The truth behind bank negotiation struggles
Through changes in the economy and real estate environment in recent years, short sales and loan modifications have become a big problem…and a big fight. Sometimes there seems to be little or no logic behind the decisions of bank officials and their guidelines. There are countless unfortunate situations where a bank may not approve a $300,000 short sale, but will instead allow the property to be foreclosed on. After which, the same property that had someone willing to buy it for $300,000 ends up selling for $250,000 after foreclosure. An additional loss of $50,000 in this example. There are many other similar examples that happen every day, such as loan modifications that are made with only a very slight change in interest rate, only temporarily, or denied altogether only to allow the property to end up back in the hands of the bank. to sell. Sometimes it can appear that the banks are trying to destroy themselves. These situations continue to frustrate homeowners, sellers, buyers, prospective owners, and of course, real estate agents and brokers.
What is behind all this madness? Why do the largest institutions in the country seem so illogical and ridiculous? Are they really that bad at business that they don’t figure out how to cut their losses when given the chance? The answer to all these questions is: It’s not that simple (although perhaps in some cases the answer is simply Yes). If it were so simple that a bank could make a decision on their own to change the terms of the original mortgage note they were placed with, or to approve a short sale that would net them more than they would receive if they foreclosed on the home. I wish our financial system and our products were that simple. If only. Our financial system has become so overwhelmed with “creativity” that nothing is simple anymore. There are a few main reasons behind the madness that may shed some light.
Reason #1: Very few individual entities or individual homeowners own a single loan or mortgage on their own.
Why? CDO. Collateralized Debt Obligations (CDOs) are a type of Structured Asset-Backed Securities (ABS) whose value and payments are derived from a portfolio of underlying fixed-income assets. CDOs are assigned different risk classes, or tranches, so the “senior” tranches are considered the safest securities. Interest and principal payments are made in order of seniority, so junior tranches offer higher coupon payments (and interest rates) or lower prices to offset additional default risk. –From Wikipedia
In many cases, there is no single person or company to go to for the decision to accept or approve a change to any of the terms of the original agreement. Loans are made by one company that is sold to another and then bundled with hundreds of other loans of different types and sold like a giant layered cheesecake mutual fund to many different investors (other companies, hedge funds, China, there is another story, etc.). ) and attended by some other company. By the time a loan is made and completes its journey through the repackaging of Wall Street and ends up in adulthood with all other loans on the giant layered cheesecake, no one knows who owns which slice of the pie or How much does it cost.
Reason #2: “Not my job” — Anonymous scholar who has been sued before.
Due to reason #1, there are different companies that are assigned the job of servicing the loans. It is your job as the administrator to collect the payments. That is your job. Do not negotiate deals for something that does not belong to you. Of course, most admins have guidelines set out in their contracts that will allow them to make certain changes under certain circumstances. The bottom line is that it’s just not their job.
Reason #3″ Legality.
Let’s face it, we live in a legal world and a litigious society. When loans are made, sold, packaged, and resold, they are sold as a product with explicit terms. If these terms are changed after the product has been sold, is it still the same product? Of course not. If you bought a Ferrari and a week later a mechanic showed up at your house and replaced your engine with a Briggs and Stratton, I’m sure you’d be upset. You call the dealer who sold you the Ferrari that is now only going downhill and listen as he explains that “well those Ferrari engines have gotten pretty fickle and decided not to run anymore, but they will run if we just make a few minor changes.” and modify them at Briggs and Stratton. Hey, how about that? We saved your car!” Obviously you’re not amused and call your attorney. Loans are no different. They are sold as a commodity under the terms of the note. Institutions must do their job to service these loans as agreed upon when they were sold or they will breach the contract.Obviously the product (CDO) was a faulty creation and is no longer a working or working product.
In addition, it is the fiduciary duty and responsibility of the corporate officers of these institutions to do what is best for the corporation’s shareholders. It is not your duty to do what is best for the consumer. Shareholders only. If they did otherwise, they would be acting in bad faith with the people who entrust their investments to them. This is why government intervention in the private sector is definitely a gray area to be in. Not to mention a conflict of interest between the institutions and the consumers who owe them money.
So the next time you’re wondering why you can’t close a deal even though it seems perfectly reasonable, and the person on the other end of the phone seems completely unreasonable and illogical, remember, it’s not your job.