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Short-Sales/REO’s - Posted by Nick
Posted by Nick on June 10, 2004 at 11:22:42:
It looks like I’m getting on the Short-Sale bandwagon like a lot of others are.
I’ve been reading the information available and one question that keeps going unanswered concerns the banks’ owning real estate.
I keep reading that “They don’t want to own r. e.”…“They can be penalized if they own too much.”…“They’d rather take a loss than have it in their inventory.”…but I don’t seem to find any details about their “predicament”.
Can someone either explain this scenario for me or direct me to some place where I can get the scoop on the consequences of banks and other lenders owning r. e.?
Also, I know that there is a paradox in r. e. investing in that realtors/agents, for the most part, don’t avail themselves of the opportunity to make money by investing; but it’s even more surprising that there is no network of bankers/lenders who take advantage of foreclosure situations! Is it illegal or unethical for them to do so? Do they have to be removed from the transaction at a certain level or what?
I hope I don’t sound too naive or even stupid, but I’m just looking for some clarity in my understanding of this arena.
Thanks in advance.
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Re: Short-Sales/REO’s - Posted by Niklaus Worth
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Re: Short-Sales/REO’s - Posted by Randy (SD)
Posted by Randy (SD) on June 10, 2004 at 12:10:29:
You are in for some very “dry” reading. Do a “Google” search on the subject if you must. A simple understanding is that a bank’s reserves are cash, Certificates of deposit and performing mortgages. Checking accounts are a liability (cost of doing business to attract new customers) real estate owned by the Bank is a liability NOT AN ASSET. A bank must maintain up to six times the value of REO properties in reserve, this means if they foreclose on a $100,000 house they freeze $600,000 of their cash reserves, this means there is $600,000 less to loan out to new mortgages.
You don’t have to fully understand the internal combustion engine to drive your car, likewise you don’t need to understand the financial balance sheets of a bank or mortgage lender to understand their motivation to eliminate these liabilities from the balance sheet - understand it is a liability to the lender not an asset and use that information to help them solve a problem. You may have heard the saying “if you owe the Bank $100,000 and can’t pay, you’re in trouble! If you owe the Bank $1 million and can’t pay… the banks in trouble”!
Re: Short-Sales/REO’s: Question - Posted by Ben (TX)
Posted by Ben (TX) on June 10, 2004 at 15:52:41:
The short-sale discussion apparently revolves around wholly bank-owned REOs. Where do Fannie Mae/Freddie Mac come in? I thought most mortgages are underwritten by Fannie Mae/Freddie Mac.
I tried making an offer on what turned out to be a Freddie Mac REO, and they were not even SLIGHTLY interested in negotiating - even though the house was literally falling apart. I’m told by my buyers’ agent that a retail customer made FM an offer on the house - and the lender turned down the loan because of the condition of the house. Freddie Mac in their wisdom simply required a $5000 NON-REFUNDABLE earnest money with the contract, in effect demanding a cash deal. And wouldn’t budge on price.