Real Estate Information

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?

OneWest bank just announced a second quarter profit of a meager $182 MILLION. 

...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.

As of yesterday there were 9,093 active listings (non-condo) on the market in Jacksonville Florida.  In the past 30 days, 923 have sold in the Jacksonville real estate market.  In the past year, there have been 10,484 sales of non-condo housing units.  In comparison, at the same time in 2006, when we were in our first year of a downturn, there were around 17,900 sales in the prior twelve month period.

The number that really caught my eye was the home sales pending.  Based on the MLS it appears that there are 2,898 sales pending.  This is at its highest level since JUNE 2006.  This reflects a 32% pending to active ratio...still in buyer market territory.  The outstanding news is this is DOUBLE what it was last year at this time.

Here is the reality of that number...notice above where I said that "based on the MLS it appears"...many of those will not close.  Pending home sales used to translate a lot closer to actual closings than they do now.  Why is that?  There are several factors that are contributing to a higher than normal number of fall-outs in the Jacksonville real estate market.  Here is just a sample of some of the reasons involved:

• The higher incidence of Jacksonville short sales.  While we love doing Jacksonville short sales, there are a myriad of reasons I could give here in explanation of this.  Just a couple of examples are short sales being attempted incorrectly, sellers not being properly pre-qualified, short sale pricing not being justifiable, and the sluggishness of banks.
• Appraisals are killing transactions.  Appraisers are scared and are appraising much lower than in previous times.  (Did you know banks are starting to sue appraisers for old appraisals?)  Some of the appraised values are downright laughable!
• Buyers and Buyer Agents who are making offers or getting into contracts on multiple short sale properties.  (Nope, I'm not kidding about this...)
• Banks/Lenders who are being much more stringent in underwriting loans.  A prequal doesn't necessarily translate into a loan. 
• Sometimes banks really can't sell foreclosures that are under contract yet.  Ever heard of re-foreclosure?  Neither had we until recently.  

Jacksonville distressed property sales.  (Yes I used that as a complete sentence.)  That's the big news in Jacksonville real estate although it's a topic many in the industry would prefer to avoid.

In the past 30 days..

• 32% of all non-condo home sales in the Jacksonville market have been foreclosures.  Foreclosures drive down market prices because they are usually put on the market at a price that is a good percentage below fair market value.
• 13% of all property sales have been Jacksonville short sales.
• 45% of all non-condo home sales in the Jacksonville real estate market have been distressed property sales.  This number includes both Jacksonville short sales and Jacksonville foreclosures.
• 45% of sales have been straight resale properties.  This represents the sales that took place where either the seller had enough equity to sale, or had money to bring to the table to make up the deficiency.

There has been a slight increase in the number of homes sold this year vs. last year at this time.  This being said, prices have dropped quite a bit and homeowners have continued to see their values erode.  Last year at this time only 30% of all sales in the past 30 days were distressed property sales vs. 45% this year. 

This is a disturbing trend that has gotten far worse this year.

It is getting increasingly difficult to get short sales through when there is a first and second mortgage.  What is going on?

The second lienholders, who will usually get nothing in a foreclosure, have often started demanding more funds in a short sale transaction.  It was quite common to give just $1k-$5k to the second lienholder for a while.  This was because the second lienholder, who realized they would not get anything in a foreclosure sale, would take it to cut their losses. 

Now second lienholders are playing unbelievable games.

We have one right now where the second lienholder (M&I Bank) will not take the $3k we've structured the deal for them to get.  But it gets better.  They refuse to give us any kind of letter or written documentation about what they will accept.  They have changed the number multiple times!  Every time we think we have found a way to get the deal to the number the negotiator has thrown out....the target changes. The negotiator is careful not to give the number they will accept in e-mail.  He calls and gives a verbal agreement number.  This is truly a seller with a profound hardship, the first lienholder has started foreclosure proceedings, and there will be nothing left for the second lienholder in a foreclosure sale because the first lien exceeds today's fair market value of the property.

So why would a bank refuse to act on a solution that gets them some money back, as opposed to none which is their only other option?

We've seen recently a "too big to fail" bank, Chase, (second lienholder) reject another contract where the first lienholder was getting totally paid off (just barely) and they were getting around $35,000.  The seller was filing bankruptcy if this did not happen. Once the deal was structured to get Chase $35,000...Chase raised the approval amount to $40,000.   Chase killed the deal because if they were taking a hit, the first lienholder was too.  What??????  In a foreclosure there won't be anything left for Chase at the end.  Why would they walk away from $35,000 just because the first lienholder won't take a hit too?  

Just heard another story where first lienholder approved a deal giving $3,000 to GMAC, the second lienholder.  GMAC said forget it...they would not even consider sending it to the investor unless they got at least 20% of the balance owed.  How about this GMAC?  You will not get anything in a foreclosure sale.  There won't be anything left!

These stories are rampant now.

What is really going on????  I used to think it was because banks were just making stupid financial decision.  Now I'm convinced it's something more sinister.  Would banks really be making stupid financial decisions like that if there weren't big things at play behind the scenes?

How does credit default insurance play into this?  How do mortgage backed securities play into this?  How do servicer contracts play into this?  How does the resale of a note play into this?  How do PMI companies play into this?  How are bailout funds and the myth of "too big to fail" playing into this scenario?  Why isn't anyone looking into this????

You have homeowners with hardship situations that are being foreclosed on every day because the bank makes more money by foreclosing even though short sales or loan modifications should be far better deals financially!  So what is happening behind the scene that is causing banks to make these seemingly stupid decisions?

In the current environment we should be having greater success with short sales...not encountering new obstacles.  Foreclosure is an offense with a punishment that lasts for years and years.  Moreover, it doesn't just punish the unfortunate homeowner who fell upon hard times...it punishes all of the neighbors and community as a whole.  Foreclosure further drives down the values which will inevitably lead to a greater number of foreclosures in the future since it will make it impossible for more people to get out of their homes when they need to.  When so many should be preventable...why are they still happening?

We are starting to get more and more calls from agents across the country who read our blog and are encountering a lot of the same types of issues.  Please keep them coming.  We need to get the real stories out there.

If you are in our area and facing this type of situation, call us if you would like an honest evaluation of what we think about your situation.  We will let you know upfront what we expect.  And please remember, no one can promise you success in foreclosure prevention through a short sale.  That being said, the chances are great in most situations if the short sale is handled correctly.

We had another Jacksonville short sale closing yesterday and helped another Jacksonville seller avoid foreclosure.

We had listed the property originally and the sellers decided to go for a loan modification instead.  We withdrew the home from the market.  Indymac, which is now One West Bank, proceeded towards foreclosure and obtained a foreclosure judgment in Duval County while their negotiator was sitting on the loss mitigation file.

Once the sellers were within a couple weeks of the foreclosure sale they contacted us for a last ditch effort to try to accomplish a short sale and avoid foreclosure.  They were told that Indymac would NOT cancel or delay the foreclosure sale for a potential loan modification.  The sellers were told by Indymac the only way they would cancel the sale was if they had a short sale contract.

We put the home back on the market and quickly got an offer.  The sellers and buyers came to terms on the short sale and everyone signed off on the contract.  We sent in a complete financial package along with a property package.  Around two days before the foreclosure sale we got Indymac to cancel the sale.  Indymac won't cancel until the sale date is looming.

On this file it took us a long time to even get a negotiator...much longer than on our other Indymac experiences.  Turns out that we got a brand new negotiator who had been someone's assistant and was newly promoted.  The file had been assigned to one of the negotiators  she had previously assisted, and she carried it with her to her new position.

Once the BPO came back we were shocked!  Our contract was for $180,000 for an oceanfront condo complex in Jacksonville Beach.  The negotiator came back and told us we needed to redo the contract for $255,000!!!  This was clearly a  faulty BPO done by a real estate agent who either did not understand the area or erroneously reported the value hoping that if the short sale failed, they would pick up the REO (foreclosure) listing for the lender.

We immediately kicked it into high gear.  I researched for hours and obtained as much comparable data as I could on prior sales.  I investigated the competition to see how everything compared and then I prepared a formal detailed challenge to the BPO.  The BPO was clearly and inarguably WRONG and we had to prove that to the negotiator at the bank or the short sale would die.  We knew there would be no way to get a contract on the property that high.

Roughly ten days later we got great news!  The new BPO had come in at only $165,000.  Then, to our astonishment, the negotiator insisted that we reduce our contract price to $165,000.  This was $90,000 less than her first mandate to increase the contract price.  The lender was requiring no seller contribution for the short sale.  Freddie was also agreeing to pay the condo association lien and all past due condo association dues.

So after a couple of months of hard work and waiting...we were progressing towards closing.  We breezed through inspections.

Then we got some crazy news a couple of weeks ago.  The 2 bedroom/2 bathroom townhouse style condo had only appraised for $130,000!!!  This appraisal was just as erroneous as the first BPO (that came in almost DOUBLE this appraisal) was.  The lienholder, Freddie Mac (and American taxpayers), would have been harmed greatly had we pushed the appraised price and tried to obtain a new approval for the unrealistically low price.

Our sellers decided to hold their ground on the price and not return to Indymac /One West Bank/ Freddie to try to lower the price.  We were getting a large number of calls on the condo still with people questioning the status.  We had a couple of cash buyers who were waiting to hear of a contract fallout so they could purchase the home for the $165,000 amount, which is what our approval was for.

On Monday of this week we got word that the buyer had found someone to lend him the money to make up the appraisal difference and purchase the condo.  The buyer's bank sanctioned this deal with the additional cash input.

By Wednesday we closed.  The buyer got a fabulous deal on a great condo in an oceanfront complex.  The seller was able to complete their Jacksonville Beach short sale and VERY narrowly avoided a foreclosure.

Jacksonville short sales are not easy transactions.  They require far more work and strategy than a normal Jacksonville real estate transaction.  Be sure your real estate professional knows how to complete a short sale before listing your Jacksonville short sale.  All short sales will not be successful, however, a knowledgeable, experienced agent greatly increases your odds of success.