It’s in all the conservative news that the Bank of America is so distraught over their customers who are delinquent in their home loans, that they are suspending all foreclosures… nationwide. How thoughtful of them!
But before we shed too many tears, let me tell you of a friend in FL who was attempting to purchase a similar property from the Bank of America by utilizing a “short sale.” That is a common term in FL these days, and it means that the bank is willing to sell a property on which it holds a mortgage at less than the amount of the outstanding balance. The theory is that the lending institution is better off taking some loss on a property than end up owning a vacant house in a dismal market.
In this case, the B of A offered the property at a firm price, and my friend signed a contract, with earnest money, to purchase it at that price… cash in hand! Although the borrowers had turned over the deed to the bank “in lieu”, and the property was vacant. The B of A held onto it for 13 months before finally accepting payment and consummating the sale. The reason? As long as they held onto it, the property was carried on their books at its appraised value at the time of the original loan. If they “short sold” the property at a lesser value, then they would have had to book their loss. So they carried the property on their books at an inflated and unrealistic value as long as the bank examiners would allow. In this case, 13 months.
You may recall that a year or so ago there was much discussion of “mark to market” accounting. And much resistance on the part of banks, and Freddie and Fannie, to accept this accounting principle, which simply means carrying a property on corporate books at its current value… thus “mark” the value to the level of the current “market.” A common practice in every other kind of business.
Thus the current benevolence of the B of A in placing a moratorium on foreclosures until the end of the year… or at least until after the November elections. As long as they carry these properties on their books without actually going through the foreclosure procedure, or “mark to market,” they can show a much stronger balance sheet.
Simple as that. And then the Administration can brag about how they pressured the lending institutions into coming to the aid of the downtrodden!
But a day of judgment awaits… and it will be right after the Republicans regain control of Congress. And then you can guess who will get the blame for the new surge of homelessness.
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