Posted by Ed Garcia on December 05, 1999 at 01:19:18:
What you are talking about, is when a bank has a foreclosure or delinquent account.
They have to post a reserve that gets counted against their capitalization. What that
means, is each bank is capitalized and can take in a certain % of deposits against that
capitalization. For example: If The bank had a $100,000 in capital and their ratio is
lets say 16 to 1. They can take in $1,600,000 in deposits to lend out at a higher rate.
So obviously they don’t want to post any reserve.
That’s how they make their money. They borrow it or pay you the depositor a yield on
the money, and then lend it out at a higher rate.
After telling you that, if I were working the bank on a REO, I wouldn’t even bring
that up. I would just tell them that you would like to buy their REO because you feel
it would be a win-win situation.
You win because you got a nice deal on a house, and they win because they got rid of
a delinquent account.