Who's Killing Short Sales?

Written by Bob Hertzog

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. 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!

FOR MORE DETAILS ON THE ABOVE. TAKE THE TIME TO READ THIS 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.

Thanks to Bob Hertzog for shedding some light on the matter.

Why IndyMac (One West Bank) Won't Do Short Sales

Written by Mandelman of "Mandelman Matters"

When it comes to being inflexible and unresponsive to homeowners in need of a loan modification, IndyMac Bank, which has just been renamed “One West Bank,” is legendary.

This is the bank that failed spectacularly in July 2008, was taken over by the FDIC, and ended up costing taxpayers something like $11 billion… give or take… I can’t keep track of billions anymore… I’ve moved on to tracking trillions. And the new buyers of this fire sale financial institution that’s deservedly become the poster child for stupid lending tricks, includes billionaire George Soros.

Soros, along with billionaire Michael Dell and others, agreed to purchase the bank for $20.7 billion. As of Jan. 31, 2009, IndyMac’s assets totaled $23.5 billion and deposits were $6.4 billion, roughly half the cash and assets the bank had at the time of its failure. The new buyers also got a handy-dandy “loss sharing agreement” from the FDIC, whereby after shouldering the first 20% of any future losses, the FDIC gets stuck with most of the rest. So, I guess you could say they got a deal. A sweetheart of a deal… not to put too fine a point on it.

Considering that kind of taxpayer supported deal, and with so-called liberal philanthropist George Soros as one of the bank’s major shareholders, you might think the new One West Bank would be the last financial institution to be throwing people out of their homes when loan modification would make more sense financially, but you’d be wrong. One West Bank isn’t participating in the President’s program either.

Basically, the President of the United States asked the banks of this country to participate in a program designed to stop our economy from circling the drain, after the taxpayers of this country agreed to save the financial institutions who had bankrupted themselves… and this bank said: “No, thank you… no.” Or in other words… "Up yours, Mr. President.”

They declined to participate. Am I the only one that feels like a 5 year-old just told me he or she wasn’t going to take a bath as requested? Oh really? Get in the tub now… one… two…

How can George Soros, the liberal philanthropic billionaire who’s money made MoveOn.org the country’s most influential left wing political force, capable of mobilizing hundreds of thousands if not millions of volunteers, influencing millions of voters, and defending ACORN no matter the charge, now owns a bank that’s about as easy to reason with as Kim Jong-il with a migraine?

No matter which side you’re on… MoveOn.org was a huge success, now raises untold millions, and occasionally runs ads that would have to make even those on the left… cringe.

I get more letters complaining about IndyMac than any other lender or servicer in the country, although there are others, like Litton, that come in close seconds. I was personally involved in one situation in which an Arizona homeowner, who’s wife had been fighting breast cancer and brain cancer, whose mortgage of $250,000 was $50,000 more than the home’s appraised value, and whose employment was temporarily interrupted by the economic meltdown, was denied a modification. They ultimately lost their home to foreclosure and now it sits empty while the bank pays a maintenance company to mow the lawn. Shrewd, IndyMac… very shrewd… the bank will be lucky to clear $100,000 on the deal… if and when the house sells, which could be some time.

And once I was in an attorney’s office listening in while he called IndyMac on behalf of a client seeking a loan modification with the borrower also on the call. When the IndyMac representative finally answered the phone, which took about 30 minutes, her first words shocked me. She said to the borrower: “You know… you don’t have to pay him.”

I couldn’t help it. I interrupted and said: “Excuse me. I’m a writer and I was just wondering… how do you know she’s paying him? What if he’s her brother-in-law and doing this for free? Did someone train you to say that? Is that part of your training program there?” And the woman from IndyMac hung up. Nice.

Just this past week, I received a call from another attorney who expressed his frustration at IndyMac’s/One West Bank’s refusal to modify a Freddie Mac mortgage because they said their bank isn’t participating in the HAMP program. The attorney reminded the bank that it didn’t matter because Freddie Mac WAS participating in the program and the mortgage in question was owned by Freddie Mac. The bank representative wasn’t interested. Click… and that was that.

So, if you want more information on Mr. Soros’ new bank maybe you’ll soon be able to find it online at: www.MOVEOUT.org

Secrets That Lenders Won't Tell You About Your Short Sale

Rarely a day goes by that I don't hear a real estate agent ask, "Why would the bank mess up my short sale and let it go to foreclosure?" It's really quite simple...BECAUSE THEY CAN!

I could write a book about everything the lenders won't tell you about the short sale process. However, it would be worthless the moment it is published. The business changes every day, every hour, every minute. The lenders, investors, collections agencies, government agencies and everyone involved in this mess are still trying to figure out what happened, let alone what is happening right now.

ANYONE THAT TELLS YOU THEY KNOW ALL THE SECRETS OF DOING SHORT SALES, CAST A VERY SUSPICIOUS EYE, AND HERE ARE THE REASONS WHY...

1) The lenders still are not sure that what they are doing is right FOR THEM. They are constantly changing their short sale and loss mitigation processes to figure out what will make the best return on the loss. It will change at the whim of those assigned to review the pipeline disaster that is their loss mitigation. And, time and time again, the changes usually are not for the best. They only further complicate the process. The banks are in the business to lend money. The whole loss mitigation and short sale business is still a blur to them. Think about how absurd this business is...I know of one case where they forgave $353,000 on a property without blinking, but killed a loan mod and subsequent short sale for a paltry $5,000.

2) The property is ONLY A DEBIT! The lender will never see or visit the home. The only one that cares about how the home looks is the homeowner. The lenders and their investors DO NOT CARE ABOUT THE FEELINGS OF THE BORROWERS/HOMEOWNERS. They have NO emotional attachment to the property. However, they want to assure that the borrower absolutely HAS an emotional attachment. Remember, those lovely photos in the appraisal are only seen by an underwriter that initially approved the loan. The actual lender does not care for photos and will never see them. THE PROPERTY IS SIMPLY A DEBIT OR A "THING".

3) Lenders and investors make secret deals for billions of dollars every day behind your back! Many agents remain shortsighted on the housing industry, alltogether. They only want to see and believe that their real estate transaction is the only way the lender can move the property. In fact, this is not by any means the principal manner of unloading their inventory. REO's, performing and non-performing notes account for the majority of their swaps. However, those sales are never recorded in public records. Most of them are sold for pennies on the dollar.

4) The housing crisis is NOWHERE NEAR A BOTTOM! The biggest reason for this is the tremendous amount of inventory. And I'm not simply talking about the inventory in the lender's hands. I'm talking about inventory yet to be taken back. There are millions of homeowners living in their homes for free. I have clients going on 2 years without a mortgage payment. The lenders and their investors are simply overwhelmed by this crisis and they would rather see someone in the property taking care of it. Once they foreclose, they are responsible for all the bills on the house. Only 30% of the lender inventory is even available for sale. Nearly three times the current inventory is pending foreclosure. And unless everyone behind on their payments gets back to work and starts paying their mortgage, the crisis will not be going away any time soon.

Lawyers Say Lenders Are Setting The Stage To Collect On "Short Sales"

"Foreclosure may be a better option for some struggling homeowners."

A "short sale" might not be the end of a homeowner's problems.

The practice, which has exploded in popularity as homeowners struggle to pay their mortgages, is supposed to allow a borrower to sell a home for less than the mortgage amount, walk away, and avoid a credit-killing foreclosure.

Not so fast, say local real estate attorneys.

Lenders appear to be inserting language into short sale contracts that allow them to sue for any "deficiency," or the amount lost by a bank by selling a home for less than the mortgage ---- opening the door to collection agencies and court judgments that can run into the hundreds of thousands of dollars for some North San Diego County homeowners.

What's more, the nation's premier credit scoring firm says that short sales and foreclosures are equally damaging to credit scores.

Yet short sales have surged in popularity, as homeowners struggling with falling values and rising unemployment seek a way out.

It's not clear how many short sales in fact fail to protect former homeowners from subsequent collection efforts. But local real estate attorneys and other professionals say such vulnerability may be widespread.

One real estate agent who specializes in short sales, Chris Mackey of Carmel Valley, said about 50 percent of the short sale contracts he has seen include the language before he requests its removal. Banks generally have removed the language, he said.

Major lenders Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. (owner of the former Washington Mutual) declined comment for this story or, through spokesmen, said officials were unavailable for comment.

However, the North County Times obtained a short sale contract issued by Countrywide Financial Corp., which together with parent company Bank of America services roughly 20 percent of the mortgages in the nation.

The contract warned the homeowner, who owned a house in El Cajon, that Countrywide "may pursue a deficiency judgment for the difference in the payment received and the total balance due ... " The owner, who is still negotiating with the lender, declined through a lawyer to comment.

Attorneys say such clauses mean that a borrower's troubles might not end with the short sale ---- the lender could sue the borrower for a deficiency at a later date or turn over the unpaid debt to collectors after the short sale closes.

Indeed, under some conditions borrowers may face fewer troubles by letting their properties fall into foreclosure.

Ins and outs

For borrowers who do not know the ins and outs of short sales, "you absolutely should get an agent or somebody who is an expert and help you with the process," said Bart Blechschmidt, a partner with Galuppo & Blechschmidt, a Carlsbad real estate law firm.

Blechschmidt said his firm charges between $1,000 and $1,500 to negotiate a short sale.

Keeping up with mortgage payments ---- and thus keeping the house ---- is getting harder for thousands of families in San Diego and Riverside counties, where unemployment rates shot into record territory in March.

Meanwhile, home values have plummeted more than 40 percent since 2006, leaving roughly one-third of San Diego County mortgage holders "under water," or owing more than their homes are worth, according to First American CoreLogic, a data firm. The figure is higher in Southwest Riverside County; three of every four mortgage holders in Lake Elsinore is under water, for example.

Such conditions have led to an increase in the popularity of short sales.

Of about 14,000 properties for sale across the county on one real estate listing service, 5,610 "required lender approval," which usually means they are short sales.

In a foreclosure, the homeowner leaves immediately, his credit ruined, and the bank is typically left auctioning an empty house, often at a depressed value and leaving the lender with losses.

Short sales are touted as helpful to both lenders and borrowers: Banks hope to recover more money when homeowners stay put and assist in an orderly sales process. And borrowers hope to suffer less damage to their credit score when banks agree to settle for less than the full mortgage.

All the same to FICO

However, a spokesman for Fair Isaac, creator of the widely used FICO credit score, said its mathematical models make no distinction whatsoever between a short sale and a foreclosure.

Yet short sales do offer a key advantage. Mortgage giant Fannie Mae will back a loan from a borrower two years after a short sale. Borrowers with a foreclosure on their record must wait five years, a Fannie Mae spokeswoman said.

To walk away free and clear, borrowers must make sure all loans are extinguished and debts forgiven, said Blechschmidt, the Carlsbad lawyer.

But in some cases the lender can pursue a deficiency judgment in foreclosure, as well, depending on the type of loan.

Whether the lender pursues a deficiency depends upon a multitude of factors, including the borrower's story or payment history, and whether the loan had been sold to a third-party investor, said Martin McGuinn, a San Diego lawyer who represents banks and debt collectors.

It's possible those lenders won't sue the borrowers at first because "that's why they're in a short sale anyways, they don't have the money," said Susan Anderson, manager of the Coldwell Banker real estate brokerage in Vista. So banks "are saying, 'Down the line, if you have the money, we'll go after it.' "

If done the right way, short sales do allow borrowers to move on free and clear.

Letters, no cases

Despite one report from a real estate agent of an active lawsuit involving a lender suing a borrower, the North County Times couldn't confirm any cases.

And local lawyers who represent borrowers say they haven't heard of any.

"I'm aware of letters, but I don't know where that's gone," said David Bright, a real estate attorney in Escondido. "Stay tuned, fasten your safety belt. We have to wait and see what these lenders do. They might not think it's worth it politically."

But one short sale specialist, real estate agent John Woodall of San Marcos, said he doesn't buy the scares from lawyers that short sales open the door to deficiency when foreclosure would have allowed a free-and-clear walk away.

"I just don't see a judge or jury saying, 'We appreciate you trying to do the right thing, but you still have to pay all the money back,' " Woodall said.

It wasn't clear last week whether homeowners merely face a risk, based on contract language, or real lawsuits. The North County Times has found no local case of a lender suing a borrower after a short sale.

Legal briefing

Borrowers can face deficiency judgments at any point on certain types of loans. But California law allows special privileges for what is known as "purchase money" loans, or the original loan used to purchase the home.

On such mortgages, a bank cannot legally sue the borrower for nonpayment. The bank's only means of recouping the loan is to foreclose on the house.

Therefore, a homeowner late on payments on a purchase money loan cannot face a lawsuit ---- even if the owner put no money down.

But all bets are off if the borrower refinanced the mortgage. Especially on home equity lines of credit, lenders can sue the borrower for the unpaid amounts following either foreclosure or short sale.

However, lawyers said, if the borrower negotiates a short sale, the bank might issue a contract that says it will agree to sell the house and release the borrower from the "trust deed," the contract saying the borrower must pay back the loan in full.

Lenders might include a clause in a short sale contract that releases the lien but creates the possibility for a lawsuit to collect debts at a later date, said John Brady, a San Diego attorney.

Effectively, lenders will try to transform a purchase-money loan into one in which the bank can sue to collect, Brady said.

"They're being sneaky," he said. "They're trying to keep the door open to be able to collect on any deficiency."