WE’RE HEARING...bulk sales of REO might not be a panacea for unburdening the industry’s huge foreclosed backlog after all.

Since Fannie Mae and Freddie Mac unveiled pilot projects to sell REO to investors in bulk last year, there has been little talk about new bulk sales. Spokespeople for both agencies had little to say about the program, referring me to limited data on their websites.

In a speech to Realtors last November, Fannie Mae CEO Tim Mayopoulis said the company’s three pilot sales of REO in bulk had accounted for only 2,000 properties. Fannie Mae’s total REO sales through the first nine months of last year exceeded 140,000 properties, he said.

Daren Blomquist, a vice president at RealtyTrac, told me he’s heard little talk recently about the pilot bulk REO sales effort in recent months.

“It seems the trend has kind of fizzled,” he said. “There is much less concern about the shadow inventory ‘bogeyman’ than there was in the past,” he said.

That probably reflects an improving market for banks and institutions that still need to unload a large inventory of REO.

RealtyTrac data show that the price of foreclosed homes sold in the third quarter of 2012 was up 7% from a year earlier, for an average sale price of $162,000. The number of days it took banks to sell REO also decreased slightly from the year-earlier period.

That increase in the average sales price came despite a 19% increase in the number of REO sales during the quarter, bringing the total to 95,000 sales.

“That tells me this is actually a good market for the banks to sell REO in, which may be another reason they are more aggressively selling them now,” Blomquist said.

In addition to an improving home sales market, the settlement of litigation involving foreclosure practices by major servicers also is giving lenders more confidence that they can go ahead and sell their inventory.

Banks are also resolving loan defaults further “upstream” in the loss mitigation process, with more banks and troubled borrowers turning to short sales. In the third quarter of last year, preforeclosure sales exceeded the number of REO sales, reversing a trend in recent years.

Blomquist is also seeing an increase in the bulk sale of nonperforming mortgages. Wall Street and hedge fund money is fueling demand for bulk purchases of nonperforming loans.

“Those buyers of the notes, because they bought at a discount, are able to offer the homeowners a generous modification with a lower mortgage payment.”

The increasing number of short sales and the sales of troubled loan portfolios is helping to diffuse the shadow inventory “time bomb” that has haunted the industry, Blomquist said. Many had feared that as more delayed foreclosures turned into bank owned homes, a surge in REO sales would continue to dampen the housing recovery.

Still, there are cases where bulk sales make sense and may continue to help the financial sector lighten its REO load, which remains heavy. RealtyTrac estimates that the industry still has some 605,000 bank-owned homes to sell.

Older homes in poor condition that are already rented out to tenants make good candidates for a bulk sale program, he said. Most bulk buyers are looking to build a rental inventory, at least in the near term.

“Those are the type of properties your average buyer is probably not going to be as interested in purchasing,” Blomquist said.

Also, publicly financed “land banks” have been formed in cities such as Chicago, Cleveland and Detroit to buy distressed properties in bulk. In some cases, the homes are demolished. In other cases, they are renovated and become rental properties or urban homesteads. Typically, these homes are in such sorry shape that they are virtually donated to the land banks.

Ted Cornwell has covered the mortgage markets since 1990. He is a former editor of both Mortgage Servicing News and Mortgage Technology.