Banks are half full of something, but I’m an optimist

Real Estate Agent with Keller Williams Realty

Photo courtesy of ManFromSunFor the past couple weeks I've been reading in the rain how bad these banks have it and how 50% of all the loan modifications they did in 2007 are now in default again. Oh, the poor me syndrome, "Please help us, throw us money, this is why we shouldn't have to do loan modifications, congress."

Well, let me be the optimist here and go the other way and help congress with some math that may have been missed in this equation.

Let's say that there were only 1 million loan modifications in 2007. (I know this is low, but I wanted to keep the math simple.)

Since most of these loan modifications were done in the first 5 years of the loan that means 90% of the money paid each month was interest. (We are going to go with an average monthly payment of $2,000 per month.)

So, out of that $2,000, the bank receives $1,800 in interest and $200 toward principle. (I would love to have a rental property that made me $1,600 a month.)

Now, let us assume it took a year before this 50% started defaulting again. That means after 1 year, on those one million loan modifications, they made $1.8 billion in profit from those million loan modifications and continue to make $900 million annually from the ones that are still paying.

Now, what would have happened if they had foreclosed on all these properties and had to sell them at auction where they get only $.60 on the dollar? At an average home price of $250,000 and selling at $150,000 at auction, they would have a net loss of 100,000,000,000 billion dollars.

Wow, so if we take all those loans and modify them, rather than foreclose on them, does that mean we wouldn't have to be putting these homes on the market at a discounted rate, making property values go down?

Yep, that is what I'm saying congress. Who cares if 50% still go in to default, let them sell it on a short sale and let the banks be happy with the extra $900 million they made during that year the clients were paying.

So, let us multiply that by 10 and, guess what congress, you don't have to give these banks a dime and their money problems are fixed and they can start lending again.

Todd Clark - broker
Kastings & Associates
Phone: (503)524-9494
Fax: (503)622-8739

Posted by

Todd Clark (broker w/ Ken's Home Team)
Keller Williams Realty
Phone: (503)524-9494
Fax: (503)746-9573




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 I am a licensed Realtor who specializes in Washington County, Oregon and also work in both Clackamas and Multnomah Counties including the cities of Aloha, Beaverton, Canby, Clackamas, Gladstone, Gresham, Happy Valley, Hillsboro, Milwaukie, Oregon City, Sherwood and Tigard. All information contained in these posts are copyrighted and cannot be used without prior written approval authorization from the author me Todd Clark. If you are looking for an outstanding agent please give me a call I would love to help you with all your real estate needs.


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Comments 13 New Comment

Linsey Planeta
Your nullOC Real Estate Voicenull
M Realty

I get your point about the benefit to the bank....but I think stay tuned.  I already wrote a post on this that is slated to come out in a few days (tried to write a few posts to release while on vacation).  The problem is the delaying of the inevitable distress sale down the road.  Why put off tomorrow what you can do today?  Either way, it's coming.

December 22, 2008 05:07 PM
Paul Henderson
I always put my clients first in any transaction!
RE/MAX Professionals.

Todd, I understand your math better than the crap we do to get a loan past an underwriter. I understand they are threatened not to make a mistake...

December 22, 2008 08:05 PM
Shane Scott
Real Estate Attorney
Law Office of Shane Scott, P.C.

Todd, I enjoyed reading your take on the subject.

December 22, 2008 08:33 PM
Richard Stabile
Bergen County New Homes Builder Realtor
REMAX real estate associates

Todd :

The concept of letting something bad continue is what the banks did wrong. First, it took them too long to get the short sales approved, A $750,000 house LOST MAYBE $75,000 IN VALUE, while they were trying to figure out policy. A good trader kills a bad trade as fast as possible. That is a rule! They were then chasing the market. I believe that modification should be made to people who have a reasonable expectation of paying.

I don't think that is the case, if 1/2 of them failed to.  I don't think that 1/2 of them now lost their jobs. I think they just don't want to pay because their equity is under water and they are banking the payments they don't make.

I think that it has been misplayed and screwed up fron the start. I have said that all along. It is not being done right yet. It is how the money get realocated now, that make the difference. The money is not there yet to solve the problem to take out these under water deals.


December 22, 2008 08:37 PM
Patricia Kennedy
For Your Home in the Capital
Evers & Company Real Estate, Inc.

Todd, there is an awful lot of fuzzy math out there right now.  I like your numbers better.

December 22, 2008 11:34 PM

Todd Clark

Broker - Beaverton, Oregon Real Estate Expert - (503) 524-9494
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