by John Occhi
Is The FDIC Killing Short Sales?
October 4, 2009 in Banking and Finance, Best Of The Storm by John Occhi
Via Robert G Hertzog (Summit Home Consultants):
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: 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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Great find John!
This is a Great article. I couldn’t agree more! There’s so much misinformation out there that people don’t really know what is and is not. It’s refreshing to see people that know what they’re talking about. You have an Informed commentary seems to be a rare commodity these days. Keep it coming.
FDIC Loan Modification
Wow… and the FDIC is making it so hard for smaller banks not receiving the bailout monies to keep up… its an assualt on the banks guys… add the above knowledge to the fact of the FDIC liquidity standards (stress tests) being raised, and then the cost of the FDIC insurances being raised recently – putting even more stress on each bank… Now the FDIC is asking banks to prepay 2009, 2010, and 2011 FDIC insurance premiums in just a couple of months! IF all of that were not enough to make banks fold… I just never understood the reason why they would be trying to close all the other regional and smaller banks – and the FDIC end up with all the bad assets and selling the rest to the banks left that actually have the liquidity to operate such – but its making more sense now… I thought it was a way of rewarding those banks for joining into the consortium of banks receiving the funds… I thought it was for liquidity… what it was for is to create an unfair ability to buy out the regional and smaller institutions… now I see the real picture – in addition to this – I see now how some of these political groups are getting paid back… its incredible to me to see these things happening – so fast… the healthcare issues are important – but I think its a huge distraction in the bigger picture – sure they’d be happy to pass it – but no one is covering the takeover of our government, our banking and monetary system. There will be a select minority who will have control over all banking in the US very soon if not stoped cold! But how can it be done this late in the game? I think we’re really… screwed…
-Eric
Real Estate Broker in Kansas
Disabled Navy Veteran
worried father of 2 girls
Whats the big deal! This is not a new find. This has been going on for decades. Did you think the FDIC was in place to protect you? This animal has several heads. The OCC knows exactly whats going on. The question is not whats going on. its whos going to stop it? There has been debt owed and money to be loaned from the start. The growth of the deficit is not containable. It lives and breaths economic distruction from many sides of its faces. In other words we have not “fed” the “dragon economy” enough for it to go back to its happy self. Maybe another war will side track the American people enough to distort their consciences. One thing is assured the drunken with greed banks are crying that their dieing but their lieing through their teeth. With all the knowledge what will you do?
Thanks for your insight. I now have a better understanding why Indymac loan mod clients have been pushed to short sales / foreclosures.