Mortgage lender REO count grows

Recent statistics, especially on sales numbers, have instilled some optimism among consumers that the distressed real estate market is about to bottom out in many areas of the country. Maybe it is and that would be a welcome boost for the industry, and also for the beleaguered mortgage lending community. On the other hand, though, perhaps a few more tough months lie straight ahead.

That is what First American CoreLogic, a research shop from California, is indicating in its latest foreclosure report compiled from bank and county sources. Investors in home loans and mortgage lenders together had in their books roughly 660,000 homes by April when the count was 493,000 in January. And in January of 2007 the number was a paltry 231,000. This spring the pace has clearly accelerated and throws a grayish cloud over the hoped-for recovery.

Las Vegas has experienced a moderate increase in home sales in the last few months thanks in part to lenders aggressively dropping prices on their REOs, or real estate owned. Similar trend has taken hold in other hard-hit areas across the land, too. By doing that, the theory goes, it's better to lose a little if values keep decreasing than lose a lot by holding onto the vacant, money-losing property.

Some mortgage firms have read the tea leaves differently. To minimize losses, or even avoid them altogether, they have actively sought out homeowners in distress to work out something so that they can stay in the house. The idea is to completely bypass the REO scenario. Making the loan terms more palatable could solve the problem, or stretching out the payment period might fix it. This approach appears to be more of a win-win nature to both sides, but for some reason it isn't used as much as many would think.

One good thing coming out of the assertive price-cutting alternative to REO sales is that this way a realistic, lower housing value plateau for the area is reached faster. From all appearances Las Vegas seems to be following this route. When median household incomes and real estate prices settle to a workable range the market will cure itself and return to normalcy.