Patty Manzi's Tri-Valley Real Estate Blog

I’ve heard it, you’ve heard it, many people in the real estate industry are talking about it.  The banks are sitting on this huge reserve of foreclosed homes that are going to hit the market all at once and take down what’s left of our economy!……..  ~NOT! ~ Its a myth.

Last February, HUD instituted the Home Affordable Modifications Program (HAMP) which would allow a borrower to contact HUD and apply for a loan modification.  Many people jumped immediately on this opportunity, however, many banks did not have guidelines in place to be able to service the requests.  So the requests piled up until the banks were on board with the property guidelines.  Once the guidelines were received, banks were able to proceed with the modification request and there are many currently in process.

What one must realize is that the modification request is just that – a request.  There is a three month ’trial  modification period” where the borrower does pay a reduced amount on their mortgage.  It is during this trial modification period’ that the bank has to review all of the borrowers financial inforamtion to determine if they qualify, and if they qualify, they are subject to underwriting review for approval.  

The myth of the banks sitting on these reserves comes from the fact that many modifications were delayed from the beginning because the banks were not prepared with the proper guidelines, thereby delaying the beginning of the trial period.  This created an over abundance of  mods to process when the banks finally got up to speed.  The borrowers that will not be granted a modification may lose their homes to foreclosure if they have no other option.  And those homes will be hitting the market .

Yes, there may be alot of them hitting the market at the same time, but not becuase the bank is holding onto them for some arbitrary reason. Banks are required to sell all foreclosed properties to repay their investors.