The spillover effects of the subprime crisis into other asset markets may have subsided but those ‘annoying’ subprime mortgages aren’t done making their presence felt in the economy once again.
Holders of subprime-mortgage bonds are flooding the market with foreclosed homes and pricing them thousands of dollars less on average than bank-owned properties. This new dynamic, besides showing an apparent eagerness on the part of subprime bondholders to get rid off the highly-distressed properties, is also driving home values more into the red and putting even more downward pressure on an already struggling sector.
While nationwide figures are scarce, a review of thousands of foreclosures in the Atlanta area shows that trusts managing pools of securitized mortgages sold six times as many properties as banks during the six months ended March 31. And homes dumped by subprime bondholders sold for thousands of dollars less on average than bank-owned properties, the data show.
Experts say this is a bad omen for residential real-estate prices…”While the banks are trying frantically to get loans off their books, they face the problem of large shadow inventories of housing being dumped on the market, which would depress prices further,” said Anthony Sanders, real-estate finance professor at George Mason University in Fairfax, Va.
In the Atlanta area, hit hard by foreclosures and declining home values in the past two years, mortgage-backed securitization entities completed 6,260 foreclosures in last year’s fourth quarter and the first quarter of 2009, according to data compiled by Data Intelligence Corp., a Marietta, Ga., real-estate analytics firm which reviewed the records for The Wall Street Journal. That was more than double the 2,737 foreclosures by banks in the same period.
Of those foreclosures, securitization entities sold 2,963 homes during the same period for an average of 62% of the original loan amount. Banks unloaded just 442 of the homes they foreclosed upon, with an average selling price of 69% of the original loan amount.
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