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Bob Hertzog's Blog

By Bob Hertzog | Broker in Phoenix, AZ

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! 




By Randy Hooker,  Thu Sep 17 2009, 12:21
Very nice post, Bob!
By Renee D,  Fri Sep 18 2009, 08:40

Bad, or indifferent...

The BPO came in at the contract price of $275k, so if the BPO was LOWER , would and could it make a difference for the home owner?

Thanks for your posting!
By Bob Hertzog,  Fri Sep 18 2009, 08:57
Hello Renee,

I doubt it. It's rare to get a BPO at contract price anymore. Had it come in lower, I think that in this case it would not have made much of a difference. Besides lenders NEVER tell you if it comes in lower, only if it comes in HIGHER. Just my opinion, of course. :)
By Bob Hertzog,  Tue Sep 22 2009, 16:35

I just got a phone call from the PR Department that represents OneWest Bank. THEY HAVE AGREED TO REMOVE THE $75,000 PROMISSORY NOTE REQUIREMENT AND PROCEED WITH THE SHORT SALE!!!

Sometimes, the squeaky wheel gets the grease. :)
By Michael Edward Cruz,  Wed Sep 23 2009, 14:45
This is just a clear sign that no matter what the power of there money will continue to make them money. Even at tax payers expense. I wonder how many people have complained to the FDIC. I am for sure now!
By Jaime,  Wed Sep 23 2009, 15:25
Yes I agree. That this is a SING what he power of the Banks are Unlimited Like Super Man They can do whatever they Want.
Thank you
Jaime C Angel
By Michael Edward Cruz,  Wed Sep 23 2009, 18:52
I think Jaime meant to say SIN
By Jodi Smith,  Thu Sep 24 2009, 10:34
What a shame. These folks are already loaded with money and they try to squeeze harder and harder to see how much MORE they can get. Sad, really. While we "average Joe's" (tax payers) are on tight budgets (especially we Realtors) because the cash flow is so much lower right now. I hope the old saying "what comes around, goes around" will hold true for these greedy folks too.

Thanks for the enlightenment Bob. I am going to make some phone calls too.
By Bob Hertzog,  Fri Sep 25 2009, 13:09
Another Update...I just got a call from Business Week Magazine, and they are running this story in next week's publication! With a circulation of 4.9 million, it appears that loss share agreements are about to get the attention they deserve!
By Rhonda Holt,  Tue Sep 29 2009, 22:02
This was great information because me and my partner are in the same situation with a home in Brooklyn. This is the longest short sale we have had and it has been over one year now. The bank has been giving us the run around and closing the file, reopening the file, asking for more documents even though you sent them 20 times already. Plus it's one of the banks you mentioned above and I always knew something was fishy and I believe they will never close this deal even though my partner has more faith.

But I will bring this article to his attention, please keep telling everyone you know because as agents we have to stick together.

Rhonda Holt
Full Time Top Sales Agent
Specializing In Co-ops and Home Sales
Weichert Realtors, H.P Greenfield
Brooklyn, NY 11234
Email: HelpMeRhonda1919@Yahoo.com
By Matthew Smith,  Wed Sep 30 2009, 09:03
Great article Bob! You may also find the following article from the MSNBC interesting: http://www.msnbc.msn.com/id/32214198/ns/business-the_new_york_times/page/2/
By Ron Rovtar,  Wed Sep 30 2009, 18:58
This is a great post Bob. Now we hear that the FDIC has to play a financial shell game to keep the fund solvent. Is it possible they did not figure out the arrangement with OneWest (and other banks) would cause this kind of a problem for consumers?

Boggles the mind!

Ron Rovtar
By Bob Hertzog,  Thu Oct 1 2009, 00:57
Hello Matthew,

I just tried the link for the article you supplied, but it appears to be extinct. If you have another link, I'd love to read it!

By Jayne Judd,  Sat Oct 3 2009, 09:03
The banks are in business for themselves. This has nothing to do with clients they may or may not have had for years. It is really all about their bottom line. I do think we need to stop doing business with entities that continue to take advantage of us; we really need to change the corporate culture. Great post!
By Joe Salcedo,  Sun Oct 4 2009, 05:49
Good News! Let us spread the good news. Bob......
By David Cool,  Mon Oct 5 2009, 14:35
Sure, you are right, the short sales are being a problem to take so long to be ready! But everything because of the banks, they just delay everything waiting to for the best offer wich you never heard from them when they dont accept yours ...........
By Azrentalhomes.com,  Mon Oct 5 2009, 16:02
Nice post! very detailed and correct! They would proffer to foreclosure, purchase under market value and dump for a tidy margin.

By Wilson Realty Group,  Wed Oct 7 2009, 08:48
It is wonderful how all this breaks down. It is set up for a win lose situation. The only other side of the coin that your homeowner has to consider, although I know it isn't great, but it is the lesser of two evils, is that they already signed the promissory note for the entire amount. Going to foreclosures, in most states, doesn't relieve them of the deficiency it only makes it larger than 75K. I know this is little or no comfort considering what they are making on the deal, but I point it out so that your client doesn't shoot themselves in their own foot to spite someone is doesn't care, as you pointed out. They are making a killing either way.
By Bob Hertzog,  Wed Oct 7 2009, 09:35
Just an update...OneWest has agreed to drop their $75k promissory note requirement, and we are headed to closing.
By Wayne L. Brown,  Wed Oct 7 2009, 16:34

Pretty amazing post. Maybe you should send a copy of it or letter to the Feds.

By Bob Hertzog,  Wed Oct 7 2009, 17:24
Hi Wayne,

Believe me, I've sent everywhere, including the Feds. It's kinda like singing to the choir anymore.
By Voices Member,  Thu Oct 15 2009, 06:04
NO CAN DO / FAS FAP 140-3 under GAAP adminsitered by FASB. Short sales / NO CAN DO .
Its a violation of the published accounting rules in concert with an asset sold while held by a member bank and rules for controlling interest and a bonifide sale.NO CAN DO Subject the bank to dereognition etc.NO CAN DO Its all a lie to conform with Cccp 2923.5 NO CAN DO and Sec of Teasurys oversight for TARP.

No short sales - no can do!
By Cinnamon Johnston,  Sat Oct 17 2009, 12:30
Hi Bob,
Goldman Sachs runs the financial arm of the government. I voted for our President who continues to fill his cabinet with the same ol former Goldman Sachs executives that allow the government to keep funneling tax payer money to banks. I am personally representing two short sales with IndyMac/ONEWEST right now. Thank you for the information, I will use it wisely, and hopefully, we can keep exposing the corruption behind the bubble and the burst. The top 1% are getting rich off of both. Great info. Thanks. (..don't be surprised if I post it in 'large white letters' on the 'roof ' of my clients home if they hold my clients hostage.)
By Randy Hooker,  Sun Oct 18 2009, 13:56
Bob, FYI ~ your UPDATE link is not active. :)
By Cinnamon Johnston,  Mon Oct 19 2009, 08:21
Looks like another FDIC deal...we'll see if they get tax dollars in the deal or if just Goldman Sachs gets those $$ awesome deals .......

By Flrealtor2000,  Sun Jul 25 2010, 12:22
My problem is that the bank hired an appraiser who came in high. I did a breakdown comparison of his comps and told the bank why the appraiser was wrong. They said they cannot consider anything except the appraisal. I am at a loss what to do at this point. I have another unit in the same condo complex with WF. They are moving forward; got a BPO on that unit and it came out where the other's are priced. I feel confident the 4th unit will get an approval from the bank and the FDIC one's won't. The loan was Orion Bank, nka Iberia Bank. They have a lease/share agreement. Any suggestions would be appreciated.

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