$60.4 BILLION
That’s what the nation’s top five banks made in profits in 2010. $60.4 billion…with a B.
Let that sink in.
While bank executives plead before congress and the public that they are getting financially hammered by the foreclosures on their hands, they are turning a profit of $60.4 billion. That’s $165,473,524 in profits per calendar day for the big five banks.
| 4Q Profit | 2010 Profit | Notes | |
| Bank of America | -$1,570,000,000 | $10,400,000,000 | 2010 reported loss of $2.2 Billion with a GAAP charge off of $12.4 Billion for goodwill impairment. Goodwill is not actual profit or loss, just an accounting mechanism; the same mechanism that dot-coms used with no profits, but high valuations. |
| J. P. Morgan Chase & Company | $4,800,000,000 | $17,400,000,000 | |
| Citigroup | $1,300,000,000 | $10,600,000,000 | |
| Wells Fargo | $3,400,000,000 | $12,400,000,000 | Record profit year. Previous record year: 2009 at $12.3 Billion |
| Goldman Sachs Group, Inc | $2,390,000,000 | $9,600,000,000 |
Let me be clear. I am all in favor of businesses being profitable. That’s why they (and we) do what we do. Where my issues lie are with businesses so large that they exceed the mandate of serving their customers, clients and the general public.
Case in point. I have a former client who was a Bank of America borrower. While facing foreclosure, we were able to secure a contract for $138,000 for the short sale of the property. After months of negotiation with Bank of America, they decided to proceed with the foreclosure because the offer wasn’t for enough money. The short-term result: My clients were evicted, they now have a long-term credit issue, and the buyers lost five months of their time looking for a home.
The rest of the story.
Bank of America put the vacant home on the market two months following the foreclosure at a very high price ($164,900). After six months of no activity and a few price reductions, Bank of America sold the property for $132,000 while conceding an additional 3% in closing cost assistance. Let’s do the math together:
| Original Contract | Foreclosure Contract | |
| Sale price |
$138,000
|
$132,000
|
| Closing Cost Assistance |
$3,000
|
$3,960
|
| Holding Costs |
$0
|
$3,960
|
| Foreclosure Costs |
$0
|
$5,000
|
| Property Insurance |
$0
|
$1000
|
| Property Taxes |
$0
|
$618
|
| Utilities |
$0
|
$2000
|
| Closing costs (Trustee’s Sale) |
$0
|
$1,500
|
| Closing costs (final sale) |
$11,040
|
$10,560
|
| Net proceeds |
$123,960
|
$103,402
|
Bank of America took a loss of over $20,000 because they couldn’t settle on a sales price six months ago. (Note: This transaction had no mortgage insurance, so there was no other financial incentive to proceed with foreclosure). It’s also six months time where a community had yet another vacant home to deal with.
So many times the banks force this situation because the bank wants to get a promissory note from the borrower for $12,000 or because they can’t settle on a difference of $2,000 in sales prices during the negotiation. Absolutely silly. More importantly, it’s irresponsible towards their stakeholders and the communities the banks purport to serve.
There is hope.
Some banks, including Bank of America, have revamped their short sale processes to improve response times. I currently am negotiating with Bank of America for a short sale and they have completed in 3 weeks what it used to take 3 months to do. So for that, I’m thankful. The other half of me says it’s about time.
Unfortunately, in that same negotiation Bank of America is quibbling over approximately $3,500 in closing fees. Hopefully, they see the light and realized the same result will happen as before if they don’t open their eyes. Their hold out over $3,500 may cost them $20,000.
I’m reminded of the definition of insanity: Doing the same thing over and over expecting different results.
Alex Casteel is owner of Casteel Real Estate Professionals, a real estate brokerage serving the communities of Mesa, Arizona, and the Phoenix metropolitan area. Alex is a Certified Distressed Property Expert and earned an MBA from the W. P. Carey School of Business at Arizona State University.