“Banks can hold homes in their inventory indefinitely without taking a loss.”
Not possible, a vacant home that’s not being maintained will always require substantial work when finally sold or made ready to sell thereby costing the bank money. In addition the bank is still liable for any property taxes (annual or otherwise) owed on the home.
I’ve already seen numerous banks lose money on foreclosures in our neighborhood and the house I’m speaking of will be no different.
Another house down the street carried a mortgage of $250,000. When the owner stopped paying the bank foreclosed and evicted him. A short time later (and during the winter) the former owner entered the home and broke off all the shutoff valves under the sinks thereby flooding the home. Nobody knew what was going on until the water started to pour out the front of the home but by then it was too late. The basement was full to the ceiling and the bulk of the ceilings on the first floor had come down. In addition the wood floors throughout were ruined.
After trying to find a buyer for over a year who was willing to pay $166,000 the bank was forced to sell the home at auction and they got $140,000 for it.
The bank lost a minimum of $110,000 (they had to have an environmental company come in to pump the water out) and would have lost more if they hadn’t sold when they did.
Banks cannot hold homes in their inventory indefinately without taking a loss, there are annual taxes and associated upkeep costs that make that impossible.
Sorry but I have seen it differently.
In general banks do not lose money in foreclosure with respect to the value of a house. They take a hit to their mortgage payment revenue stream but not to value.
So their balance sheets remain clean while their income statement and cashflow get adjusted. One way they compensate is by taking advantage of Fed offers of relief.
I know some small banks will occasionally take an actual loss by auctioning off houses. This does happen but overall a bank will ‘manage’ its inventory by holding some and selling some. They will base their decision on how it affects their balance sheet first before their income statements because their income is often highly dependent on the Fed or member banks of the Fed that serve as intermediaries.