Posted by Ed Garcia on December 05, 1999 at 01:19:18:
Jeff:
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.
? On R.E.O. effecting banks required reserves - Posted by Jeff Denney
Posted by Jeff Denney on December 04, 1999 at 22:49:47:
I am negotiating with the bank on a home they will soon be taking back in foreclosure. I would like to use the argument that if they take this property back , it now becomes a $100,000 liability (repossesed home) instead of a $100,000 asset (preforming loan)and if it is a liability they cannot loan out $1,000,000 they otherwise would be able to loan because it reduces there reserves they are required to keep on hand ( aproximatly 10%)
Is this correct? Could you explain in detail how you would present the figures if correct? Don’t want to sound stupid.
Thanks so much,
Jeff
Posted by NJDave on December 05, 1999 at 10:45:07:
In the complex arena of mortgage loan servicing, there are mortgage pool investors, loan servicers, master servicers, PMI companies, etc.
If you are in negotiations with a bank who holds their mortgages versus selling their mortgages, then your strategy might work. But if you are negotiating with a third party mortgage loan servicer… that argumnent had better be used to augment a more comprehensive proposal.
I agree with Ed. G. Unless it is a very small bank (are there any of those left?), the person you will be dealing with probably has no idea of what the bank’s reserve situation is. His job is to get the most return he can get out of the delinquent loan. S/he also might not have anything to do with creating loans, so that approach might not work. Stick to the factual basis for your offer.