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Arji Rashidi's Blog

By Arji Rashidi | Broker in 92027

Why Banks would rather Foreclose / Short Sale than modify your loan

Have you recently attempted a loan modification only to be declined?  Did all the numbers match up and you thought you were 100% qualified for that loan mod, but the bank said NO?  Well, this may provide you with some insider information on why the banks would rather foreclose on your house or have you short sell it instead of approving a loan modification.

WARNING! The contents of this blog and and video is pretty infuriating.  It just blows my mind how the corruption and complicity of our government can go so unnoticed by the American Public.  I guess the bankers and politicians just count on the fact that we are stupid and wont pay attention.  Time to fold back the proverbial "wool over the eyes" and see what big brother and daddy warbucks have been up to behind closed doors. 

Ok, enough of my ranting, lets get down to business. 

As you all may know, Indymac Bank closed its doors in 2008 after the FDIC shut them down and seized their assets.  In 2009, the FDIC sold those assets to One West Bank for 70% of note value on First Mortgages and 58% of note value on HELOC's.  In addition to selling these assets at a 30% discount, the FDIC also agreed to insure the loss from toxic assets at 80-95%. 

With that being said, I would like you to watch this short video from our trusted experts at www.thinkbigworksmall.com who illustrate this information in a great video format.  I encourage you to watch it and then continue to read on... 

It can be viewed HERE

OK, I hope you enjoyed that video (as much as one can enjoy a video that just explained how bad the government and bankers are mollywhopping the american taxpayer).

So here is a simple/realistic illustration of how the arrangement between the FDIC and One West Bank works:

  1. Indymac Gets shut down and all assets are seized by FDIC
  2. FDIC sells assets to One West Bank for 70% of note value.
  3. FDIC insures all toxic assets sold to One West Bank for 80-95% of loss from balance owed
Ok, so now you are in the process of short selling because you couldnt get your loan modicication approved. For ease of numbers lets look at it this way:

  1. Indymac held your note for 100,000
  2. FDIC sold it to One West Bank for 70,000
  3. You have not made payments for 6 months and current balance plus back payments are 103,600
  4. You get an offer for 50,000
  5. The Net to the bank is 42,000 (8,000 for commissions, closing costs etc)
  6. One West Bank Approves short sale and the gets the following:
    1. 42,000 net proceeds from short sale
    2. FDIC sends OWB a check for 42,880 (103600 - 50000 x 80%)
    3. Total paid to OWB = 84880
    4. Total cost for OWB = 70000
    5. Total profit for OWB = 14880 or 21% of total investment
As you can see from the math, it makes no sense for One West Bank (OWB) to approve a loan modification which carries the inherent risk of re-defaulting within 6 months, when they can simply force you to sell through foreclosure or short sale and pop a 21% profit on their toxic asset. 


If you are in a situation where you are behind on your mortgage or upside down on your home, please visit my website to get more information on how you can avoid foreclosure or short sell your home in San Diego. 

Stay Positive..


By Missy,  Fri Feb 4 2011, 08:38
Thank you for your article. Unfortunately, our mortgage is with Indymac. Do you have any suggestions on a Real Estate Attorney in the Poway or Ramona area. Thank You.
By Julie Peterson,  Sat Feb 12 2011, 08:55
This is a great Blog that everyone should read. Please moveit to the top ofthe list

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