The Indymac Slap in our Face

[Arraya]

It’s quite rare that the FDIC would respond to a blogger. It must have really gotten under their skin. Zerohedge has been going back in forth on a few issues with the Goldmine Sach’s PR people. It’s good to see blogs are starting to make a big impact on establishment lines.

[air_ogi]

ZeroHedge is an echo chamber for financial truthers.

They post all kinds of ridiculous crap and see what sticks. Of course, don’t bother commenting on their posts, since if you don’t drink the coolaid, you’ll get moderated.

Calculated Risk >> ZeroHedge.

[air_ogi]

ZeroHedge is an echo chamber for financial truthers.

They post all kinds of ridiculous crap and see what sticks. Of course, don’t bother commenting on their posts, since if you don’t drink the coolaid, you’ll get moderated.

Calculated Risk >> ZeroHedge.

[air_ogi]

ZeroHedge is an echo chamber for financial truthers.

They post all kinds of ridiculous crap and see what sticks. Of course, don’t bother commenting on their posts, since if you don’t drink the coolaid, you’ll get moderated.

Calculated Risk >> ZeroHedge.

[air_ogi]

ZeroHedge is an echo chamber for financial truthers.

They post all kinds of ridiculous crap and see what sticks. Of course, don’t bother commenting on their posts, since if you don’t drink the coolaid, you’ll get moderated.

Calculated Risk >> ZeroHedge.

[air_ogi]

ZeroHedge is an echo chamber for financial truthers.

They post all kinds of ridiculous crap and see what sticks. Of course, don’t bother commenting on their posts, since if you don’t drink the coolaid, you’ll get moderated.

Calculated Risk >> ZeroHedge.

[Arraya]

Several times per week, I get phone calls from attorneys. These calls all start out the same. “I am unable to get loan modifications done through a lender. What can I do?” The first question I ask is if the lender is Indymac/One West. Invariably, it is.

I also field the same type of calls from homeowners and from loan modification companies. Everyone is having the problem of Indymac not cooperating with regard to doing loan modifications. Furthermore, if I google the issue or check out loan modification forums, the same is true on the internet.

What is going on with Indymac/One West? Why aren’t they doing loan modifications? This article will try and bring together the known facts for a better understanding of the situation, and discuss what the Indymac situation means for foreclosures in general — and the government’s response to the crisis. First, to understand the situation today, one must have an understanding of the recent history of Indymac.

From I am facing foreclosure dot com. It wont let me link for some reason. Go look at that article.

[Arraya]

Several times per week, I get phone calls from attorneys. These calls all start out the same. “I am unable to get loan modifications done through a lender. What can I do?” The first question I ask is if the lender is Indymac/One West. Invariably, it is.

I also field the same type of calls from homeowners and from loan modification companies. Everyone is having the problem of Indymac not cooperating with regard to doing loan modifications. Furthermore, if I google the issue or check out loan modification forums, the same is true on the internet.

What is going on with Indymac/One West? Why aren’t they doing loan modifications? This article will try and bring together the known facts for a better understanding of the situation, and discuss what the Indymac situation means for foreclosures in general — and the government’s response to the crisis. First, to understand the situation today, one must have an understanding of the recent history of Indymac.

From I am facing foreclosure dot com. It wont let me link for some reason. Go look at that article.

[Arraya]

Several times per week, I get phone calls from attorneys. These calls all start out the same. “I am unable to get loan modifications done through a lender. What can I do?” The first question I ask is if the lender is Indymac/One West. Invariably, it is.

I also field the same type of calls from homeowners and from loan modification companies. Everyone is having the problem of Indymac not cooperating with regard to doing loan modifications. Furthermore, if I google the issue or check out loan modification forums, the same is true on the internet.

What is going on with Indymac/One West? Why aren’t they doing loan modifications? This article will try and bring together the known facts for a better understanding of the situation, and discuss what the Indymac situation means for foreclosures in general — and the government’s response to the crisis. First, to understand the situation today, one must have an understanding of the recent history of Indymac.

From I am facing foreclosure dot com. It wont let me link for some reason. Go look at that article.

[Arraya]

Several times per week, I get phone calls from attorneys. These calls all start out the same. “I am unable to get loan modifications done through a lender. What can I do?” The first question I ask is if the lender is Indymac/One West. Invariably, it is.

I also field the same type of calls from homeowners and from loan modification companies. Everyone is having the problem of Indymac not cooperating with regard to doing loan modifications. Furthermore, if I google the issue or check out loan modification forums, the same is true on the internet.

What is going on with Indymac/One West? Why aren’t they doing loan modifications? This article will try and bring together the known facts for a better understanding of the situation, and discuss what the Indymac situation means for foreclosures in general — and the government’s response to the crisis. First, to understand the situation today, one must have an understanding of the recent history of Indymac.

From I am facing foreclosure dot com. It wont let me link for some reason. Go look at that article.

[Arraya]

Several times per week, I get phone calls from attorneys. These calls all start out the same. “I am unable to get loan modifications done through a lender. What can I do?” The first question I ask is if the lender is Indymac/One West. Invariably, it is.

I also field the same type of calls from homeowners and from loan modification companies. Everyone is having the problem of Indymac not cooperating with regard to doing loan modifications. Furthermore, if I google the issue or check out loan modification forums, the same is true on the internet.

What is going on with Indymac/One West? Why aren’t they doing loan modifications? This article will try and bring together the known facts for a better understanding of the situation, and discuss what the Indymac situation means for foreclosures in general — and the government’s response to the crisis. First, to understand the situation today, one must have an understanding of the recent history of Indymac.

From I am facing foreclosure dot com. It wont let me link for some reason. Go look at that article.

[davelj]

[quote=jpinpb]Thanks for the link SD Transplant. Very frustrating and upsetting. I wonder how all those in favor of the bank bailout feel now.

CR says it’s not true.[/quote]

CR is on the right track. Zero Hedge – nor the folks in the video – apparently understand the mechanics of the loss-share arrangements. Which is typical. Ready, fire, aim.

A couple of things to keep in mind:

(1) This was a competitive bidding process. Several parties were involved and came up with various bid structures, of which the FDIC chose the OneWest group as the “least cost” resolution to the FDIC. Having looked at many different bids for failed banks over the last year – although, admittedly, none nearly as large as IndyMac – the FDIC doesn’t play favorites in this process. It’s a pretty simple calculus: (1) What will cost the insurance fund the least amount of money, and (2) Are we sure that the acquiring institution has the both the capital and expertise to integrate the acquisition.
(2) The loss-share arrangements have a ten year tail on the residential RE portion (five years on CRE) during which losses are offset against gains on a portfolio basis. That is, any gains that OneWest realizes in the fashion outlined in the video (for argument’s sake, let’s just assume the math is right on the individual transaction – which doesn’t appear to be the case) are going to be offset by losses. Trust me – the losses are going to far outweigh the gains – which is why virtually every bidder is demanding a loss-share arrangement. (Some bidders don’t want the loss-share arrangement because they don’t want to deal with the tracking and accounting related to distributions and receipts under the arrangements. These bidders just make a straight deep discount bid for the assets, and they aren’t winning many bids.)
(3) This has almost nothing to do with taxpayers. This is about the FDIC insurance fund. Consequently it’s the banks themselves that will be subsidizing the losses taken on in these transactions. (Although I presume that eventually most of these costs will be passed on to consumers in one way, shape or form. That’s how the world works.)

Did OneWest get a good deal in aggregate? Perhaps. Frankly, we’ll know in 3-4 years. It’s too early to tell. (Recall that David Bonderman at TPG thought he was getting a good deal when he re-capped WAMU and look how that turned out. A big fat zero.) If all they did was buy the assets at fair value (in hindsight, of course, and adjusted for the loss-share) then it was a good deal because they got the deposits for zero premium, so things should work out. But, again, we won’t know for a while. The loss-share arrangements tend to be pretty favorable for the acquirer, but do not guarantee bullet proof gains. Also, again, there are multiple bidders on most of these transactions and no one wants to leave “easy” money on the table.

Full disclosure: I don’t give a rat’s ass about the OneWest group – they are WAY above my station in life professionally. But the folks in the video clearly don’t have a good understanding of the complexities surrounding these transactions. By the very nature of the loss-share arrangements, there’s a lot of downside protection for the bidders – but it’s not a total giveaway. I’ve seen plenty of bids recently where losers scratched their heads and said, “I don’t think the winning bank is going to do very well on this one [given their bid].”

A quick example of how you can lose money. $1 billion asset bank – let’s assume all assets are loans just to make things simple. 80/20 threshold is set at $500 million; 95/5 threshold is below $500 million. Let’s assume $400 million in total losses (40%) in the portfolio. The FDIC’s share is $320 million. Despite having the loss-share arrangement, if the winning bidder only assumed 35% aggregate losses in the portfolio, they will lose $30 million net. My point is, you can still very easily lose on these transactions even with the FDIC loss-share arrangement. It’s entirely dependent on how aggressive your bid is.

Anyhow, despite its flaws, this process is certainly more efficient than the RTC was.

[davelj]

[quote=jpinpb]Thanks for the link SD Transplant. Very frustrating and upsetting. I wonder how all those in favor of the bank bailout feel now.

CR says it’s not true.[/quote]

CR is on the right track. Zero Hedge – nor the folks in the video – apparently understand the mechanics of the loss-share arrangements. Which is typical. Ready, fire, aim.

A couple of things to keep in mind:

(1) This was a competitive bidding process. Several parties were involved and came up with various bid structures, of which the FDIC chose the OneWest group as the “least cost” resolution to the FDIC. Having looked at many different bids for failed banks over the last year – although, admittedly, none nearly as large as IndyMac – the FDIC doesn’t play favorites in this process. It’s a pretty simple calculus: (1) What will cost the insurance fund the least amount of money, and (2) Are we sure that the acquiring institution has the both the capital and expertise to integrate the acquisition.
(2) The loss-share arrangements have a ten year tail on the residential RE portion (five years on CRE) during which losses are offset against gains on a portfolio basis. That is, any gains that OneWest realizes in the fashion outlined in the video (for argument’s sake, let’s just assume the math is right on the individual transaction – which doesn’t appear to be the case) are going to be offset by losses. Trust me – the losses are going to far outweigh the gains – which is why virtually every bidder is demanding a loss-share arrangement. (Some bidders don’t want the loss-share arrangement because they don’t want to deal with the tracking and accounting related to distributions and receipts under the arrangements. These bidders just make a straight deep discount bid for the assets, and they aren’t winning many bids.)
(3) This has almost nothing to do with taxpayers. This is about the FDIC insurance fund. Consequently it’s the banks themselves that will be subsidizing the losses taken on in these transactions. (Although I presume that eventually most of these costs will be passed on to consumers in one way, shape or form. That’s how the world works.)

Did OneWest get a good deal in aggregate? Perhaps. Frankly, we’ll know in 3-4 years. It’s too early to tell. (Recall that David Bonderman at TPG thought he was getting a good deal when he re-capped WAMU and look how that turned out. A big fat zero.) If all they did was buy the assets at fair value (in hindsight, of course, and adjusted for the loss-share) then it was a good deal because they got the deposits for zero premium, so things should work out. But, again, we won’t know for a while. The loss-share arrangements tend to be pretty favorable for the acquirer, but do not guarantee bullet proof gains. Also, again, there are multiple bidders on most of these transactions and no one wants to leave “easy” money on the table.

Full disclosure: I don’t give a rat’s ass about the OneWest group – they are WAY above my station in life professionally. But the folks in the video clearly don’t have a good understanding of the complexities surrounding these transactions. By the very nature of the loss-share arrangements, there’s a lot of downside protection for the bidders – but it’s not a total giveaway. I’ve seen plenty of bids recently where losers scratched their heads and said, “I don’t think the winning bank is going to do very well on this one [given their bid].”

A quick example of how you can lose money. $1 billion asset bank – let’s assume all assets are loans just to make things simple. 80/20 threshold is set at $500 million; 95/5 threshold is below $500 million. Let’s assume $400 million in total losses (40%) in the portfolio. The FDIC’s share is $320 million. Despite having the loss-share arrangement, if the winning bidder only assumed 35% aggregate losses in the portfolio, they will lose $30 million net. My point is, you can still very easily lose on these transactions even with the FDIC loss-share arrangement. It’s entirely dependent on how aggressive your bid is.

Anyhow, despite its flaws, this process is certainly more efficient than the RTC was.

[davelj]

[quote=jpinpb]Thanks for the link SD Transplant. Very frustrating and upsetting. I wonder how all those in favor of the bank bailout feel now.

CR says it’s not true.[/quote]

CR is on the right track. Zero Hedge – nor the folks in the video – apparently understand the mechanics of the loss-share arrangements. Which is typical. Ready, fire, aim.

A couple of things to keep in mind:

(1) This was a competitive bidding process. Several parties were involved and came up with various bid structures, of which the FDIC chose the OneWest group as the “least cost” resolution to the FDIC. Having looked at many different bids for failed banks over the last year – although, admittedly, none nearly as large as IndyMac – the FDIC doesn’t play favorites in this process. It’s a pretty simple calculus: (1) What will cost the insurance fund the least amount of money, and (2) Are we sure that the acquiring institution has the both the capital and expertise to integrate the acquisition.
(2) The loss-share arrangements have a ten year tail on the residential RE portion (five years on CRE) during which losses are offset against gains on a portfolio basis. That is, any gains that OneWest realizes in the fashion outlined in the video (for argument’s sake, let’s just assume the math is right on the individual transaction – which doesn’t appear to be the case) are going to be offset by losses. Trust me – the losses are going to far outweigh the gains – which is why virtually every bidder is demanding a loss-share arrangement. (Some bidders don’t want the loss-share arrangement because they don’t want to deal with the tracking and accounting related to distributions and receipts under the arrangements. These bidders just make a straight deep discount bid for the assets, and they aren’t winning many bids.)
(3) This has almost nothing to do with taxpayers. This is about the FDIC insurance fund. Consequently it’s the banks themselves that will be subsidizing the losses taken on in these transactions. (Although I presume that eventually most of these costs will be passed on to consumers in one way, shape or form. That’s how the world works.)

Did OneWest get a good deal in aggregate? Perhaps. Frankly, we’ll know in 3-4 years. It’s too early to tell. (Recall that David Bonderman at TPG thought he was getting a good deal when he re-capped WAMU and look how that turned out. A big fat zero.) If all they did was buy the assets at fair value (in hindsight, of course, and adjusted for the loss-share) then it was a good deal because they got the deposits for zero premium, so things should work out. But, again, we won’t know for a while. The loss-share arrangements tend to be pretty favorable for the acquirer, but do not guarantee bullet proof gains. Also, again, there are multiple bidders on most of these transactions and no one wants to leave “easy” money on the table.

Full disclosure: I don’t give a rat’s ass about the OneWest group – they are WAY above my station in life professionally. But the folks in the video clearly don’t have a good understanding of the complexities surrounding these transactions. By the very nature of the loss-share arrangements, there’s a lot of downside protection for the bidders – but it’s not a total giveaway. I’ve seen plenty of bids recently where losers scratched their heads and said, “I don’t think the winning bank is going to do very well on this one [given their bid].”

A quick example of how you can lose money. $1 billion asset bank – let’s assume all assets are loans just to make things simple. 80/20 threshold is set at $500 million; 95/5 threshold is below $500 million. Let’s assume $400 million in total losses (40%) in the portfolio. The FDIC’s share is $320 million. Despite having the loss-share arrangement, if the winning bidder only assumed 35% aggregate losses in the portfolio, they will lose $30 million net. My point is, you can still very easily lose on these transactions even with the FDIC loss-share arrangement. It’s entirely dependent on how aggressive your bid is.

Anyhow, despite its flaws, this process is certainly more efficient than the RTC was.

[davelj]

[quote=jpinpb]Thanks for the link SD Transplant. Very frustrating and upsetting. I wonder how all those in favor of the bank bailout feel now.

CR says it’s not true.[/quote]

CR is on the right track. Zero Hedge – nor the folks in the video – apparently understand the mechanics of the loss-share arrangements. Which is typical. Ready, fire, aim.

A couple of things to keep in mind:

(1) This was a competitive bidding process. Several parties were involved and came up with various bid structures, of which the FDIC chose the OneWest group as the “least cost” resolution to the FDIC. Having looked at many different bids for failed banks over the last year – although, admittedly, none nearly as large as IndyMac – the FDIC doesn’t play favorites in this process. It’s a pretty simple calculus: (1) What will cost the insurance fund the least amount of money, and (2) Are we sure that the acquiring institution has the both the capital and expertise to integrate the acquisition.
(2) The loss-share arrangements have a ten year tail on the residential RE portion (five years on CRE) during which losses are offset against gains on a portfolio basis. That is, any gains that OneWest realizes in the fashion outlined in the video (for argument’s sake, let’s just assume the math is right on the individual transaction – which doesn’t appear to be the case) are going to be offset by losses. Trust me – the losses are going to far outweigh the gains – which is why virtually every bidder is demanding a loss-share arrangement. (Some bidders don’t want the loss-share arrangement because they don’t want to deal with the tracking and accounting related to distributions and receipts under the arrangements. These bidders just make a straight deep discount bid for the assets, and they aren’t winning many bids.)
(3) This has almost nothing to do with taxpayers. This is about the FDIC insurance fund. Consequently it’s the banks themselves that will be subsidizing the losses taken on in these transactions. (Although I presume that eventually most of these costs will be passed on to consumers in one way, shape or form. That’s how the world works.)

Did OneWest get a good deal in aggregate? Perhaps. Frankly, we’ll know in 3-4 years. It’s too early to tell. (Recall that David Bonderman at TPG thought he was getting a good deal when he re-capped WAMU and look how that turned out. A big fat zero.) If all they did was buy the assets at fair value (in hindsight, of course, and adjusted for the loss-share) then it was a good deal because they got the deposits for zero premium, so things should work out. But, again, we won’t know for a while. The loss-share arrangements tend to be pretty favorable for the acquirer, but do not guarantee bullet proof gains. Also, again, there are multiple bidders on most of these transactions and no one wants to leave “easy” money on the table.

Full disclosure: I don’t give a rat’s ass about the OneWest group – they are WAY above my station in life professionally. But the folks in the video clearly don’t have a good understanding of the complexities surrounding these transactions. By the very nature of the loss-share arrangements, there’s a lot of downside protection for the bidders – but it’s not a total giveaway. I’ve seen plenty of bids recently where losers scratched their heads and said, “I don’t think the winning bank is going to do very well on this one [given their bid].”

A quick example of how you can lose money. $1 billion asset bank – let’s assume all assets are loans just to make things simple. 80/20 threshold is set at $500 million; 95/5 threshold is below $500 million. Let’s assume $400 million in total losses (40%) in the portfolio. The FDIC’s share is $320 million. Despite having the loss-share arrangement, if the winning bidder only assumed 35% aggregate losses in the portfolio, they will lose $30 million net. My point is, you can still very easily lose on these transactions even with the FDIC loss-share arrangement. It’s entirely dependent on how aggressive your bid is.

Anyhow, despite its flaws, this process is certainly more efficient than the RTC was.

[Author]

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