Some think Banks are Dumb. Yea… Dumb as a fox!
This is a scenario that is being played out time and time again in America.
A distressed homeowner is having difficulty making loan payments to a bank called here Banking Under our Terms (BUT) and is now 3 months behind. This homeowner contacts the Loss Mitigation Department (otherwise known as the Servicer for BUT) and tries to either modify the loan or attempt to negotiate a short sale of the property through a real estate agent ( a short sale is as a procedure in which a homeowner attempts to sell their home for less than what is owed to the bank). The homeowner, under great stress and duress, complies with the Servicer’s numerous requests for budgets, files and other “Jump Through The Hoop” paperwork. Meanwhile (depending on the state) BUT is proceeding with the legal foreclosure processing steps, which include public notifications and direct communication to the homeowner of their intentions to foreclose on the property, while all the time, Servicer of BUT assures the homeowner that they are a good candidate to modify or the Short Sale negotiations look promising. Even when the homeowner frantically informs the Servicer that foreclosure papers were delivered by a courier to the house that day and scaring the daylights out of the kids, the Servicer assures the homeowner in a calm voice that all is OK. “Oh yea,” says the Servicer. “We need your tax returns for 2013 and 2014”, further frustrating the homeowner.
All during this time, BUT has received a Bank Pricing Opinion (BPO) that details the value of the property as it stands today and has determined that the home’s value was about $400,000. Hmmm. The lien or loan amount on the property is $360,000. After consulting with the bean counters, BUT has concluded that it is better to take the home back via foreclosure instead of allowing the homeowner to modify the note or to short sell it. The next thing the homeowner knows, he reads in the local paper that his home is set for auction at the court house steps next Wednesday at 2 PM. Before he knows it, the home is sold at auction and the bank has bought it for $360,000, confounding the Realtor that had the home listed for $390,000. To make matters worse, the agent had an offer of $380,000 – $20,000 MORE than what the bank was owed. The homeowner is stunned! The Realtor is, to say the least, MIFFED. “Why did the big BUT foreclose?!” the agent asks. “They had an offer OVER the loan amount! Are they THAT DUMB?!” Yea…Dumb as a fox. Here is why:
The banks are driven by shareholders (don’t get me wrong. I love capitalism) and are beholden to them to make profits. The banks are motivated to sell more stocks. They accomplish this by usually showing a profit. How then you ask, does a bank show a profit when they foreclose on a home for less than what they could have sold it for in a short sale OR increase the loan amount via loan modification with fees and penalties? One theory was brought for by Diane E. Thompson, member of the Counsel at the National Consumer Law Center. You can click on her article below. Here is MY theory:
1) BUT forecloses on a home which had a lien of $360,000. The property is now in the hands of the bank and is otherwise known as Real Estate Owned (REO) property (remember THIS for later reference). The bank’s assets just shot up by $400,000 (which is the BPO estimated value of the home) Look Ma! An investment property!
2)BUT gets an insurance payment of $360,000 for the failed note (now you know why they collect Mortgage Insurance from YOU). The BUT assets have now increased by $760,000 (hard asset PLUS insurance payout).
3) BUT places the home on the market for sale for $380,000 and sells it for $360,000. Assets now increased by $1,120,000. (I am in the wrong business)
4) BUT requires any NEW buyer of home to be “qualified” by them to even be considered in the running to buy the home. BUT gets the NEW loan for $350,000. Assets increased to $1,470,000 according to the accounting department. Repeat 100 times a week. Rinse thoroughly.
Shareholders happy. BUT happy.
The numbers could be off and I could have double counted (what bank doesn’t), but…you get the idea. Now here is the “Watson!” moment. It gets better! For years, Banks have been lobbying Congress to have the ability to buy and sell residential properties – in other words: Start a real estate brokerage. However; the strong Realtor lobby, NAR has been able to keep them at bay. Guess who snuck in the back door via REO property holdings? You got it. BUT did. What is the motivation to do this? To get leads on end loans. Have you noticed on REO listings in the remarks that all prospects must be qualified by ABC Bank?
Yep. Dumb as a fox.
Read Diane’s article here on Why Servicers Foreclose
Chris Weymouth, Director, Certified Luxury Home Marketing Specialist, CLHMS and Debbie Luber Weymouth, Manager, have marketed and sold over 4000 homes in Maryland since 1983. Expertly trained and award winning agents, they are leaders for The Weymouth Group at Keller Williams that has been recognized by their peers as one of the best in the business. Chris Weymouth is ranked in the top 1% at Keller Williams Select Realtors, top 1% in Howard County and Maryland among Realtors. Serving Central Maryland and all our friends and family for almost 60 years. Need a Luxury Home Marketing and Buyer Specialist in Howard County (Ellicott City, Woodstock, Clarksville, Marriottsville, Fulton, Laurel, West Friendship, Glenelg, Columbia, Elkridge, Dayton, Mt. Airy, Woodbine and more), Carroll County (Elkridge & Sykesville), Baltimore County (Catonsville, Woodstock, Owings Mills, Pikesville and Reisterstown), Anne Arundel County (Pasadena, Severna Park, Hanover, Severn, Glen Burnie, Annapolis and Odenton), Prince Georges County (Bowie & Laurel), Montgomery County (Silver Spring, Olney, Bethesda and Sandy Spring) or Harford County? We Know This Market! Then call Chris at 443-280-1922 or email firstname.lastname@example.org