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If you are looking for discounted real estate, you wont find it in the Bank REO market, as inventory is on a steady decline. In fact, yesterday Corelogic reported that Bank REO sales have declined to 4.3% of real estate sales. This marks a steady decline from 2011 when REO’s made up 30% of all sales.

Here is why this trend will continue: Bank regulations.

Banks can face severe financial penalties, in the form of increased cash reserved accounts, when they reach a certain percentage of non-performing assets on there books. To avoid those penalties, banks need to get the non-performing assets off their books.

To get non-performing assets off their books, banks can either foreclose, or bundle up the assets and sell them at an auction. Foreclosure is expensive and takes a long period of time while a non-performing loan sale can be completed in a month or two.

This is why we have record numbers of non-performing loan sales.

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