Those pesky subprime mortgages aren’t done tormenting the economy.
Sure, the waves of subprime foreclosures have subsided, but now those homes are held by subprime bondholders, and they’re eager to wash their hands of the highly-distressed properties:
WSJ: While nationwide figures are scarce, a review of thousands of foreclosures in the Atlanta area shows that trusts managing pools of securitized mortgages sold six times as many properties as banks during the six months ended March 31. And homes dumped by subprime bondholders sold for thousands of dollars less on average than bank-owned properties, the data show.
“While the banks are trying frantically to get loans off their books, they face the problem of large shadow inventories of housing being dumped on the market, which would depress prices further,” said Anthony Sanders, real-estate finance professor at George Mason University in Fairfax, Va.
All this “shadow inventory” represents a huge overhang for the market, and it’s one reason that current housing stats ought to, perhaps, be taken with a grain of salt.
The one word to keep in mind here is “capitulation”, which can be really overused especially if you’re watching TV about the stock market. But home investors of all stripes do seem to maintain irrationally high expectations for what they can sell their house for — frequently concluding that they’re entitles to profits no matter what. That too is shadow inventory, since it represents people who would otherwise like to be selling.
In the Atlanta area, hit hard by foreclosures and declining home values in the past two years, mortgage-backed securitization entities completed 6,260 foreclosures in last year’s fourth quarter and the first quarter of 2009, according to data compiled by Data Intelligence Corp., a Marietta, Ga., real-estate analytics firm which reviewed the records for The Wall Street Journal. That was more than double the 2,737 foreclosures by banks in the same period.
Of those foreclosures, securitization entities sold 2,963 homes during the same period for an average of 62% of the original loan amount. Banks unloaded just 442 of the homes they foreclosed upon, with an average selling price of 69% of the original loan amount.
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