Banks are half full of something, but I’m an optimist

Real Estate Broker/Owner with Respect Realty LLC 200311024

Photo courtesy of ManFromSunFor the past couple weeks I've been reading in the rain how bad these banks have it and how 50% of all the loan modifications they did in 2007 are now in default again. Oh, the poor me syndrome, "Please help us, throw us money, this is why we shouldn't have to do loan modifications, congress."

Well, let me be the optimist here and go the other way and help congress with some math that may have been missed in this equation.

Let's say that there were only 1 million loan modifications in 2007. (I know this is low, but I wanted to keep the math simple.)

Since most of these loan modifications were done in the first 5 years of the loan that means 90% of the money paid each month was interest. (We are going to go with an average monthly payment of $2,000 per month.)

So, out of that $2,000, the bank receives $1,800 in interest and $200 toward principle. (I would love to have a rental property that made me $1,600 a month.)

Now, let us assume it took a year before this 50% started defaulting again. That means after 1 year, on those one million loan modifications, they made $1.8 billion in profit from those million loan modifications and continue to make $900 million annually from the ones that are still paying.

Now, what would have happened if they had foreclosed on all these properties and had to sell them at auction where they get only $.60 on the dollar? At an average home price of $250,000 and selling at $150,000 at auction, they would have a net loss of 100,000,000,000 billion dollars.

Wow, so if we take all those loans and modify them, rather than foreclose on them, does that mean we wouldn't have to be putting these homes on the market at a discounted rate, making property values go down?

Yep, that is what I'm saying congress. Who cares if 50% still go in to default, let them sell it on a short sale and let the banks be happy with the extra $900 million they made during that year the clients were paying.

So, let us multiply that by 10 and, guess what congress, you don't have to give these banks a dime and their money problems are fixed and they can start lending again.



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Angelia Garcia
Pure Realtors - Dallas, TX

Greedy bast####!  That is good logic.

Dec 22, 2008 04:02 AM #1
Brenda Duley
Coldwell Banker Commercial - Key West, FL


You are overlooking a very important aspect of this equation. 

I read this morning on my news at a glance, there is a bank paying $200K as a bonus to it's officer for 2008.  That is one bank, one officer.  You will need to multiply that into your numbers.

There, see, they desparately need the bailout. NOT!!!!!!!!!!!

If we have not elevated our anger and frustration to a level of ACTION, we are simply not getting it. 

Write, call and email every political arm of our country.  Tell them to knock it off.  NO money for anyone, unless it is earned.  

Thanks from Key West

Dec 22, 2008 04:02 AM #2
Steven L. Smith
King of the House Home Inspection, Inc. - Bellingham, WA
Bellingham WA Home Inspector


I cannot believe how eager the government is to bail out everybody.

Dec 22, 2008 04:12 AM #3
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

Our newspaper had a whole story today about all the bailout money being spent towards CEO bonuses and acquiring smaller banks.  Very little if any is trickling into the credit markets, so the individuals and small business can get a break.  Let the banks fail.  Let the CEOs get laid off.  The working people need the bailout not the millionaires.

Dec 22, 2008 04:15 AM #4
Loren Johnson
White Bear Lake, MN

My only question is......when do the folks who HAVE paid their mortgage on the 1st of every month get their "bailout"??? The message seems to be simple...if 'we' screw up, we need Government money. If 'we' didn't screw up, then pay extra to "help" those who did!

Dec 22, 2008 04:17 AM #5
Lou Ludwig
Ludwig & Associates - Boca Raton, FL
Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC

Hi Todd

A very insightful post on the current mortgage situation.

Good luck and success

Lou Ludwig

Dec 22, 2008 04:57 AM #6
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

Todd - there you go pulling the curtain back and showing the guy handling the knobs and switches again. Don't you know you aren't supposed to pay any attention to the guy behind the curtain? Bail out my foot. Bonuses to failing bank executives??? Use the bail out money to acquire smaller banks???

Dec 22, 2008 05:00 AM #7
Brian Burke
Kenna Real Estate - Lone Tree, CO
Broker & Advising Expert-Denver Luxury Real Estate

Todd - well that would just make too much sense wouldn't it... ~Rita

Dec 22, 2008 07:45 AM #8
Linsey Ehle
M Realty - Rancho Santa Margarita, CA

I get your point about the benefit to the bank....but I think stay tuned.  I already wrote a post on this that is slated to come out in a few days (tried to write a few posts to release while on vacation).  The problem is the delaying of the inevitable distress sale down the road.  Why put off tomorrow what you can do today?  Either way, it's coming.

Dec 22, 2008 09:07 AM #9
Paul S. Henderson, REALTOR®,CRS,
RE/MAX Professionals. - Tacoma, WA
Tacoma Washington Agent/Broker & Market Authority!

Todd, I understand your math better than the crap we do to get a loan past an underwriter. I understand they are threatened not to make a mistake...

Dec 22, 2008 12:05 PM #10
Shane Scott
Law Office of Shane Scott, P.C. - Jamaica, NY
Real Estate Attorney

Todd, I enjoyed reading your take on the subject.

Dec 22, 2008 12:33 PM #11
Richard Stabile
Re/Max Real Estate Limited - Oradell, NJ
Bergen County New Homes Builder Realtor

Todd :

The concept of letting something bad continue is what the banks did wrong. First, it took them too long to get the short sales approved, A $750,000 house LOST MAYBE $75,000 IN VALUE, while they were trying to figure out policy. A good trader kills a bad trade as fast as possible. That is a rule! They were then chasing the market. I believe that modification should be made to people who have a reasonable expectation of paying.

I don't think that is the case, if 1/2 of them failed to.  I don't think that 1/2 of them now lost their jobs. I think they just don't want to pay because their equity is under water and they are banking the payments they don't make.

I think that it has been misplayed and screwed up fron the start. I have said that all along. It is not being done right yet. It is how the money get realocated now, that make the difference. The money is not there yet to solve the problem to take out these under water deals.


Dec 22, 2008 12:37 PM #12
Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Todd, there is an awful lot of fuzzy math out there right now.  I like your numbers better.

Dec 22, 2008 03:34 PM #13
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