The Banks Get a Beat Down
Brad_Davidson June 24th, 2008
I see every day how badly the banks are getting hammered on the bad loans they made. It’s made me a lot of money shorting banks stocks and writing puts.
Here are some prime examples of the losses they’re taking.
 
23 Leeds Ln., Aliso Viejo
3bdr 2ba 1800 sqft. On the market for $489,000. This house sold for $685,000 in May 2004. We weren’t even at the peak yet in 2004. The buyers put $75,000 down when they bought but pulled that same $75,000 out a year later. The bank eats the entire $685,000 plus the 4 to 6 month of payments that weren’t made plus 6% of the sales price going to commissions.
Let’s add it up: (all rough numbers but close enough)
Price difference   $196,000
Missed payments $ 18,000
Commission          $ 29,000
                              $ 243,000
2 or 3 different lenders are losing $243,000 on a $685,000 loan. That’s a 35% loss. And we’re talking Aliso Viejo, an area of relative stability.
Next.
21595 Audubon Way, Lake Forest
3brd 2 ba, 1070 sqft. On the market for $372,500. This house sold for $605,000 in November 2005. 100% financing. Interesting fact…. the Trustees sale date in the tax record is dated 5/29/08. The bank took this property back less than a month ago.
Here’s what the banks lost:
Price difference    $233,000
Missed payments $ 17,000
Commission      $ 30,000
                           $270,000
Lenders are losing $270,000 on a $605,000 loan. That’s a 44% loss. I’m really surprised at how hard hit Lake Forest has been. I’ve always thought of it as a desirable area.
Here is the winner, or loser if you own stock in large lending institutions.
1609 S. Woodland Pl., Santa Ana
3 bdr 2 ba 1290 sqft. On the market for $305,000. Sold for $587,000 in August 2005. 100% financing through New Century. Plus they got a $25,000 equity loan from BofA in 2006.
Bank Loses
Price difference    $ 282,000
Missed payments $   17,000
Equity loan             $ 25,000
Commission           $ 18,000
                                 $352,000
Lenders are losing $352,000 on a $587,000 loan. That’s a 60% Hit!!!! That is a big fat red mark on the balance sheet and there are hundreds more in Santa Ana.
Wow, that Leeds lane is in my neighborhood. That’s a beatdown in that area. Some of my friends sold a house in that same neighborhood in the 600’s last year and moved out of state.
I talked to them recently and they were so happy to have gotten out. The trick? They priced it to go while things were still slipping and before banks started dumping.
Chuck
One thing you arent adding into the equation: the amount of payments they actually made. Sure the bank is upside down, but even on an IO or a min pay OptionARM the bank was still bringing in money.
In these bank loss calculations, are you assuming a single 100% financing mortgage? With an 80/20 piggyback, the bank with the 2nd mortgage would lose 100%, but the bank with the 1st mortgage would lose a little less. Granted that’s still a huge haircut, but not quite as bad as you’ve shown in your calculations. (and the 2nd lien holder is totally screwed)
To keep my calculations simple I used a 100% loan at 6%. The lost payments were probably actually more because they WERE 80/20 loans with 9% rates on the second. I also didn’t factor in the legal costs associated with a foreclosure that the bank had to eat. Nor did I factor in the costs to get rid of the occupants after the foreclosure or the clean up costs or the utilities and taxes they incurred while owning the property. I also didn’t factor in the possibility of a NegAm loan. My figures are actually being generous to the lender.
The banks’ losses!
I don’t think so. They are not in this business to lose. Also, they are the real boss, running this country. Not our elected president and congress.
Wait until the massive bailout bill gets passed both houses and signed by our president. I know he said he’d veto it, but it’s just a symbolic gesture.
And the banks will be laughing all the way to …the banks.
Because they are the banks…
Because they are running this country.
And we will all suffer. We and our grand-children, and our great-grandchildren, and our great-greats will pay for this.
Taxes are going higher and higher.
Because we the tax payers of this great country are not running it.
Because we are all losers.
unsuspecting, willing, and naive losers.
And we deserve to lose.
Anthony I agree!
Banks, insurance companies, lobyist and special interest groups.
Someone gave me a great book 2 yrs ago..”The Creature from Jelyll Island” eye opener!
It seems as if Russia, China and the Arab nations are outsmarting us on the chess game and if not, the big corporations are selling out since their shareholders don’t care where the dinero is coming from. and all we can do is blame the Mexican workers.
But we are certainly loosing the energy war..at least it seems that way from the streets..since most of the time that’s what pedestrians see.
I think 911 is being felt and it will continue for years to come.
A few years ago, I would have asked some of the posters to get their doctors to up their meds a bit, but this time I think I’ll pass. I think I need my doctor to up my meds, I’m starting to believe all of this conspiracy crap.
I’m just hoping 10 years from now when we’re 80% reliant on solar and solar-produced hydrogen that we’ll look back on this time and laugh about how we were so worried about “energy”.
That hope is waning, but I’m still hoping.
Chuck Ponzi
I also hope the same…fuel cell batteries in every home and vehicle..but until then ..the oil companies will be fighting the scientists and lobbying strong for delays..therefore putting more trillions intheir pockets.
I remember Toyota was faced with a very intense campaigne aimed at discrediting their effort in introducing their first hybrid vehicle, the Prius, to North American market nearly 6-7 years ago.
Exploding batteries, cars up in flames, costly battery replacements,…..
Some of those original Priuses are still on the road today!
And we all know who started those campaignes. The big American automobile manufacturer’s association, the Texan oilmen’s big corporations.
You can choose to believe or not to believe these “conspiracy craps”.
The fact that in this country big corporations run the show remains!
I feel so happy now that GM, Ford, and the lowly Chrysler corps are all getting their butts kicked by the Toyota and the likes.
At the same time I feel sad because my patriotism and my feeling for my compatriots are getting wounded.
The same can be said for this whole real estate debacle.
I wonder when do the ordinary citizens, bloggers, talking heads, regulators, financial instutions, cops, and politicians decide that people who steal a couple hundred thousand real dollars are thieves?
I am for prosecuting these people.
And fraudulent mortgage brokers, investment banks, and their shills, the rating agencies.
I think there’s an island in the San Francisco bay that could be used to house their sorry selves.
Of course, we could feel really really sorry for all them and go broke too. Oh wait, that’s happening….
It seems that buyers, lenders and sellers are losing in today’s real estate market. When will there be a time that everyone is happy? Hopefully sooner rather than later!