Banks Taking Bigger Losses on Foreclosures

From The Wall Street Journal:

Stuck with a growing glut of foreclosed houses, banks and investors are shedding them at increasingly steep losses, potentially adding to the banking industry's red ink this year.

Banks are selling foreclosed homes in some cases for less than half the price they fetched two or three years ago. The cuts are coming as the U.S. banking sector, slogging through its worst crisis in decades, bites the bullet out of fear that prices will keep falling. ...

The steep losses on sales of foreclosed homes are painful for banks and investors in the short run but should help clear the backlog. That would allow for an eventual recovery of the housing market and clean up the banks' balance sheets. ...

Banks and investors have grown more leery of the rising costs of holding onto vacant homes. Along with such expenses as insurance, lawn care and maintenance, banks are being hit with higher costs for complying with local regulations applying to vacant homes. ...

The pain may get worse before it starts to ease. A recent report from Barclays Capital estimates that there are 721,000 bank-owned homes nationwide, up from 112,000 two years ago. Barclays expects the total to rise 60% more before peaking in late 2009.

Financial institutions are acquiring homes through foreclosure much faster than they can sell them. Fannie Mae, a government-sponsored mortgage investor, disclosed last week that it acquired 44,071 homes through foreclosure during this year's first half but sold only 23,627, leaving a balance of 54,173 as of June 30.

Fannie said it is opening field offices in California and Florida to try to speed sales of such homes and is evaluating offers from unidentified parties interested in "bulk" purchases. ...

Local governments are adding to the pressure on banks to sell foreclosed homes faster. Providence, R.I., recently imposed a property-tax surcharge on vacant properties to discourage banks and others from leaving them empty for long periods. Many cities now require banks to register the vacant homes they own and pay registration fees ranging from about $50 to $1,000.