Assume there is a home that has a $250,000 mortgage and the loan is in default. Now assume that the owner of that mortgage wants to sell it. Assume further that the mortgage is bundled up with a bunch of other busted mortgages and sold at a deep discount from par. Say the price of the loan package is 40 cents on the dollar. Now finally assume that the property can be sold at an auction level price of $175,000.
If you add up all my assumptions you get a situation where the mortgage is purchased for $100k (250*.4) and the actual value of the assets securing the mortgage is worth $175k. That 75k for a “flip” is big money if there is a lot of them to be done. And as Realtytrac says it is a million or so a year.
If you’re reeling from all those “assume this” crap I was selling don’t be. What I describe is happening in very big numbers. Busted whole mortgage loans are being packaged and sold to investors to the tune of at least $10b a month. Some of the biggest players on Wall Street are in the game of arbing the sellers. Packages are regularly being put together and sold. Who are these sellers? A lot of the banks. The big ones have sold large amounts, the smaller banks have sold regional portfolios at distressed prices. But by far and away the biggest sellers that have created the “profit window” all reside in D.C. A big seller has been the FDIC. Fannie, Freddie and FHA have also been steady sellers.
I have no idea how much abuse there has been when secondary market purchasers of mortgages push through foreclosures and auction off homes to make a big profit. But the answer is it is not zero. What if only 10% of foreclosures were the result of some outfit or the other pushing to make some fast cash? What if they were doing it on the cheap. Say $10k a pop. Well that comes to a billion a year. And for that much money people will pull all matter of strings. They will buy lawyers and document processors who will gladly take the dough. When you have nine-figure money and a short time window of opportunity you press it as hard and fast as you can. That is how it works.
Two possible headlines we may see:
In an effort minimize losses Federal Agencies relied on improperly documented foreclosure procedures.
Thousands may be affected. FHFA to issue apology.
Or it could look like this:
Federal Agencies Sold Loans to Scheisters
2. Another sample of how rotten the system is but also how much they even do not care anymore about being bribed publically for anyone to see. Obama is a perfect president creation for them as his pattern is to attack them as an media event but in real terms he lets them get away even with perks as he did for Wallstreet.
Improper payments made to foreclosure agents. Billions of profits at stake. Hundreds of thousands lining up for class action suit.