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Is The FDIC Killing Short Sales?

Reblogger
Mortgage and Lending with LoanOfficerSchool.com NMLS 291249

This is absolutely must reading for anyone working in short sales.  It is also must reading for anyone who wants to understand how, in America, things really work. 

I plan to reblog this at least once a week.  Please join me and others who have reblogged this important information.  It is easy.  Click on Bob Hertzog (Summit Home Consultants) and go to Bob's orginal very well written article and just click on the green "Reblog" button at the top right of Bob's article.

Original content by Bob Hertzog

Is The FDIC Killing Short Sales?

As some of you already know, I blogged recently about being interviewed recently by our local NBC news affiliate.  To read the blog, click here.  Basically, IndyMac Bank (now OneWest Bank), is holding one of my clients hostage, demanding a $75k promissory note, or they will proceed to foreclosure.  For the life of me, I couldn't figure out why they were doing this.  The BPO came in at the contract price of $275k, with a net to IndyMac of $241k.  What advantage could there possibly be for them to proceed to foreclosure?

Yesterday, I figured it out.  You see, IndyMac was taken over by the FDIC and sold to OneWest Bank in March/2009.  Guess who the investors are behind OneWest?  George Soros, Michael Dell, Steve Mnuchin (former Goldman Sachs executive), and John Paulson (hedge-fund billionaire).  

Now, listen to the deal they got from the FDIC....

Basically, they purchased all current residential mortgages at 70% of par value (70% of the outstanding loan amounts).  They purchased all current HELOCS at 58% of Par Value!!!

Next, in order to "sweeten the pot", the FDIC stepped in and guaranteed the following:  For any residential mortgages where OneWest experiences a loss, the FDIC will step in and cover anywhere from 80%-95% of the loss.  The loss is calculated using the ORIGINAL LOAN BALANCE, not the amount that OneWest paid for the loan.  Let's use my clients situation as an example:

Loan Amount is $478,000, plus 6 months of missed payments, for a grand total of $485,200

OneWest pays $334,600 for the loan

We have an all cash offer of $241,000, net to OneWest.

So, let's do the math, shall we?  The net loss, according to the FDIC formula is the ORIGINAL LOAN AMOUNT minus the amount of the offer.  In this case, $485,200-$241,000, or $244,200.  Next, the FDIC, according to their Loss Share Agreement, writes a check to OneWest for 80% of the so-called "net loss".  So, in this case, OneWest gets a check from Uncle Sam for $195,360 (.80 X $244,200).

Add the $195,360 to the sales price of $241,000, and you get a grand total of $436,360.  Remember, OneWest paid $334,600 for the loan.  So, OneWest puts $101,760 in their pocket, thanks to the FDIC.  Folks, that is over $100k of our hard-earned tax dollars!

So, you ask...Why does this program hurt short sales?  Because, our brilliant government offers this SAME PROGRAM FOR FORECLOSURES!  The only difference is, the government picks up 80% of the tab on all of the extra costs associated with a foreclosure (BPO's, upkeep, utilities/maintenance, legal fees, etc.)

So, If I'm OneWest, why would I want to waste my time negotiating through a Short Sale, when I can make the same amount of money (if not more) by just letting it go to foreclosure?  And we wonder why nobody can get a Loan Modification?  Why would OneWest approve a loan modification for this guy, when they can foreclose and make over $100k?  And, to add injury to insult, they have held this loan for 6 months!  Not a bad ROI, huh?

What infuriates me the most is that in my particular case mentioned above, they have the guts to hold my client hostage for a $75k promissory note, after they are already making more than $100k on the sale!!! This is his primary residence, 1st Position loan, and OneWest has NO RECOURSE!  Imagine if they could make $100k, then get a deficiency judgement!  Talk about making some big bucks!

Can you say "GREED"?

The scary thing is that over 50 banks have Shared Loss Agreements in place with the FDIC.  Some of them include:  Bank of America (go figure), CitiMortgage, Wells Fargo, etc.  

This entire agreement between the FDIC and OneWest can be found here, on the FDIC website.  It's all there, for the world to see!  They have it all layed out.  All of the formulas, worksheets, etc.  

Now, it's up to us to bring it to the attention of our elected officials and the media.  Enough is Enough!

UPDATE 9/18/09:  I JUST READ AN AWESOME ARTICLE ON THIS, THAT GOES INTO WAY MORE DETAIL THAN MY BLOG ABOVE.  TAKE THE TIME TO READ IT WHEN YOU GET A CHANCE! CLICK HERE TO READ IT.

Wait, it gets better...The FDIC just announced that it needs to start borrowing money from the U.S. Treasure in order to replenish it's deposit insurance fund (the same fund being used to pay all of these banks in the Loss Share Agreements).  Go Figure!  Click Here to read it.

Robert G. Hertzog

Phoenix Real Estate Consultant

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Comments (10)

France and Mark Clausen
Realty Austin - Dripping Springs, TX

I read this a couple of days ago and have forwarded it to several of my friends and colleagues. We need to get this viral. I wish I knew how to get this on mainstream media. People need to know about this.

Oct 01, 2009 02:02 PM
Michael J. Gallo
Florida Luxury Realty - New Port Richey, FL
Florida Luxury Realty - Gulf Home Sales Team

Outstanding Blog.  Everyone should re-post this.

Oct 01, 2009 02:22 PM
Edward & Celia Maddox
The Celtic Connection Realty - Queen Creek, AZ
EXPERIENCE & INTEGRITY - WE TAKE THE HIGH ROAD

And now we haVE THE REST OF THE STORY.  Thanks for the article.

Oct 01, 2009 02:23 PM
Keith Lutz
Keller Williams Metropolitan - Long Valley, NJ

Hopefully Bob can go back to the NBC affiliate, and give him the scoop on that story.  AR should feature  this post.

Oct 01, 2009 02:27 PM
Kay Van Kampen
RE/MAX Broker, RE/MAX - Springfield, MO
Realtor®, Springfield Mo Real Estate

Three of my clients are currently being held hostage by the MI companies.  Foreclosing only brings additional problems.  Just another government screw up.

Oct 01, 2009 02:31 PM
Bob Hertzog
Summit Home Consultants - Phoenix, AZ
Designated Broker

Hi Bill,

Thanks for doing your part to spread the word!

Bob

Oct 02, 2009 04:03 AM
Associate Broker Falmouth MA Cape Cod Heath Coker
https://teamcoker.robertpaul.com - Falmouth, MA
Heath Coker Berkshire Hathaway HS Robert Paul Prop

I am going to twitter this so it can be read by more people.

Oct 02, 2009 04:32 AM
Bill Ladewig
LoanOfficerSchool.com - Escondido, CA
Experience Is Your Advantage

Bob, Thank You for your great research.  I am doing my best to stir the pot.

Heath, good idea, me too.

Oct 02, 2009 05:00 AM
Jon Budish
Resident Realty - Fort Collins, CO

Wow! The digger we deep, the more corrupt it gets, and of course the taxpayer gets poorer while those in power get wealthier.

Oct 02, 2009 05:01 AM
DeeDee Riley
Lyon Real Estate - El Dorado Hills CA - El Dorado Hills, CA
Realtor - El Dorado Hills & the Surrounding Areas

Very interesting Bill!  I just referenced it in a twitter update.  It can't go on.

Oct 31, 2009 08:06 AM