Posted by nhs76 on March 17, 2006 at 11:00:35:
I was unclear. I was indeed talking about a post-foreclosure REO, so your second case applies.
How does a Banker thinks regarding real estate? - Posted by Thurman
Posted by Thurman on March 16, 2006 at 12:02:23:
where can I obtain information as to how a Bank do business in the real estate field?
-Why does a Bank want to make real estate loans?
-Is the Bank required by the government to make certain types of real estate loans?
-What is the process Bank uses in making a real estate loan?
-What is the relationship between the Bank and FannieMae?
-What is the relationship between the Bank and other banks or finance companies who buys the Bank’s real estate loans. How much of a discount does the Bank have to give when selling their notes?
However, most importantly,
-What is the process that a Bank uses when homeowners get behind in their payments and the Bank files a Foreclosure Notice?
-Why is the Bank, who sold the note to FannieMae, is now acting as server during the foreclosure period?
-After the property is reprocessed, does the Bank or FannieMae gives the listing to a local Realtor?
-Is the Bank more interested in full price offer with easy repayment terms or only interested in a all cash offer even if it is a offer far below what is owned to the Bank?
Any suggestions will be appreciated.
Thurman
Re: How does a Banker think regarding RE? - Posted by John Corey
Posted by John Corey on March 17, 2006 at 05:32:42:
Thurman,
I cannot think of one book that will focus on the bank’s perspective. A lot of RE books cover the topic from the investor side and that could largely give you what you need. Get down to the library and then off to the bookstore and start reading.
Here is my take on each of your questions as I have a few minutes. At the same time this is a quick overview so off to the library is you really want to know more.
BTW - You can find some books on banking that explain capital requirements and other factors that banks deal with. Topics covered will include things are not unique to RE loans but definitely impact how and why a bank makes a RE loan.
John Corey
-Why does a Bank want to make real estate loans?
They make a profit on what is generally a lower risk loan compared to many other things they could do with the money. Interest rates are set to compensate for risk and rates on a personal residence are some of the lowest a consumer can obtain.
-Is the Bank required by the government to make certain types of real estate loans?
No. They cannot redline or use criteria to screen out certain areas or people of a specific race, religion, national origin, etc.
All banks have a charter under which they were organized. Some banks apply for a banking license with a charter that says they will focus mostly on local business or similar. If the charter says they will focus on making mortgages locally the regulators do expect them to stick to the charter unless the bank applies to change the charter.
-What is the process Bank uses in making a real estate loan?
They look at the risk factors. Credit score being a large element. Use of the property is another factor (primary residence vs. rental property). Condition of the property. Check the 1003 loan application form and what an appraisal says. Those two documents show most of the things that matter at a high level.
-What is the relationship between the Bank and FannieMae?
Forget banks. Fannie Mae (FM) buys mortgages from lenders who originate. That frees up the cash so the lender can go back and make another loan. It does not matter much if the seller of the loan is a bank vs. some other type of lender.
-What is the relationship between the Bank and other banks or finance companies who buys the Bank’s real estate loans. How much of a discount does the Bank have to give when selling their notes?
Assume no discount. Banks could not afford to originate new loans and sell them at a discount as a standard practice.
In practice there is some slight discount or slight additional margin as conditions might have changed between when the loan was originated and when it sells. For the most part the lender will sell the loan very quickly and will have a binding commitment from the buyer to buy the loan on the terms originally agreed with the borrower.
If the paper turns out to have a defect the originator might have to buy it back at the sale price.
However, most importantly,
-What is the process that a Bank uses when homeowners get behind in their payments and the Bank files a Foreclosure Notice?
The loan agreement and state laws define the ?process?. Check with the local state laws.
What business decisions the lender might make are different to some degree for each lender. Hence some are more aggressive and others are more open to compromise. Just like people and other businesses.
-Why is the Bank, who sold the note to FannieMae, is now acting as server during the foreclosure period?
A bank services a loan because they are being paid to do so. It is a way for the bank to make some revenue without having capital tied up.
-After the property is reprocessed, does the Bank or FannieMae gives the listing to a local Realtor?
Most likely. Not always.
-Is the Bank more interested in full price offer with easy repayment terms or only interested in a all cash offer even if it is a offer far below what is owned to the Bank?
Assume the bank will not make a loan to help the new buyer buy the property. They prefer and expect cash at close. Some of the time this is not the case. Rare though. Better to approach the seller with a cash offer and obtain your financing somewhere else. You will score more often then.
In some markets lenders will get full price. In other markets lenders will discount to clear a property out. It depends on the market, the bank, the regulators and any pressure they might be putting on the bank and how long the property has been sitting. Another factor that tends to influence the above is the condition of the property. A wreck is a nightmare for the bank and they know that no buyer can get a conventional loan. A pristine property is easy for a buyer to finance so the lender will likely see full price.
Full price (MLS listing price) might be below the market price.
Re: How does a Banker think regarding RE? - Posted by nhs76
Posted by nhs76 on March 17, 2006 at 10:22:50:
I know of one foreclosing lender who not only allowed but required an REO buyer to finance the deal through them using their expensive mortgage product. The buyer agreed to this as the other terms were acceptable.
Re: How does a Banker think regarding RE? - Posted by John Corey
Posted by John Corey on March 17, 2006 at 10:35:10:
The legal process for a foreclosure does not allow the lender trying to get paid off to require the new owner to borrower funds from the lender.
Now, a buyer who wants to cut a deal of some sort with the lender trying to foreclose might be presented with a package deal. Even still the seller is still the present owner/borrower and not the lender.
If the property has already been taken back by the lender (an REO) then the property is not in foreclosure. It is an asset owned by the bank and they can set terms and conditions of the sale if they like. They are the owner. Why a particular seller (the bank) would require this is not clear. It also depends on what type of financial institution we are talking about. Legally a seller can not force a buyer to choose a specific lender though a seller can refuse to sell to a specific buyer if the terms of the offer are not acceptable to the seller.
John Corey