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Banks are half full of something, but I’m an optimist

Photo courtesy of ManFromSunFor the past couple weeks I've been reading in the rain how bad these banks have it and how 50% of all the loan modifications they did in 2007 are now in default again. Oh, the poor me syndrome, "Please help us, throw us money, this is why we shouldn't have to do loan modifications, congress."

Well, let me be the optimist here and go the other way and help congress with some math that may have been missed in this equation.

Let's say that there were only 1 million loan modifications in 2007. (I know this is low, but I wanted to keep the math simple.)

Since most of these loan modifications were done in the first 5 years of the loan that means 90% of the money paid each month was interest. (We are going to go with an average monthly payment of $2,000 per month.)

So, out of that $2,000, the bank receives $1,800 in interest and $200 toward principle. (I would love to have a rental property that made me $1,600 a month.)

Now, let us assume it took a year before this 50% started defaulting again. That means after 1 year, on those one million loan modifications, they made $1.8 billion in profit from those million loan modifications and continue to make $900 million annually from the ones that are still paying.

Now, what would have happened if they had foreclosed on all these properties and had to sell them at auction where they get only $.60 on the dollar? At an average home price of $250,000 and selling at $150,000 at auction, they would have a net loss of 100,000,000,000 billion dollars.

Wow, so if we take all those loans and modify them, rather than foreclose on them, does that mean we wouldn't have to be putting these homes on the market at a discounted rate, making property values go down?

Yep, that is what I'm saying congress. Who cares if 50% still go in to default, let them sell it on a short sale and let the banks be happy with the extra $900 million they made during that year the clients were paying.

So, let us multiply that by 10 and, guess what congress, you don't have to give these banks a dime and their money problems are fixed and they can start lending again.


Respect Realty LLC (Expect More)


At Respect Realty, LLC our agents believe in 100% dedication to client satisfaction.  We specialize in property and land acquisition around the Portland Metro and Vancouver, WA area. We delight in working with first time home buyers and sellers to guide them from start to finish. Our doors are always open and we are always happy to assist you with your real estate questions.


Reach out today, we look forward to talking with you!


Todd Clark and Seraina Aguayo (Owners of Respect Realty)

Respect Realty LLC (Expect More)



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Comment balloon 13 commentsRespect Realty LLC • December 22 2008 11:48AM


Greedy bast####!  That is good logic.

Posted by Angelia Garcia (Pure Realtors) over 10 years ago


You are overlooking a very important aspect of this equation. 

I read this morning on my news at a glance, there is a bank paying $200K as a bonus to it's officer for 2008.  That is one bank, one officer.  You will need to multiply that into your numbers.

There, see, they desparately need the bailout. NOT!!!!!!!!!!!

If we have not elevated our anger and frustration to a level of ACTION, we are simply not getting it. 

Write, call and email every political arm of our country.  Tell them to knock it off.  NO money for anyone, unless it is earned.  

Thanks from Key West

Posted by Brenda Duley (Coldwell Banker Commercial) over 10 years ago


I cannot believe how eager the government is to bail out everybody.

Posted by Steven L. Smith, Bellingham WA Home Inspector (King of the House Home Inspection, Inc.) over 10 years ago

Our newspaper had a whole story today about all the bailout money being spent towards CEO bonuses and acquiring smaller banks.  Very little if any is trickling into the credit markets, so the individuals and small business can get a break.  Let the banks fail.  Let the CEOs get laid off.  The working people need the bailout not the millionaires.

Posted by Rob Arnold, Metro Orlando Full Service - Investor Friendly & F (Sand Dollar Realty Group, Inc.) over 10 years ago

My only question is......when do the folks who HAVE paid their mortgage on the 1st of every month get their "bailout"??? The message seems to be simple...if 'we' screw up, we need Government money. If 'we' didn't screw up, then pay extra to "help" those who did!

Posted by Loren Johnson, CMPS over 10 years ago

Hi Todd

A very insightful post on the current mortgage situation.

Good luck and success

Lou Ludwig

Posted by Lou Ludwig, Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC (Ludwig & Associates) over 10 years ago

Todd - there you go pulling the curtain back and showing the guy handling the knobs and switches again. Don't you know you aren't supposed to pay any attention to the guy behind the curtain? Bail out my foot. Bonuses to failing bank executives??? Use the bail out money to acquire smaller banks???

Posted by Fred Chamberlin, Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant (Guild Mortgage Co - Oak Harbor WA) over 10 years ago

Todd - well that would just make too much sense wouldn't it... ~Rita

Posted by Brian Burke, Broker & Advising Expert-Denver Luxury Real Estate (Kenna Real Estate) over 10 years ago

I get your point about the benefit to the bank....but I think stay tuned.  I already wrote a post on this that is slated to come out in a few days (tried to write a few posts to release while on vacation).  The problem is the delaying of the inevitable distress sale down the road.  Why put off tomorrow what you can do today?  Either way, it's coming.

Posted by Linsey Ehle (M Realty) over 10 years ago

Todd, I understand your math better than the crap we do to get a loan past an underwriter. I understand they are threatened not to make a mistake...

Posted by Paul S. Henderson, REALTOR®, CRS, Tacoma Washington Agent/Broker & Market Authority! (RE/MAX Northwest.) over 10 years ago

Todd, I enjoyed reading your take on the subject.

Posted by Shane Scott, Real Estate Attorney (Law Office of Shane Scott, P.C.) over 10 years ago

Todd :

The concept of letting something bad continue is what the banks did wrong. First, it took them too long to get the short sales approved, A $750,000 house LOST MAYBE $75,000 IN VALUE, while they were trying to figure out policy. A good trader kills a bad trade as fast as possible. That is a rule! They were then chasing the market. I believe that modification should be made to people who have a reasonable expectation of paying.

I don't think that is the case, if 1/2 of them failed to.  I don't think that 1/2 of them now lost their jobs. I think they just don't want to pay because their equity is under water and they are banking the payments they don't make.

I think that it has been misplayed and screwed up fron the start. I have said that all along. It is not being done right yet. It is how the money get realocated now, that make the difference. The money is not there yet to solve the problem to take out these under water deals.


Posted by Richard Stabile, Bergen County New Homes Builder Realtor (Re/Max Real Estate Limited) over 10 years ago

Todd, there is an awful lot of fuzzy math out there right now.  I like your numbers better.

Posted by Patricia Kennedy, Home in the Capital (RLAH Real Estate) over 10 years ago

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