Lenders with Most to Lose from Super Storm Sandy

When super storm Sandy rocked the northeast in late October it left many homeowners with destroyed or damaged homes.

Some of those owners were banks who owned foreclosed homes, also known as REO (Real Estate Owned by the lender).

These banks likely will not engender the same type of sympathy as homeowners like Lou Forst, a RealtyTrac customer who last year purchased his dream vacation home on the coast of New Jersey as a short sale only to see that home sustain tens of thousands in damage from Sandy. Still, the financial health of those banks could be threatened by the additional costs they will incur as a result of damage to their REO properties.

A RealtyTrac analysis of the 34 counties declared eligible for individual assistance by FEMA as a result of Sandy shows 124,608 properties in some stage of foreclosure representing an estimated $41 billion in property value in those counties.

The majority of those homes, more than 117,000, were still in the foreclosure process when Sandy hit, meaning the financially distressed homeowners not making mortgage payments still own the home and are faced with difficult choices of their own if their homes were damaged or destroyed by the storm: should they fight to keep their home or just walk away and allow the bank to foreclose and deal with the property?

The remaining 8,000 properties in the foreclosure inventory were bank owned, representing an estimated $2.3 billion in combined property value. We took a look at the banks with the most REO inventory in the impacted counties, broken down by the three states those counties are in: New Jersey, New York and Connecticut — which coincidentally were the three states with the biggest annual increase in foreclosure activity in October. We found a common theme emerging: Fannie Mae — and by extension taxpayers since Fannie Mae is a government-sponsored enterprise — holds the majority of the REO inventory in the affected counties in all three states.

New Jersey REO Inventory
In New Jersey, where all 21 counties were declared eligible for individual assistance by FEMA, Fannie Mae owned 25 percent of all bank-owned inventory at the time Sandy hit. Second to Fannie was fellow GSE Freddie Mac, which owned 20 percent of all REO inventory, followed by Deutsche Bank (13 percent), US BankCorp (9 percent), and Wells Fargo (8 percent).

New York REO Inventory
Fannie Mae owned 29 percent of all bank-owned inventory in the New York counties most impacted by Sandy. While Freddie Mac was not among the top five REO holders in New York as in New Jersey, three of the other banks among the top five in New Jersey also showed up in New YorK: US BankCorp with 14 percent, Deutsche Bank with 11 percent, and Wells Fargo with 8 percent. HSBC Holdings had the fifth highest inventory of REOs, with 7 percent.

Connecticut REO Inventory
Similar players showed up as the top holders of REO inventory in the Connecticut counties most impacted by Sandy. Fannie once again topped the list, with 22 percent of total REO inventory, followed by Wells Fargo (16 percent), US BankCorp (13 percent), and Deutsche Bank (11 percent). A new bank showed up in Connecticut in the No. 5 spot: CitiGroup, which held 6 percent of all REO inventory.

Related News
5 Steps to Buying a Pre-Foreclosure (Short Sale)
Foreclosure Activity Increased 3 Percent in October
Recycled REO Inventory Provides Inventory Boost in Chicago

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