February 20th, 2010 1:00 PM by Preston Ware
As seen on HULIQ.com
This week as I was sitting at my desk doing my best to help some of my mortgage customers, a very interesting video shot across my desk. Two guys who create You Tube videos for TBWS Daily were talking about a seemingly underhanded deal that took place with regards to the sale of the assets of the now defunct IndyMac Bank. These assets were bought by One West bank which was handed a lucrative deal by the FDIC. Today the L.A Times reported that One West bank posted a profit of 1.57 billion from the sale of these assets less than one year after the purchase. A profit greater than the purchase price!
(watch the video)
When I first saw the video I was shocked that the government would make such an arrangement. Looking at the many blog comments underneath the video many angry homeowners expressed anger with their dealings with the servicing department of the bank. The allegations are that it so profitable for the bank to allow a short sale or a foreclosure why should they bother trying to work with the existing homeowner and a loan modification. I have heard from friends who modify loans for a living that IndyMac was always difficult to work. Now I understand why. Money!
When the Obama administration passed the Home Affordable Program half of the legislation was designed make a set of standardized guidelines for banks to follow when dealing with distressed homeowners in need of modifications. This was good news because up to then one bank had one policy, then a different bank would have a different approach etc. Perhaps One West isn’t following those guidelines as tightly as they should if they stand to make $100,000 on each short sale or foreclosed home.
The larger part of this story is the FDIC. Are they in trouble or maybe do they see trouble on the horizon? What motivated them to give such a sweet deal to this privately held bank with ties to Goldman Sachs. Whenever you are dealing in bad debts, due to the distressed situation the guy with the deep pockets is usually able to buy the assets for 50 cents on the dollar. In this case it seems that One West did better than that.
Last year September I was talking with a very savvy borrower who changed my views on where interest rates were headed. He pointed out to me that many banks were tightening up their balance sheets and saving in hopes of riding out the third phase of the mortgage meltdown, the commercial property meltdown. This would in turn slow the velocity of money and keep interest rates low. He pointed me towards a couple of sources discussing the health of our banking system one of which was called institutional risk analytics. In this information the experts pointed out that the FDIC had 400 banks in the “F” category of stability where other analysts had 2256 in the “F” category and projected that approximately 1000 banks would go under in the next year. Also back in September the reserve accounts at the FDIC had already been depleted to 10 billion from 60 billion. What scared me the most was that these analysts were predicting 400 billion in losses in the next year.
Perhaps the FDIC had these figures in mind when they unloaded such a colossal mess over to One West bank. Supposedly 67 bids were made for the failed IndyMac assets and the FDIC chose a well experienced, well funded group to take on the first test of how to deal with a failed bank. Based on projections there most likely will be many more opportunities for other players to get a chance in the coming year. Also, at that time, our banking system was seemingly in much more turmoil than it is today. We will see as a few more banks go under, if the FDIC takes it time selling the assets and has an open house first before going to the garage sale.