The following is the first in a series we are pursuing on the shadow inventory held by lenders. We start with questions sent to the FDIC.

1. Are there any laws, regulations, or rules governing the length of time that can pass between the mortgagor’s first default and the initiation of the foreclosure process?

2. Are there any laws, regulations, or rules governing the length of time that can pass between commencement and finalization of the foreclosure process?

3. Are there any laws, regulations, or rules governing the length of time that can pass between foreclosing and marketing properties?

4. Are there any laws, regulations, or rules preventing banks from colluding to manipulate the perceived market value of properties they own?

5. Are there any laws, regulations, or rules preventing banks from individually attempting to manipulate the perceived market value of the properties they own?

6. Is it acceptable to the FDIC for banks to stall the foreclosure process on nonperforming assets in an attempt to manipulate financial statements for regulatory purposes?

7. Is it acceptable to the FDIC for banks to stall the foreclosure process on nonperforming assets in an attempt to prevent the properties from coming to market, which would make true supply available to the public

8. Did the TARP money given to banks cause fewer properties to be liquidated/marketed?

9. If banks are purposely keeping properties off the market, then how can consumers know whether or not a house bought today will hold its value? Doesn’t the consumer need to know how many houses are in the pipeline to discern the direction of the market?

10. If consumers are buying houses today that are destined to slowly lose value over time (as the rest of the inventory inevitably comes onto market), then won’t many of these consumers be underwater in the future? Doesn’t this practice actually raise the probability of future foreclosures?

11. Does your agency have a plan to protect consumers and limit future foreclosures by ensuring that banks are not hiding nonperforming assets and accumulating a shadow inventory?

Here is the reply we received from Greg Hernandez with the FDIC Office of Public Affairs.

For questions 1-5: I would suggest you consult the laws of a particular state because the laws vary greatly.

For questions 6 and 7: The FDIC expects banks to follow standard reporting practices and policies.

For question 8: The FDIC has no way of knowing but would not think there would be such a cause and effect.

For questions 9-11: The FDIC does not agree with the premise of these questions. The FDIC tries to protect consumers, and it expects banks to accurately report according to accounting and reporting rules.

For additional information, I would suggest you consult the FDIC’s rule and regulations Web site, which has detailed information.

http://www.fdic.gov/regulations/

From Reuters. "Distressed transactions have a strong negative influence on home prices, according to First American CoreLogic, which noted the lows in prices for 2009 coincided with a peak in bank-owned property sales. The trend is worrisome to economists who have warned that federal home loan modification efforts and foreclosure moratoriums would result in a backlog of homes hitting the market, forcing prices lower and hurting the economy. This 'shadow supply' late in 2009 was estimated at seven million units by Amherst Securities Group.