Bank Logic

the new oxymoron

I have seen some absolute stupidity from the banks and loan holders, but this seriously takes the cake. I am absolutely astonished although it does give me a better understanding of why the foreclosure/REO market is so screwed up.

I recently represented a family in an attempt to either re-work their mortgage or to short sell their home. They were a husband and wife with two small elementary school aged children. They bought their home at the height of the sellers market, so needless to say they were upside down in the house. Unfortunately, the loan they used to purchase the home was an option arm, one of the driving forces behind our current situation. The husband lost his job and was having difficulty finding a new one. The wife was working and trying to support the family until they got back on their feet. She had been trying to re-negotiate the loan for over 4 months. She was told by the bank representative to stop paying her mortgage.....let me say that again....SHE WAS TOLD BY BANK REPRESENTATIVES TO STOP PAYING HER MORTGAGE...so they would see she couldn't make the payments and then would be willing to work with her on re-working the loan...they also told her if she didn't bring the account current, they were going to foreclose on the home....sort of a mixed message if you asked me. It was around this time they contacted me to try and sell the home short (they had a $275,000 mortgage on a home that was now worth about $240,000). We had roughly 2 weeks until the bank was going to sell the home at auction. So at this point the bank knows the home is being actively listed for $250,000.

Here's where it gets good, or bad, or stupid and actually kind of surreal.

We got an offer from a buyer to purchase the home for $250,000 and submitted it to the bank prior to the banks auction date. You would think the bank would be interested in trying to let the house be sold on the open market to minimize their potential loss...of course that does include the word "think" and obviously the mental midget or team of oxen that were assigned to this account really didn't understand that sort of logic.

Three days following our submission of an offer for $250,000, a man knocked on my clients door, told them he bought their home at auction and they had until Friday to be out or the constable would remove them. So at this point my clients, with no place to go, moved to Oregon to be with family.

This scenario is bad enough, but wait there's more.

They received a forwarded letter in Oregon from the bank the week following the foreclosure sale, stating that the bank recognized me as the agent they would be working with on the short sale of their home. I guess they missed the part where they already kicked the family out of their home. Now I'm not a bleeding heart nor do I think people should have free rent or a free ride, but you really have to look at the numbers on this one to get the full understanding of how completely screwed this situation is.

The bank sold the house for $170,000 at auction

remember there was an offer on the table for $250,000

The investor that stole the house for $170,000 (can't blame the investor for taking advantage of a stupid bank) resold the house for $230,000 2 weeks after they bought it.

So to recap, instead of reworking the loan for the family that owned the house initially, which would have kept the original principle amount of $275,000 and adjusted the payments to something they could have afforded (could have been done a couple of ways, first set a lower fixed rate, then extend the length of the term to 40 years from 30 years probably would have done it)

orrrrr to let them sell the house short for $250,000, the bank in its infinite wisdom decided it would be better to evict a family of four, sell the house for $80,000 less than they could have and let an investor make roughly $40,000 to $50,000 by flipping the house and driving the values of the neighborhood even lower!!!

Is it any wonder that the banks are in trouble? Had the bank reworked the loan or allowed the initial short sale to take place, they would have had a much smaller loss on their books. This becomes even more relevant as the government is poised to put money in to the banking system to help them remain solvent. I hope the government has a clause in place that stops our money from going to banks that are obviously TOO STUPID TO BE HELPED!!! I certainly don't want my tax dollars going to help an institution that has no idea of how to minimize losses.

I also have to wonder if there was some sort of collusion from the bank with this investor. It would be very easy for a person in a loss mitigation department, to direct a third party to cherry pick and flip a home. It wouldn't do much for the bank, certainly wouldn't do much for the party being foreclosed on, but as is possible in this situation, if the loss mitigation employee got half of the profit, that wouldn't be too tough on the old wallet in a struggling economy!

Of course that's just my thinking....