|
| April 28, 2008 |
By: Wayne Tompkins |
|
hen a homeowner loses a house to a bank foreclosure, the nightmares are just beginning — for the bank.
Along with assuming the costs of property taxes, insurance, maintenance and security, banks are looking — with little success — for a buyer willing to pay more than a fire sale price.
Even when there’s a chance that the mortgage can still be salvaged, banks are scrambling to find experienced people who know how to work out a payment plan. Some have been lured out of retirement and others hurriedly cross-trained from the now dormant loan originations department.
That’s assuming the homeowner still wants the property. If the owner is a flipper or has abandoned the property, it’s too late.
As their role of reluctant landlord mounts, banks coping with the headaches of looking after rising numbers of foreclosed properties will surely be followed by the heartburn of massive losses banks will endure upon their sale.
Just turning the key to such a home can bring unpleasantness.
“When you open the door to a foreclosed property, the inside may not have anything in it,” said Richard Purdy, senior vice president of asset preservation at Coral Gables-based BankUnited. “We’ve had all the way down to the doorknobs and the bathroom fixtures exit prior to the sale. Counter tops, cabinets, appliances, electrical fixtures, carpets, flooring. I can’t imagine why someone would take the bathtub with them, but it does happen from time to time.”
Banks looking to move their properties are turning to brokers, Web sites, auctions and direct marketing, among other avenues, just hoping to get out from under the mounting inventory.
No one knows how bad it’s ultimately going to get.
Community banks have never been ground zero for the mortgage crisis — larger banks and nonbank lenders have borne the brunt of it — and 52 of South Florida’s 79 community banks reported no foreclosed property at all in 2007.
Those that did, however, have been hit hard.
BankUnited, the region’s largest community bank, reported nearly $47 million in foreclosed real estate at the end of 2007, compared to only $413,000 the previous year.
Fort Lauderdale’s BankAtlantic’s $17.2 million in foreclosed real estate is actually down from $21.7 million in 2006 but, in a precursor of further problems, reported nearly $180 million in non-performing loans last year.
By dollar value of foreclosed property, Mercantil Commercebank ($9.8 million); City National Bank of Florida ($7.1 million) and The International Bank of Miami ($6.5 million) round out the top five of South Florida banks. The latter two institutions reported no foreclosed property at all in 2006.
Richard Swerdlow, founder and chief executive of Condo.com, an online clearinghouse for condominium projects that boasts 500,000 listings, said lenders to troubled condo projects want to see if the contracts are actually going to close and how many people are going to walk away from their deposits. “Then they’ll know, ‘Look, we’ve got a problem on our hands so let’s not continue to extend the loan to the developer, let’s actually foreclose and take the assets back.’ ”
Swerdlow said the main issue is at what point the banks realize that they need to take a big discount on their assets so that they can start selling them effectively.
“The banks have not yet agreed to accept the losses,” he said. “There is still a very big gap between the bid and the ask, between the banks and the vulture funds trying to come in to buy the assets.”
Hoping to mitigate such problems, community banks facing nonperforming home loans are contacting mortgage holders, checking up on them to head off problems early. News of a lost job or an illness could signal a call to action for the lender.
“Even if you can make payment in April and May, you may not be able to make in June and certainly not in July,” said Ken Thomas, an independent banking consultant based in Miami. “Why wait until August when it’s 30 days past due?”
The approach banks are taking depends largely on the institution’s size and reach.
“Usually, the very, very big banks will put these distressed loans together and sell them as a package,” Thomas said. “The big banks, they don’t have time to go through them one by one, so they just drop them in a bucket and get rid of them on a wholesale basis. They clean up their problem and loans, and it looks better for Wall Street.”
Thomas said community banks — instead of moving properties from the top down on a wholesale basis — are going from the bottom up and looking at individual properties, taking a house-by-house approach.
He said another problem facing banks is that they have gotten involved in troubled loans in distant markets.
“Look at the banks like Corus Bank in Chicago and Fremont Bank in California that have loans down here,” Thomas said. “They don’t know which condos are doing better than others. They’re just putting them together in wholesale packages and getting rid of them.”
If there is any opportunity to avoid a foreclosure, a bank — and especially a community bank — has got to pursue it, Thomas said. “It not only saves the bank from a problem loan, a write-off of capital, but the likelihood is that the loan is not by itself. The bank might have other loans nearby. One foreclosure could affect surrounding property values and hurt the entire portfolio. That’s why we encourage banks to work these out one by one, even before they see problems.”
BankUnited’s Purdy said that each part of the country has its own sales rhythm and, if the bank has properties in more than one state, it’s difficult to know how long it will take the bank to move all of its foreclosed properties off the books.
Meanwhile, the vulture funds are circling patiently.
“Every other guy has a fund, but what are you going to buy? The assets aren’t available,” Swerdlow said. “The only way to buy those assets is that you’ve got to deal with the senior lender. You’ve got to wait until the bank controls it.”
Until the banks can see the full-extent of the damage, “they’re not ready to face that day of reckoning and sell for 25 cents on the dollar,” he said. “In the next six months, we’re going to see a closing of the gap between the bid and the ask on these projects.”
Wayne Tompkins can be reached at wtompkins@alm.com or at (305) 347-6645.
|
Search the archive for more stories.
|
