of these non-performing assets, banks have recently been accused of manipulating the real-estate market and artificially boosting REO prices. This together with tales of outrageous bidding wars over REOs has many questioning the legality of this “rigging” strategy and whether bank owned properties still make good investments.
What’s Wrong with Price-Fixing by Banks and Mortgage Institutions?
Of course, if anyone else tried manipulating the inventory of a resource and collaborated to fix prices they would end up on the wrong end of an investigation and could face heavy penalties or jail. Not these corporate giants, of course. They have already daintily sidestepped involvement in massive mortgage fraud, blatant foreclosure fraud through “robo-signing,” and even rigging prices at foreclosure auctions. So, why wouldn’t they play similar games when it comes to unloading REOs? They’d be minimizing losses on these non-performing assets banks that are flush with and concealing how ugly their balance sheets really are. In addition, for the individual agents involved in some of these “bidding wars,” the greed is just too much. The more the properties sell for, the bigger the commissions they get, and the more likely they’ll be fed listings.
What’s All the Fuss About?
Maybe you can’t blame them for the current strategy for dealing with these non-performing assets, but banks and mortgage institutions are holding so much shadow inventory back that it is clearly prolonging the situation, damaging confidence, and holding back investment and the availability of borrowing. Some may say pumping up prices and controlling inventory is better for the market, but that only really works until the true amount of distressed property lurking out there is leaked. And that’s already occurred.
What’s the Solution for Real Estate Investors?
Some have playfully touted the idea of boycotting some of the larger institutions, though there are clearly so many funds out there desperate for distressed properties that they almost have no choice but to buy them. Getting everyone on board would never happen.
However, supporting them and buying these non-performing assets banks are holding only fails to make sense if the numbers on the individual deals don’t add up.
If you can buy notes or REOs at attractive prices and rent for profit or flip them, it doesn’t matter. However, those with the right tools can avoid bidding wars and not just get better deals, but don’t have to feel taken advantage of by targeting off-market REOs and distressed property notes.