Short sale insider information

A query was posted to an investor newsgroup — Does anyone know how long a short sale takes with Bank of America?

The following response was posted:

Bank of America (B of A) is one of the worst banks to work short sales with.  They will regularly lose entire files, will close files without any notice to anyone, and are the very slowest at assigning loss mitigation staff to files.  Most recently, B of A took a “don’t call us, we’ll call you” (which they never do) attitude towards short sales.  They only want communications by email and if you email them too many times in a week, they will spam block your email address !

 I recently found out why B of A is so slow on responding to and working short sales.  It is the FDIC’s loss sharing program with lenders.  I suggest that anyone go to the FDIC website and review the posted policies and listen to the transcripts on this program.  Here is how this system works:

 Bank X (C-wide) goes under and is taken over by the FDIC.  Another bank (B of A is one of the largest participants in this program) steps in to buy Bank X’s assets.  B of A pays 50% of the value of the assets and the FDIC covers the other 50%.  If one of the loans in that asset package goes into default it can be resolved by either someone doing a short sale on the loan and selling the real estate, or by foreclosure and sale of the security on the loan (the real estate).  When this happens, the FDIC steps back in and pays B of A 80% of their loss based on the original face value of the note, not the purchase value.  So lets look at some numbers on this:

 B of A buys a $100,000 note/mortgage from C-wide for $50,000 with the FDIC putting up the other 50%.  This note / mortgage goes into default.  There is a short sale on the property, or the property goes to foreclosure and B of A eventually nets $50,000 for the property. 

 B of A has been made whole, right ???   WRONG according to the FDIC !

 The FDIC will now step in and pay 80% of B of A’s “loss” based on the original face value of the loan.

 So, $100,000 minus $50,000 = $50,000.  80% of $50,000 = $40,000.  B of A netted $50,000 from the sale of the property and will now get an additional $40,000 from the FDIC on an asset that cost them $50,000.

 B of A will get their loss sharing from the FDIC whether they do a short sale, or whether they just sit back, do nothing, and let the property go to foreclosure !  Why should they work hard on getting short sales done ?

 The FDIC is now saying that it’s insurance reserves are so low that they will need money from the US Treasury (that means our tax dollars folks) to maintain their ability to insure banks.  Banks like B of A are paying back al of the TARP money they received from the federal governmant so that they do not have to comply with the restrictions, like the ones on executive pay, that come with the TARP money.  B of A, and other lenders in this program, are now reporting healthy profits.  The circle is complete, we are right back to where we began, and now, we, the taxpayers, are paying for the banks to set new record profits !

 My personal opinion is that this program is criminal and would appreciate anyone reading this to pass it on to all of their contacts, and to call / emil / write / their elected officials to put an immediate stop to this program.

 I will now step down from my soap box and get back to my real estate.

John H. Grant, REALTOR

I asked permission to reprint for the blog and he answer came back –

Absolutely !  In fact, as I have read further, I have found that it is “worse” than my original report.  When a lender buys an asset from a lender that went under, they buy the assets at 70% of face value with the buying bank paying 50% of that and the FDIC putting up the other 50%.  Thus, the bank buying the asset, buys it at 35% of face value !

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