- B of A to speed forclosures on loans serviced for investors
- Irvine 5bd/4.5ba Northwood Pointe - $1,465,000
- Irvine 4bd/2.5ba 2,870 sqft home in Northwood - $1,150,000
Posted: 30 Jun 2011 03:28 AM PDT
Bank of America as part of a settlement deal will speed up the foreclosure process on the loans it services for investors.
Irvine Home Address ... 10 SILKGRASS Irvine, CA 92614
In January I asked, Did BofA get a sweetheart deal at the expense of the US Taxpayer? When B of A purchased Countrywide, the government agreed to backstop their losses after certain thresholds were met. This limitation on downside risk is the only reason B of A was willing to buy the steaming pile of mortgages on Countrywide's balance sheet. I don't know if we are on the hook for the losses recently announced, but B of A is getting serious about resolving the issues pertaining to the crap on its balance sheet and the liabilities it took on when it bought Countrywide.
Payment to investors for mortgage meltdown reportedly the largest ever
msnbc.com staff and news service reports -- June 29, 2011
This will establish a precedent other major banks will be forced to deal with. Expect to see more such announcements in the coming months.
Notice the bullshit implication that B of A was largely responsible with its lending. B of A has huge problems with its own portfolio, but since B of A was less stupid than Countrywide, B of A can look relatively responsible in comparison.
As banks earn more money, they can write off more bad debt. This will ultimately help them stop the amend-pretend-extend dance and clean up their balance sheets. This is an important, albeit painful, step forward.
B of A settled for 2% of the original loan balances, and that is a reasonable assessment of the claims against them? Reasonable by B of A standards perhaps. There is no way that is reasonable by the standards of the investors, nor does it scratch the surface on the losses those investors incurred by buying the Countrywide trash.
The real story here isn't the settlement losses, it is what B of A has agreed to relative to its servicing operations.
Investor settlement includes promise to outsource 'high risk' mortgages
By John W. Schoen -- June 29, 2011
B of A and other major banks who service investor loans have two incentives not to foreclose. The first is as mentioned above; they make more money on the service fees than they make if they foreclose and terminate the mortgage. Second, the major banks have huge second mortgage and HELOC portfolios that are subordinate to the first mortgages they service for others. Each foreclosure causes them to lose everything on these underwater seconds.
The choice for the major banks is to keep obtaining their large service fees and keep their seconds alive or foreclose and recognize large losses. It shouldn't be a surprise they chose not to foreclose on loans they service for outside investors.
In Higher loss severities will force lenders to resolve bad loans and liquidate REO, I noted that "Each month a loan is delinquent it costs 1.5% of the loan balance in carrying costs. That is a troubling rate of financial decay. Time is the actually the bank's enemy when it comes to loan loss severities. Banks are providing squatters time in hopes they will get current and keep the zombie debt alive. Eventually, the carrying costs are going to make the loss severities so large that banks will either liquidate or implode, after which they will be liquidated anyway."
Did B of A start reading the IHB? Last November I argued that Foreclosures are essential to the economic recovery. I have also argued that keeping people in shadow inventory isn't good for the lender or the delinquent borrower. Until I read the statement above, I didn't think either group agreed with me.
Holdouts won't likely get a better deal, and they will merely waste attorney's fees trying.
In the Great Housing Bubble, I pointed out that the entire subprime lending model masked its poor performance by an appreciating market -- an appreciation induced by subprime lending itself. That was the Ponzi scheme embedded within the failed business model. Once prices collapsed, the high default rates translated into large default losses, and the risk became untenable. Hence, we have no subprime lending today, except perhaps for the FHA.
Our banking system is still in jeopardy. It faces mounting losses, devalued REO, a huge shadow inventory, and falling house prices -- which won't rebound because of the inventory they must liquidate. Fortunately for them, the federal reserve is loaning them money for nothing, and they can at least buy government treasuries earning 3%. Over time, a very long time, they will earn their way out of this hole. In the meantime, our economy will struggle.
A rare good deal?
The owner of today's featured property has owned it for a long time. My records go back to 1995, and it doesn't pick up the original purchase. This property is owned free-and-clear, so no lender approval is required to sell it. The asking price is at or below recent comps, and the cost of ownership is comparable to rental with today's 4.5% interest rate.
Even in today's weak real estate market, I don't expect this $244/SF property to last long.
If we see more pricing like this, I will become more bullish. The price is still too high, but the 4.5% interest rate is making it payment affordable relative to a rental. In high demand markets like Irvine, those circumstances will prompt people to buy despite the likelihood of lower prices.
Irvine House Address ... 10 SILKGRASS Irvine, CA 92614
Posted: 29 Jun 2011 04:45 PM PDT
Posted: 29 Jun 2011 04:39 PM PDT
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