Sea Change in California REO Pricing

This is a bad sign for loss severity at our California Savings and Loans:

Banks and other mortgage lenders are starting to deeply discount their “owned” properties – the homes they have foreclosed on – says a report Thursday from ForeclosureRadar...

“A notable sea change occurred in November. Lenders are starting to aggressively discount properties” says ForeclosureRadar founder Sean O’Toole. “We were surprised by the magnitude of the discount and even more surprised that most of the homes went back to the bank with no investor bidding in spite of the price cut.”

In one example cited by ForeclosureRadar, 8215 Shay Circle in Stockton, purchased new in January 2006 for $481,000, saw a precipitous decline in price. The loan defaulted in 2007 and the lender discounted the opening bid at auction in November to $240,000. But even then the home went back to the bank with no investor bids, the report says.

Here is some Credit Bubble Stocks background on default rates and loss severity.

Investors are increasingly walking away from houses:

“More than one-fifth of 6,557 Bay Area properties that fell into foreclosure from January through September this year were owned by investors, according to a Chronicle analysis of public records compiled by DataQuick. Of properties repossessed by lenders, 1 in 6 had been owned by people who had two or more foreclosures in their names. Eighteen Bay Area investors had five or more foreclosures.”