This blog explains why many short sales will end up in foreclosures: Our government will reward banks for their losses...
Is The FDIC Killing Indymac OneWest Bank Short Sales?
As some of you may already know, I specialize in helping homeowners avoid foreclosure through the use of short sales. Recently, I dealt with a very interesting case involving Indymac/OneWest Bank, that I felt needed to be brought to the attention of all American taxpayers.
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 actual 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"?
But wait, here's the best part... I sent letters to Senators John McCain and Jon Kyl, with a cc to the CEO of OneWest, explaining the current loss-share agreement, as well as including the FDIC worksheets, with the actual numbers in this case, showing them that OneWest was making a profit of over $100,000 on this deal, thanks to the FDIC. Within 24 hours, I received a response from the PR Firm representing OneWest, telling me that OneWest would dismiss the promissory note requirement, and the short sale was approved. We closed escrow 3 weeks later. My client not only avoided a $75,000 commitment, but also salvaged his credit by short-selling his home, versus handing it back to OneWest via foreclosure.
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 laid 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!
Wait, it gets better...The FDIC just announced that they are "considering" borrowing money from the U.S. Treasury 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! Don't believe me? Click Here to read it.
Update 2/16/10: On a side note, many of you have sent emails, called, and/or commented on the recent video produced by TBWS. The day the video was released, I began receiving emails, calls, etc. from folks, asking me if I had anything to do with the video. While the numbers they quote in the video are the exact numbers in the blog post above, I had absolutely nothing to do with it's creation or production. Apparently, someone sent them the blog, and they produced the video with the information contained therein. While I'm happy that the video was able to get the story out to more people (which was my original intent in writing the blog), I must say that I was disappointed that TBWS made the conscious decision to not give credit to where they got the information, either in the "1st edition" that was released on 2/8/10, or the "revised edition" that came out on 2/16/10, in response to the FDIC Press Release. I commend them for squeezing in an acknowledgement on their 2/9/10 video, after I called Brian and reminded him of where all of their information came from. Despite numerous efforts to contact them, they have now chosen not to respond. To each his own, I suppose. Either way, please know that I had nothing to do with the video, and it was done without my knowledge.
Robert G. Hertzog
Phoenix Real Estate Consultant