An agreement by the Federal Deposit Insurance Corporation (FDIC) for OneWest Bank to acquire the mortgage assets of the failed IndyMac Bank has raised concerns among NAHB builder members.
According to a controversial video by Thinkbigworksmall.com and circulated widely online, OneWest stands to profit excessively from a loss-sharing arrangement in the deal that measures losses against the face value of the purchased mortgages rather than the discounted amount for which the bank purchased the loans.
The video also contends that the loss-sharing arrangement will lead OneWest to pursue short sales and foreclosures rather than undertake loan modifications.
NAHB has heard from many builders who are concerned that arrangements such as the one portrayed in the video are resulting in distressed loan sales that are having an adverse impact on appraised values and the demand for new homes.
Builders with acquisition, development and construction (AD&C) loans at failed institutions have been reporting that it is difficult or impossible to negotiate with the FDIC on the disposition of their loan. Builders have also complained that the FDIC is accepting lower prices on these loans than they were willing to offer, and local financial institutions say that their superior bids are often ignored in the FDIC's asset disposition process.
In a press release refuting many of the claims made in the Thinkbigworksmall.com video, the FDIC says:
- It is sharing losses on only the 7% of IndyMac loans that are actually owned by One West. Not covered in the loss-sharing arrangement are the additional IndyMac loans OneWest services for other investors.
- It has not yet made any payments to One West, which must first take $2.5 billion in losses before the government will pay loss-share claims.
- OneWest is required to adhere to a loan modification protocol for single-family loans that meets the approval of the FDIC. Under this protocol, OneWest can only initiate short sales or foreclosures after it has documented that these will recover higher amounts of money than loan modifications.
The FDIC said that it can repudiate the loss share claims on the covered loans if OneWest violates this agreement. It also said that it expects OneWest's large first-loss position, combined with the required loan modification protocol, to minimize loss-share claims under the agreement.
NAHB is seeking further clarification from the FDIC about the deal and will also continue to urge the agency to address critical credit issues facing home builders by seeking improved regulatory treatment of new and existing AD&C loans and a more equitable process for builders with loans at failed institutions.
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