by vain follow (0)
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So if the bank doesn't sell you the house at below market value, they're "greedy"? If I were a bank, I would sell the house for the largest amount of money I could get for it. Why would you expect them to do otherwise? In addition, excluding interest in your calculation makes absolutely no sense. They loaned that person money for 5 years. That's money that could have been invested elsewhere. Most of the $240K the borrower paid to the bank was interest. The whole idea of interest is that when you loan money, you don't just give it away for free, because if you had KEPT that money rather than loaning it out, you could have invested it and made money with it. I hope you get the deal you want, but I wouldn't be outraged or anything if you don't.
The biggest hits to the banks are the dead beat buyers who stopped paying 30 months ago, or who walked away from the homes, leaving them to be maintained by the bank.
Or the people who defaulted just several months after they took the loan, and values plummeted.
So if the bank doesn’t sell you the house at below market value, they’re “greedy� If I were a bank, I would sell the house for the largest amount of money I could get for it. Why would you expect them to do otherwise? In addition, excluding interest in your calculation makes absolutely no sense. They loaned that person money for 5 years. That’s money that could have been invested elsewhere. Most of the $240K the borrower paid to the bank was interest. The whole idea of interest is that when you loan money, you don’t just give it away for free, because if you had KEPT that money rather than loaning it out, you could have invested it and made money with it. I hope you get the deal you want, but I wouldn’t be outraged or anything if you don’t.
My bottom line was the losses aren't as huge as people perceived it to be. In my situation, which would have appeared to be a $200k loss for the bank wasn't actually that much of a loss compared to how much assets they've got.. or had; just a small loss and an opportunity loss. This was coming from a guy that is involved with loss mitigators. The original payments were calculated based off the assumption that you will pay them back in 30 years. That's why they play catch up with interest right off the bat.
Imagine if loans were designed so that 100% of your payments in the beginning were to cover the principle. Interest payments come after you pay off the principle. It'd be interesting :)
Another way to see it is to look at a retail store. It purchases inventory @ $100 per unit of bicycles. It planned to retail it at $200. Now if that bike were to get stolen from the store, they'd write their loss as $100, which was their cost of the inventory; not $200, the anticipated sales price.
Interesting, and clearly the bank isn't taking as big a loss as you might think based on 617k-430k.
But I'm not sure I buy the premise that the bank's cost of borrowing in 2004 was near 0%. Does anyone have information that actually substantiates this?
I realize this isn't entirely a free market, but if the bank is really making 5% on effectively free money, I'd expect someone else to come along and offer 4% or 3% and take the reduced profit margin.
I realize this isn’t entirely a free market, but if the bank is really making 5% on effectively free money, I’d expect someone else to come along and offer 4% or 3% and take the reduced profit margin.
I wasn't insisting that banks borrow at 0%. It may or may not be true. But there are probably guidelines as to how low they can go. Take example for LCD televisions. The manufacturer limits them how low they can go. It's called MAP (Minimum advertised price).
The banks losses on 1 property is not as heavy as everyone thinks it is. You can see how in many cases, there might not even be a loss at all if you manipulate the numbers and time frame a bit. They're just simply trying to get more yield from their original investment.
Loan modifications and principal reductions work very well for them. If someone can't pay $x for an item, they just drop the price a tad and see if they can afford it.
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I was told by my loan officer during a casual conversation while waiting on my short-sale approval. Here are the details.
Original loan of 617k in 2004 @ ~5% 5/1 ARM
Buyer defaults in late 2009.
Market value of the home is probably $480k
I offered $430k.
Existing loan balance is still probably around $617k because of the suicide loan.
I was worried that the bank may not want to take a hit because of this short sale. He assured me that the bank is not taking a loss. The question is not how much they will lose. It is how greedy do they want to be.
He summarized his basis for that statement:
The borrower has made payments for 5 years already at about $4000/month. That's $48k/year x 5 years = $240k went to the bank.
Now if they get $430k - 6% commission, it would net them $404200.
Now add that to the $240k that they've collected from the previous 5 years.
Bottom line for the performance of this loan is $644200; which is $27,200 more than the original loan amount. The interest gets excluded from the calculation because he assumed the bank was able to secure those funds for a very minimal cost anyways. Even if it was not minimal, it's not as much loss one had expected.
Has anyone ever heard of this?