IndyMac, OneWest Bank, Taxpayers and the FDIC. Looking Into the Deal Between OneWest and The FDIC and Applying Math To The Resulting Shared Loss Agreement.
First I'd like to say that I'm at the beginning of my research into this whole world of shared-loss agreements. I am not an attorney. I am a short sale specialist trying to be the best short sale specialist that I can be. But I have so many questions these days about what is going on behind the scenes. Many things have stopped making sense in the world of short sales and foreclosures over the past few months.
I have spent quite a bit of time looking on the FDIC website and pulling documents regarding this issue. I've also read a lot of commentary and articles for or against shared-loss agreements. The shared loss agreement that is the subject of this post is, by no means, an isolated agreement. The shared-loss agreements also seem to have a pretty sizable group of fans. But should they?
Recently I've been reading posts by other agents involved in short sales with Indymac where approvals were withheld that should have been no-brainers. While I have had great luck with my Indymac / One West Bank short sales...it seems that increasingly others are not.
I talked to one agent who had a sales contract at fair market value in to OneWest bank twelve days before the foreclosure sale. OneWest told her they couldn't act on anything they received less than 15 days before the foreclosure sale. That property went to foreclosure sale this week. In the past I've had IndyMac/OneWest foreclosure sales delayed a day or two before the scheduled sale date.
Last week I had my first OneWest bank short sale denial (for my buyer so another agent was processing the short sale with the lender, not me.) in which OneWest was demanding far more than what the home was worth. I decided to look into the deal between OneWest bank and the FDIC myself...and see what the agreement was with the shared loss loans and how this might contribute, if at all.
I never expected to find what I found. I kept hearing that there was a loss share arrangement with the FDIC in which the FDIC was covering 80% of the losses. In truth, I heard it back when the whole thing was going on, but for some reason it didn't seem to concern me then. The 80% loss share agreement between OneWest bank and the FDIC is just the tip of the iceberg.
All of the information I got directly off of the FDIC website. The pictures you see are screenshots of the actual agreement from the FDIC site. There you can find the Shared-Loss Agreement the Master Purchase Agreement AND the Loan Sale Agreement for the deal between the FDIC and OneWest bank.
Sales/Purchase Price of Loans from FDIC to OneWest Bank
Paragraph 2.02 from the Loan Sale Agreement:
Schedule 2.02 from the Loan Sale Agreement:
So, if I'm understanding this correctly, the amount paid by OneWest for the loans from the failed Indymac was anywhere between 37.75 cents on the dollar (for 60+ day late HELOCS) to 70 cents on the dollar (for current whole loans).
Homeowners? How would you like to buy your loan back at this type of discount?
Shared-Loss Agreement between the FDIC as receiver for Indymac and OneWest Bank
First, the definitions in the agreement for foreclosure loss, short sale loss, stated threshold and loan sale loss:
Calculation of Foreclosure Loss Summary (Shared-Loss Agreement Exhibit 2a):
LOAN PRINCIPAL BALANCE after last paid installment
Adjusted for: Accrued Interest, Attorney's Fees, Foreclosure Costs, Property Protection Costs, Maintenance and Repairs, Tax and insurance advances, Appraisal fees, Broker Price Opinion Fees, Inspections, Other
Equals: Gross Balance Recoverable by Purchaser (OWB)
Less: Net Proceeds from Foreclosure Sale (adjusted for insurance proceeds (if any), taxes and insurance escrow account balance (if positive) and any other credits)
Equals: Loss Amount
Loss Amount to be multiplied by either 80% or 95% for amount that the FDIC owes OneWest Bank.
Calculation of Short Sale Loss Summary (Shared-Loss Agreement Exhibit 2c):
LOAN UNPAID PRINCIPAL BALANCE
Adjusted for: Accrued Interest, Attorneys' Fees, Tax and insurance advances, 3rd party fees due
Equals: Gross balance recoverable by Purchaser (OWB)
Less: Amount Accepted in Short-Sale
Equals: Short Sale Loss
Short Sale Loss to be multiplied by either 80% or 95% depending on whether losses have exceeded the threshold for losses.
Loss Share Reimbursement Percentage
- For the first 30% of losses the reimbursement percentage is 80/20 (FDIC reimbursing 80% of the losses)
- For the remainder of losses the reimbursement percentage is 95/5 (FDIC reimbursing 95% of the losses)
Simplified Sample Calculation applying the information in the purchase agreement and shared-loss agreement:
- Amount owed on note $500,000
- Short Sale Net Proceeds $290,000
- Note 30 days past due at purchase date
Amount paid for the note calculation:
$500,000 x 60% = 300,000 Amount paid upon purchase/transfer of the note
Loss Recovery Amount Calculation:
$500,000 Amount due on note
- 290,000 Short Sale or Foreclosure Proceeds
$210,000 Short Sale or Foreclosure Loss
80% Receiver Loss Share Percentage
$168,000 Amount due to OWB by FDIC
Putting it all together:
$290,000 Short Sale or Foreclosure Proceeds
168,000 Proceeds from FDIC for Loss Share
$458,000 Proceeds received by OWB
(300,000) Amount OneWest Bank paid for the loan
$158,000 PROFIT by OneWest Bank on SHORT SALE or FORECLOSURE LOSS
OneWest Bank has to cover the first 20% of the losses? Really? Is that what this is called?
Let's see what happens after the Loss Share Percentage hits 95%:
$210,000 N/C Short Sale Loss
80% 95% Receiver Loss Share Percentage
$168,000 $199,500 Amount due to OWB by FDIC
This increases the profit by OneWest Bank on the SHORT SALE LOSS to $189,500 on a loan they only paid $300,000 for?
Please say it isn't so! Please tell me I have misunderstood or miscalculated something. If my math is wrong, I want to know.
This is coming out of the pocket of the FDIC and into the pockets of a Billionaire investment group (George Soros, Michael Dell, JC Flowers, John Paulson, etc are reportedly a few of the investors behind OneWest).
But this is only ONE shared-loss agreement....of many....
How did this happen?
WHY is the FDIC making decisions like this? Here is the FDIC's explanation of Shared-Loss Agreements from their website. I really think they believe they are doing the right thing. But is it just a vicious cycle that is growing bigger and bigger?
How many other agreements like this exist, where after applying the discount the loans were purchased at, the covering of the top 20% of losses appears to be a sham?
The supposed good news for the people who have loans with these failed institutions is that the FDIC is asking the institutions that entered into loss share agreements with the FDIC to consider temporarily reducing the payments of those who are unemployed or underemployed. Really??? Isn't that like me leaving my house overnight, placing the car keys in the hands of my teenaged son, giving him a hundred bucks and asking him to please consider staying at the house all night by himself?
...and now the FDIC is running out of money and is proposing that banks prepay their premium for the next three years to replenish the fund. Well the big banks can handle it (and if not, won't they just get more bailout funds?), but what about the smaller banks?
Will this lead to the FDIC shutting down more regional and local banks and placing them in the hands of investor groups or other larger banks with more costly loss share agreements that will continue to deplete the fund?
And what happens when the FDIC well runs dry? Another bailout?
What would happen if homeowners/borrowers had the first right of refusal to purchase their own loan back at a discount before it was sold to another party at the same discount?
Is this type of agreement interfering with the short sale process? I think it has to be.