When companies publicize their efforts at “Home preservation” and helping people avoid foreclosure, its is mostly that, a PR move to combat criticism of predatory lending practices. That being said, the big banks really have no desire to acquire all the assests that back their loans–they are in the loan business, not the land business. But, if there is a way to “help” borrowers not go into foreclosure, and make a few bucks off of it, they will be all over it.
But “reverting to the bank” is not that simple. They have a lot of options before that occurs and they became REO properties. One of the biggest ways now is to sell non-performing loans to another company (or division of the same company) who then makes them conforming loans (through better loss mitigation efforts, or even fudging the appraisal amounts or details so that they now magically “perform”), pools them together and resecuritizes them. This turns out to be a little Enron, because the same company will write off the loss, then sell them off for pennies to another division of the same company that then resecuritizes them at a HUGE profit. Question is, where’s the loss? Its gotta be somewhere, just doesn’t show up on the disclosures.
Also, when banks are forced to buy back, they then start up due diligence to see if any fraud was committed on the loans by any appraisers, brokers, originators, everyone. And they will fight it–which means that in the coming bloodbath anyone who has passed off funny paper will go out of business (if the haven’t already). If fraud is proven, then companies have some insurance protection (maybe).
If it ends up in an REO department of a big bank, then the incentives they offer their staff will determine final distribution. If they give bonuses for liquidating in 30 days, they will, and leave a lot of money on the table. IF they don’t then they have no problem letting it sit out there for 100 days, or even a year, trying to get an offer that comes closer to the appraised value. You will see them turn down offers that are significantly higher than what they will sell it for a year later, often by the same investor.
So, if you want to make some money on these buybacks, get to know the REO depts and salepeople at these big mortgage banks and servicers. THe same investors get the same sweetheart deals on these properties because of connections, pure and simple. Make a low low offer and wait. Make another low offer 6 months later. It takes patience, and flexibility on what and where you buy, but you can get them CHEAP.
And they want the landslide, asap, all at once. These companies are very diversified, if interest rates go up, the value of their servicing rights go up (because people with lower interest rate loans won’t be refi-ing out of them, and will keep them for longer, making the servicing rights more valuable.) They don’t care about market valuation; the only thing that matters is the value of the assest in comparison with the loan; if these are horribly out of whack, they will want to get out of those agreements as an industry, however they can, trim down by massive layoffs, and justify the losses as creatively as possible. And on to the next profitable fiction. It’s just business.
