by the Left Coast Rebel
I just got this in my inbox from a friend that is a real estate expert. He writes, "You will want to click on the Active Rain link and read the story by the Realtor trying to negotiate the short sale. In particular - notice WHO the investors are that made the deal with the FDIC!!!! I guess it really pays to get your boy elected president."
Ok, so obviously that had my interest. He pointed me to a blog written by Robert G. Hertzog out of Arizona, a real estate consultant in the area. Robert Hertzog has been privy to some serious shenanigans in the real estate market. I'll let him tell you:
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?It only gets worse as his article goes on.Read the rest here. Unbelievable.It doesn't take a genius to figure out the malfeasance that we see here, particularly with FDIC. As Hertzog points out as well, the FDIC just announced that it needs to start borrowing money from U.S. Treasuries. Ca you say nefarious corporatism?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.)
The lawmakers that have enabled this, the companies that have taken advantage of this (and us) should be facing trial for this kind of thing. Do you think the Obamanation and Congress would stand for that?
8 comments:
As a former banker I know that back room deals between the FDIC (and the former FSLIC) and banks have always been done especially during the S & L Crisis. They were designed to help stabilize the industry, and help the little guy. But this one sounds onerous because of the greed of the investors. Think of the number of middle class families that will be hurt by this. Their credit ruined for up to 10 years by a foreclosure instead of 2 or 3 years from a short sale. That so the good ol’ boys can make millions if not billions. Reminds me of a line out of an old 1970s song: “smiling face, smiling faces tell lies”. The Dems say they want to help the little guy but look what the their billionaire money masters are doing to those who are already hurting. Unbelievable! Did somebody say tea party?? Keep it coming Reb!
Thanks for doing your job to spread the word. I agree, this thing DOES need to go viral!
Bob Hertzog
Summit Home Consultants
Phoenix, AZ
There is no truth to this story. It parses together numerous unrelated facts to paint a false picture.
The FDIC's loss share agreement with OneWest requires it to assume the first 20% of losses. To date, the FDIC has not paid ONE DIME associated with this agreement, so the loss share agreement has no bearing whatsoever on OneWest's decision making vis a vis a particular mortgage. Therefore they have NO INCENTIVE to pass up any cost-saving opportunities.
Even if the FDIC begins to share losses, they are based on the PORTFOLIO, not individual loans. OneWest still has an incentive to get the best deal from a default because a loss is a loss! If I agree to assume 80% of your losses on an upcoming trip to Vegas and you lose $10,000, your share of losses is still $2000. But unlike Vegas, there is no upside. The best outcome is for the loan to perform as valued.
That portfolio has been pre-selected and this "client" may not even be among that portfolio. He would have no way of knowing.
Contrary to the post, the FDIC has NOT decided to draw on the credit line and if it did, it would have to pay that back with interest. The funds to do this come from BANKS.
This anecdote is most likely entirely fictitious. At best, it is the story of a dead beat and his advocate who felt entitled to a principal write-down. The biggest reason NOT to agree to a write down or short sale is that it will encourage a wave of strategic defaults, not unlike the fanciful tale of this realtor. OneWest is REQUIRED to continue the mortgage modification program. This idiot borrowe is probably so far under water from his own poor decisions that selling short or modifying is impossible.
Furthermore, Obama was president for only two months when this went INTO EFFECT. Do you really think the parties to the agreement negotiated it in those two months? Are you foolish enough to believe Obama had any influence over the Division of Resolutions and Receiverships of the FDIC, an independent agency with a Republican in charge, at that time?
Dont believe all the frothing conspiracy theories you hear. Obama's administration is evil enough without making up crap which is easily refuted!
Well Nick...Why is it, that in the last 10 IndyMac short sales I've negotiated, when faced with FDIC documentation, has IndyMac agreed to waive their promissory notes and agree to the short sale? In several cases, it was their PR firm that called me and gave me the great news.
And, how is it that you know that the FDIC has not paid one dime for this program yet?
Go back and read the FDIC documents. OneWest does in fact take on the first 20%, after they paid 70% of the actual loan values. After the 30% threshold is reached, the FDIC pays 95% of their losses... Oh never mind, just go back and read the documents yourself. I don't have time to explain them to you here.
Even better, google "indymac" or "Onewest" loan modification and see how many people they have helped.
This "anecdote" isn't entirely fictitious. It really happened! And it continues to happen everyday.
I have read all the FDIC documents long before you did. Does that give you a hint how I know about FDIC loss-shares?
But that is entirely beside the point. YOU made these outrageous allegations so YOU must demonstrate for us that OneWest is now receiving funds from the FDIC on its loss share agreement! This entire house of cards is built upon the sole assumption that the loss-share agreement gives OneWest a financial incentive to favor foreclosures over short-sales and this is working to the detriment of delinquent debtors and taxpayers.
It DOES NOT MATTER that OneWest paid 70% on the face value of those assets. First, the assets were not worth their face value based on expected loan losses from delinquencies and declining collateral values. Second, that money is a SUNK COST. The first 20% of loan losses is not sunk - they are ADDITIONAL COSTS for OneWest. It was omitted from the analysis because it is crucial to making the contrived "math" work.
The most beneficial result for both the FDIC AND OneWest is to have NO LOSSES. Failing that, the most beneficial result is to NEVER surpass that 20% threshold.
Without this agreement, the FDIC would be on the hook for 100% of the loan losses. How do you think that would affect the Deposit Insurance Fund?
I also explained that the FDIC sold a PORTFOLIO of assets to OneWest. This "client" and his advisor would have no way of knowing if his mortgage is included among those assets.
This viral story is inaccurate about a number of basic facts:
1. Taxpayers do not in any way, shape, or form pay for this. Funds come out of the DIF which is paid for by the banking industry through assessments.
2. The FDIC is NOT tapping the Treasury line of credit. They have instituted pre-paid assessments and imposed risk-based assessments to replenish the DIF.
3. Even if the FDIC borrows from the Treasury, it is not a free lunch at taxpayer expense. They must pay INTEREST on borrowed funds and the money to pay for that comes from BANK ASSESSMENTS. Since deposit demand is elastic, BANKS bear the vast majority of the burden of assessments. But depositors are deriving economic benefit from insurance so they SHOULD pay a share of the insurance.
4. The FDIC is an INDEPENDENT organization which does not answer directly to any president. It has a mission codified in LAW to protect deposits and seek a LEAST COST RESOLUTION for failed banks. Although Sheila Bair set a goal to modify mortgages at IndyMac, the FDIC is not a tool to rescue stupid debtors (or bankers) from their mistakes! Her objective was to mitigate losses and prevent foreclosures which she believed would affect house prices.
5. Barack Hussein Obama had ZERO influence over this agreement. He was in office only 2 months when it took effect. The negotiations for this sale of assets pre-dated his election.
6. The Division of Resolutions and Receiverships determines the least-cost method of resolution. Sheila Bair (a Republican) and the rest of the FDIC Board, all appointed by Bush, approved this transaction.
7. You apparently did not read section 2.1(a), 2.1(e), 3.2(a)(iii) and 3.2(a)(v) of the loss-share agreement. If the Receiver finds that any action by the Purchaser did not comply with loss mitigation guidelines, they would be INELIGIBLE to collect as part of the loss-share agreement: http://www.fdic.gov/about/freedom/IndyMacSharedLossAgrmt.pdf
So the contrived mathematical example COULD NOT HAPPEN.
Loss-share agreements are in the best interest of acquiring banks AND the deposit insurance fund:
http://www.fdic.gov/bank/historical/managing/history1-07.pdf
I've heard many sob stories and conspiracy theories out of this financial crisis ranging from poor Addie Polk:
http://powinca.blogspot.com/2008/10/shooting-lessons-for-addie-polk.html
to this story here. It takes only a cursory glance at the underlying facts to recognize they are mostly, if not completely, hogwash!
Well look what we have here, Bob, an official answer to your lies, right on cue:
I was not aware until this afternoon that there was a video accompanying this verbal screed. The press release says a lot of the same things I've already said including that NOT ONE DIME has been paid under the loss share agreement.
Here is the additional fact sheet the FDIC published:
I now patiently await your black helicopter response, Mr. Hertzog.
Many thanks to Left Coast Rebel for hosting this discussion and permitting dissenting opinions to be heard. Please keep up the heat on My Hero, Zero and his billionaire benefactors wherever appropriate.
Sorry, the links got stripped from my post.
FDIC Press Release
http://www.fdic.gov/news/news/press/2010/onewest_lossshare.html
Fact Sheet
http://www.fdic.gov/news/news/press/2010/onewest_lossshareb.html
The FDIC is not just an insurer. It is also a federal regulator for Class NM banks. The Office of Inspector General has already released many reports criticizing its failure in conducting proper supervision.
"U.S. Bank Examiners Faulted for Oversight at Failed Lenders"
http://www.bloomberg.com/apps/news?pid=20601087&sid=aFb4U0YZ49PQ&pos=7
There are tons of zombie banks out there but the FDIC refuses to do its job and seize these insolvent institutions.
Why?
Because the FDIC doesn't want to look bad?
The FDIC is an independent agency?
You gotta be kidding.
How can it be an independent agency AND act with full faith of the US government (=taxpayer) simultaneously?
Where on earth can you find another insolvent insurance corporation capable of protecting trillions in deposits with mere billions in reserve?
*imho*
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