Is there any way to know how quickly the lenders are attempting to move there REO?

Well, one way to ballpark that is to look at cumulative losses vs. serious delinquencies on these deals. The press headlines the DQ numbers, but tends to ignore the loss figure.

Remember it's not officially a "default loss" until the REO is liquidated and the books are settled. (That's not the same as interim valuation write-downs.)

What the September remittance reports showed is that actual realized losses are still very low. So yes, I believe that the REO is piling up. Bad thing. Very bad thing.

Are the bankers really sitting on the REO because they think the sun will come out tomorrow?

Depends on what you think the "sun" is. Do I think they think RE values will rally? I don't think any of them are that stupid.

I suspect most of this is just operational overload. Because of course our servicing FTE was pruned down during the boom because all we needed were payoff processors.

Some servicers are busy hiring default specialists and REO managers and hoping that once they get staffed up, this will all go away. I suspect some are looking for a vulture bid on their REO so that someone else can manage and market this shit.

But never rule out the power of bonuses.

Count they be thinking of packaging the REOs in tranches ?

Not in tranches; I think that's dead.

But portfolios? Yes, indeed. They're looking for someone to come in and take the stock from them.

The problem is that the buyers--and there are plenty of discount buyers out there, actually--aren't stupid either, and they're waiting for the discounts to just keep coming. Somebody has to pull the trigger, and we have the same standoff between servicers and distressed portfolio buyers that we have between home sellers and homebuyers.

If cutting the sale prices 15% would move the current inventory but create maybe the same number of new even more under water REOs then is there a benefit?

You're forgetting about the tragedy of the commons. Whose future REO might be prevented by slowing down here? Mine? Some other servicer's? Some other investor's?

There is no contest between a noteholder in the hand wanting a payoff and some future REO that might or might not be yours in the bush. They just don't think like that.

If they were capable of thinking like that, they'd have gotten serious about workouts. The best way to prevent more REO in the future is to not take any today. Servicers who barged right into FC without trying to offer workouts (of which mods are only one kind) were not thinking about anything except turning that REO into cash while the prices were still high enough to mean minimal losses. They aren't purposely holding it because they think the market will improve; they'd have tried to keep those loans going if they thought that.

Seriously. Servicers race each other to dump REO into a local market first; they don't try to protect each other. The problem is that even the ones who are getting there first are getting there very slowly.

so those little upcups on the 2000 line are Moody's old codger shakes?...or periods where a few sub-primers move out to Alt A?)

This particular chart is original balance, not current balance, so the slope of the curve isn't affected directly by prepayment volume.

That 2000 line is just what you get in a recession (the rough ride of the 2000 vintage is happening in 2001-2002).

This chart is just subprime.

When you think about the REO backlog problem, remember the discussion we had about mods: the servicer has to use a model that tells it simply what the effect is on the present value of the deal as a whole. If modification, for instance, comes up less than FC, you're supposed to modify.

No servicer is putting assumptions in that model about the future value of future REO, and then making its decision. Once you have foreclosed and the deal owns the house, you are contractually obligated to unload the REO at the best price you can get, as fast as you can get it. The only "ticking meter" that matters here is the noteholder waiting to get principal returned.

If bondholders were forward-thinking enough to want servicers to hoard REO and dribble it out in such a way that doesn't affect the balance of the local RE markets, they would have been smart enough to see the advantage of workout efforts. But too many people were riding too many swap trades and just wanted to see "FC" on the reports.

We can all say any nasty thing we want about Bear Stearns, for instance, and I'll help. But still, remember back in Q1 and Q2 when Bear was trying to buy out DLQ loans from these pools and manage them with its "Mod Squad," and Paulson and the other hedgies had a hissy fit?

Well, how stupid does Bear look now?

I will also note that this is the big problem that the RTC went through back in the S&L resolution days. They got lobbied long and hard by the RE industry to "dribble out" the REO they took over from the thrifts, so as not to flood locales with firesale properties. That was just great, except it cost us taxpayers a fortune because we were carrying that REO. The local homeowners in the bust areas maintained some value, on the dime of the rest of us.

Which way do you want to do it? Nobody's ever solved that dilemma.