NEW YORK - June 21, 2011 - The share of distressed sales in May, that is, foreclosed properties and short sales (when the property is sold for less than the value of the loan), fell to 31% of all sales from 37% in April. Investors, who purchase a large share of these distressed properties, also represented a smaller share in May. So what's happening?

We know there is still a huge supply of bank owned (REO) properties, and we also know that banks are pushing short sales on many more properties than they previously have done. But they are also pushing REO sales, thanks to new sales incentives from lenders and GSE's (Government-Sponsored Enterprises).

"Realtors and mortgage loan officers nationwide are driving mid-to-high end organic, short and distressed sales on the fear that buyers will be unable to qualify for loans once the Qualified Residential Mortgage rules are in place requiring 20% down," says mortgage market analyst Mark Hanson, describing new rules being considered for risk retention by banks (part of the banking overhaul legislation passed last summer).

However, some bloggers claim that Fannie and Freddie are holding onto REOs, trying to game home prices. Fannie strongly disputes that claim.

"Fannie Mae doesn't have a shadow inventory of REO properties that are available to be sold. As soon as we acquire a property, we quickly identify a market competitive price, determine whether to make any necessary repairs, and list the property. In the first three months of 2011, we sold a record number of REO properties, selling more properties than we acquired," said Amy Bonitatibus, Fannie Mae spokeswoman.