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Investments / Lending

Bank-held REO inventory drops 44% since 2011

Non-performing loans have also dropped nearly 50%

Bank owned REO sign

In the last two years, private equity firms have spent more than $20 billion on single-family homes, according to a new report released Thursday by national housing activist group Right to the City Alliance entitled Rise of the Corporate Landlord: The Institutionalization of the Single Family Rental Market and its Impact on Renters.

The report, covered by HousingWire here, is critical of the rise of REO-to-rental, in which investors purchase foreclosed properties from banks and turn the properties into rental homes. The following charts measure to which extent the level of bank-held REO is dropping.

The practice has become more common in the last few years, with companies like Invitation Homes and American Homes 4 Rent buying up thousands of homes and selling residential mortgage-backed securities based on the homes mortgages. There have been four RMBS offerings from the two companies in the last two years.

Invitation Homes brought a $1 billion REO-to-rental securitization to market in May, and American Homes 4 Rent launched its first RMBS in May as well. 

The evidence of the impact on the amount of real estate owned by banks can be seen in new data from BankDATAWORKS. According to the report, the total REO inventory held by banks has dropped from $52.55 billion in March 2011 to $29.37 billion in March 2014. That’s a drop of 44%.

Click the chart below (courtesy of BankDATAWORKS) for more information.

Total bank owned REO graph

For single-family homes, the amount of REO inventory has dropped from $10.28 billion to $6.57 billion from March 2012 to March 2014. That’s a drop of 36%.

Click the chart below for a breakdown of REO inventory across various segments, i.e. single-family, commercial, multi-family and others.

Total bank owned REO

Click below to see a breakdown of the drop in non-performing loans. Spoiler alert...it's substantial. 

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