Several months ago, fellow blogger, Robert Hertzog, who is himself a Certified Distressed Property Expert (just like yours truly) enlightened us all with a scintillating post describing the “sweet deal” that OneWest was able to get when purchasing failed IndyMac from the FDIC.
There has been a lot of renewed hubbub about this “sweet deal” in the last few weeks due to the ability of social media to hype a topic in a matter of minutes, or even seconds. Two youtube video exposés ran amuck on the Internet and now seem to have mysteriously vanished from sight. The Los Angeles Times and other major newspapers also recently reported the OneWest profits for 2009 which brought additional fuel to the fire of those facing financial distress and having trouble muddling through a short sale transaction.
Bob seems to always have the latest information when it comes to this topic. This morning I spent a few minutes reviewing his blogs and all of the links in order to wrap my head around the relationship of the FDIC to failed and/or failing lending institutions. I took out my calculator, and worked the numbers and am going to break everything down for you here. (Note that these numbers are based on Bob’s original explanation as well as the FDIC’s IndyMac Shared Loss Agreement) (Second note . . . if you are getting bored, please skip to the last two paragraphs.)
To make it ‘real’, I’ll use the Flintstone family 😉
Fred Flintstone purchases his home for $400,000. He has a loan for $300,000. OneWest (upon obtaining IndyMac and according to the agreement) purchases Fred’s loan for 70% of the loan amount.
OneWest purchases Fred Flintstone’s loan for $210,000.
Something very sad happens: Fred loses his job at the quarry, and needs to short sale his home. He calls a qualified Realtor® who lists the property as a short sale for $200,000. Remember Fred owes $300,000 on his loan.
The FDIC has agreed to reimburse OneWest for 80-95% of the loss—based on the original loan amount.
The original loan amount was $300,000. The property sells for $200,000. OneWest is reimbursed for 80% of the loss–$80,000.
So, here’s the final part of the math problem:
OneWest purchased the loan for $210,000.
OneWest received an additional $80,000 from the FDIC when the property was sold for a loss.
$210,000 – $80,000 = $130,000.
This means that OneWest paid $130,000 for the property which they sold of $210,000!
Whatever the terms of the agreement were, I would like to add that it is vital that agents working short sales and dealing with the lenders understand exactly how the banks operate, how they relate to the FDIC, and how they handle their accounting practices. When you understand all of these things, then you will be in a better position to negotiate with the banks and process short sales. Understanding what it is like to stand in someone else’s shoes (the banks’ big shoes) goes a long way towards obtaining short sale approvals and getting your short sales through the bank’s systems in a successful manner.