Indeed, we pretty much already have “a government controlled banking and housing market” — GSE’s are too far in debt to ever go private again, our economic “recovery” is entirely dependent on debt spending as stimulus, and with the Fed considering underwriting and integrating DTCC into it’s empire, we’re looking at a very different landscape in 2010, a much more overt “command economy” stretching into the foreseeable future.

Then again, huge market upheavals create even huger opportunities. Our situation is very similar to the 1974 market that made Michael Milken so powerful.

“why else would they hold up a short sale at $40,000 more than REO price and foreclose, then hold the property? ”

There are a few possible reasons.

More than one lender sold off their loans with default guarantees, in which case the investor could make more money by turning down the short sale (hint: the next time you deal with a CW short sale, ask the negotiator if they are “fully delegated”). Same with loans where mortgage insurance is in play. You would be surprised how many investors came out of pocket to slap on pmi unbeknown to the borrower. Letting the property go can mean more money, as crazy as that sounds.

Another aspect of this is the lack of a concrete Fed policy. Many of these lenders are waiting to see what will come out of Washington with regard to the potential policy of buying toxic assets. There has to be some trade off here for them if the Feds are pushing another moratorium.

I have to go with the collusion theory. One of the obvious results happening here, is, once a home is listed as REO, it is listed very low, generating multiple offers, pushing the price up.