How Banks Make More Money from Foreclosures

Real Estate Agent with Coldwell Banker Apex, Realtors

Here is an example. It is so unbelievable that you may need to read through more than once.

IndyMac was seized by FDIC June 2008.

FDIC sold IndyMac’s assets to OneWest Bank March 2009.

Guess who owns OneWest? 3 guys: GoldmanSachs vice president Steven Munchin, and big time GoldmanSachs billionaire investors Geoge Soros and John Paulson.

OneWest purchased these assets from FDIC at 70% of first mortgage values and HELOCS at 58% of value.

As an "inducement," FDIC promised to cover 80-95% of any losses OneWest may incur from homeowners not making their payments.

In the event of a short sale or foreclosure, the loss is calculated from the original amount purchased, not what is currently owed, or what the house is worth. Huh? Pretty good deal, as you will see.

Here is an actual example of the numbers on a real case:

A new home owner took out a mortgage of $478,000.

Some time later, after he could not make his payments for six months, the bank adds $7,200 for missed payments (so-called "junk fees").

$478,000 + $7,200 = $485,200

OneWest bought this loan for 70% of $478,000 = $334,600

Now, there is a short sale cash offer of $241,000. Take the $485,200 ‘owed’ and reduce it by the cash received from the short sale and you get $244,200.

According to OneWest, they are losing $244,200.

Now, the FDIC is covering 80% of the losses OneWest incurs. So, if you take the $244,200 OneWest says it is "losing," and multiply it times 80%, you get $195,360.

The FDIC pays this $195,360 to One West.

The short sale Buyer pays $241,000.

OneWest gets $436,360!!!

Remember, OneWest paid $334,600 for this loan!

Profit $101,760 thanks to this insane arrangement.

But wait, it gets better.

Still, the house was sold for less than the full loan amount.

OneWest forced the borrower to sign a promissory note for $75,000 for the "deficiency."

OneWest profits $176,760

Comments (4)

Chris Mayr
D3 Interactive Marketing - Orlando, FL

Wow.  I would love to say more, but that is all that I could generate after reading that.

Jun 15, 2011 06:15 AM
Charlie Ragonesi - Big Canoe, GA
Homes - Big Canoe, Jasper, North Georgia Pros

Thanks for the repost. I do remember this blog way back. The question is do Bank of America as wellas Wells etc etc have the same sweet deal? Do you know?

Jun 15, 2011 06:52 AM
Tatyana Permanova
Highlight Realty - Fort Lauderdale, FL
561-756-6962 - Miami, Fort Lauderdale | Boca Raton RE


That's why Loan Modifications are not doing so well?

Sure, no profit for Bank....


Jun 15, 2011 07:03 AM
Ronald Gillis
Southwest Florida Notaries (Mortgage Notary Signing Agent) - Port Charlotte, FL
CNSA Southwest Florida. Notaries, Port Charlotte, 941-7-NOTARY

While this is certainly disgusting, the reality is, ALL foreclosures are tremendously profitable to the banks.  Think about it, they never lend any money (the signor creates the capital in the transaction) and more so, why would they NOT work with short sales and modifications and such - REASON - MORE profitable to foreclose.  On AVERAGE, when they can get a default (NOT short sale/mod, etc, MUST be default) the illegal insurance payout, on average is 30X.  So on a $100,000 mortgage, on average, they will make $3,000,000. Given those numbers WHY would they do it any other way, plus then on the stealing of the home that they have already sold off years ago to the trusts (but didn't do that right, but that is a whole other issue) they then sell that $100,000 home for say $40,000, which is pure profit, THEN often get deficiency judgment to keep going after the remaining $60,000.  Talk about a racket to the N'th degree.

Oct 29, 2011 05:08 PM