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Are Banks Stupid?

I know that is a rhetorical question and I am sure like me you truly believe that banks are stupid anyway but let me elaborate.

Question. If someone buys a car today and in a year the car is repossessed what happens? Well the car is taken back and put on a car lot and sold for what the Kelly Blue Book tells the dealer what the value should be. Correct?

Question. Why on earth are banks taking houses back in foreclosure and then taking huge losses on those homes and selling them at 30-40% of what they are worth?

We have had two horrible years now but you can’t buy cars at 40% of what they are truly worthy. Why oh why are we allowing homes to be sold that way. Even when gas was at $4-5 a gallon and the car companies couldn’t sell SUV’s and trucks they still didn’t cut the cost to less than they owed on them.

Am I the only person out here that doesn’t get that model of economics? It just does not make sense.

Let me know what you think

Craig Bland

Posted by Craig Bland on 06/03/2009 09:43 AM

Comments (7)

mortgage loans, mortgage, mortgage advice, banks, credit, hud, finance

7 Comments on Are Banks Stupid?

JUN

Well, I've asked myself a similar question on occassion...ok quite frequently. They have several barriers which set them apart from truly looking at the whole picture from our perspective. I've had the opportunity to sell a preforeclosure house for a great price, they rejected and foreclosed. One year later, it sits vacant, pipes now cracked and water damaged. They can't sell it for $80K.

If I had any say, I would have pushed along the process and avoided the red tape to make a successful sale of this property. This is not the only story I have like this...

www.stephaniejacques.com

The more I deal with foreclosures and short sales, the more respect I lose for the banking industry.

You know you priced a home way too low when you receive 10 offers on the first day it's on the market.

I'm seeing more and more of this happening. It's great for the buyers who are lucky enough to act quickly but it then lowers the comps for the other homes in the area. It's the same thing that happened on the way up. You had stupid buyers who had access to more money than they had brains. They started bidding up prices and forced everyone else to have to pay more and more. I guess the money lent to them came from bankers who had no sense. I guess it has come full circle.

Craig - In one word I can answer your question: YES!!!

What makes the situation even crazier is that once they take back the house, they are incredibly inefficient in disposing it, even at the greatly reduced prices.

It makes no sense!

Craig, first off when a person gets a loan for a home, the banks create the money/loan out of thin air based on their fractional reserve supply. It costs them nothing to do this. As the buyer starts paying back the loan, it is primarily juice to the bank in the form of interest. If the buyer stops paying, the banks stop making money. They take it back, sell it cheap and re-start the revenue stream.

The Sub-Prime market was a get rich opportunity for the bankers. Now it's collapsed...they take back the homes, re-adjust the price, sell it cheap, and start taking in massive amounts of money again as buyers and investors sweep these up for pennies on the dollar.

The name of the game is bailout. The bank does not lose a lot from creating money out of nothing. Once banks start to suffer and go under, they get bailout at the expense of the tax payer. The banks are always winning and making money.

Read "The Creature From Jekyll Island" and you will understand!

Actually if you ever look at some one with a REPO on their credit... the bank actually auctions the car off to the highest bidder and hits the org owner with the difference.

they are not in the car business or the real estate biz, they just want to un load the bad and move on...

But it is silly for them to dump stuff at crazy low prices, you only have to be slightly under market to dump a home.

Wow - what great responses - I threw this out almost tongue in cheek. I know and agree with all the comments but also agree as a good paying, excellent credit homeowner is drives me crazy to see these banks slash prices so dramatically.

Thanks for stopping by guys and i hope to talk again.

I agree with Robert, they're not in the car or home business but I assume they're still supposed to be about making money. I would love to have someone on the inside give us a cheat sheet on how different bank employees' performances are judged. Most first year business school students could come up with better business plans that what I've seen.

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