When people hear that banks tolerate a sales process that fails to get them the highest price, or fail to favor cash buyers more certain to go through with the sale, they get all mad and think the banks are incompetent.
That’s not true – the banks are very competent. They realize that their survival and health is no longer dependent on how much is charged for loans than must be charged off. Instead, it depends on shoveling as many transactions through as possible, that are as big as possible. If losses occur because the transaction are dumb, then the banks won’t have to eat the losses, taxpayers will. They also realize that the government wants them to lend as much as possible, to as many people as possible, and they will be rewarded for doing that.
Based on this astute analysis of their real role in society, bankers are doing what they are all but being told to do: lend with abandon, and bill any losses to the government. This is showing up in the foreclosure process. Why should banks or bank employees care if REOs are sold for less than they could get? If a big bank loses $10 billion instead of $7 billion because of this, it’s just a 3 more billion that must come from the govt (usually in the form of well-hidden subsidies such as loan guarantees, or high loan spreads caused by low short term interest rates, or…)
If any big bank thought that its survival, and that of its management, truly depended on getting the best price for its REOs, then they would find a way to do that, and not be overwhelmed logistically as they are.
