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I can't parse from this why you'd turn down a 100% return - it sounds like the implication is the headache of collecting is too annoying, but that's not a very

I can't parse from this why you'd turn down a 100% return - it sounds like the implication is the headache of collecting is too annoying, but that's not a very rational approach

ISL 6y ago
I think there were three reasons: 1) The loan officers were good people, with the borrowers' best interest in mind. 2) The headache would have been substantial. 3) They really are in the loan business, not the foreclosure business.
- Optimal_Persona 6y ago
  4) They couldn't see a way to make money by fraudulently opening millions of fake accounts in the process.
  - ISL 6y ago
    I was in the room. 4) wasn't a factor. The loan officers were trying hard to understand how the proffered deal wouldn't kill the borrower's company. If I ever need a loan that falls into their scope, I'm calling them first.
    - ashtonkem 6y ago
      In one case, WF cared about the customer. Given that they literally got caught perpetuating one of the largest consumer banking frauds in human history, forgive me if I don’t trust them to do the right thing consistently.
jhayward 6y ago
I think the question is one of ethics or morals, and not predation.
caseysoftware 6y ago
Potentially two reasons: - First is the moral/ethical reason - it doesn't matter your religion or lack thereof, causing someone to crash and burn, causing unemployment, and generally ruining lives is bad. - Second is their business. Banks are in the lending business. Unless the collateral was cash or stocks (unlikely based on explanation), they'd have to figure out how to repossess and then dispose of the assets. Yes, they probably have a group that handles that sort of thing but you're introducing unnecessary headaches. Either way, walking away sounds like the right and good call.
- nostrademons 6y ago
  There's also risk involved in taking possession of collateral. If you've written a loan such that collateral is 2x the loan amount, but then all potential buyers of the collateral fall on similar hard times such that you have to sell it at 10 cents on the dollar, then you've still lost 80% of your loan value. Prices aren't static, and they reflect what's going on in the market at any given moment. If the market basically evaporates right as your loan comes due, then the value of your collateral isn't what it was when the loan was written, it was what it is when the loan defaults.
  - caseysoftware 6y ago
    Good point. I bet that "prime retail space" in January is looking more like a liability than an asset right now. Thanks for getting me to be more pessimistic. ;)
    - ashtonkem 6y ago
      Retail real estate doesn’t look anything like home real estate financially, which is why it does “weird” things compared to homes, such as leaving units empty for months in desirable areas. The core of it is how commercial real estate is financed; it’s financed on a rolling basis rather than a 1 time mortgage, like a home. This means that rather than revenue most commercial real estate owners are more concerned about what their next financing round will look like. For reasons I cannot explain, bankers care less about the rent a building does receive than they care about the rent it could receive. This incentivizes building owners to leave units empty rather than lower rates, as it actually ends up significantly cheaper for them in the long run.

I can't parse from this why you'd turn down a 100% return - it sounds like the implication is the headache of collecting is too annoying, but that's not a very rational approach

ISL 6y ago

I think there were three reasons: 1) The loan officers were good people, with the borrowers' best interest in mind. 2) The headache would have been substantial. 3) They really are in the loan business, not the foreclosure business.

Optimal_Persona 6y ago
4) They couldn't see a way to make money by fraudulently opening millions of fake accounts in the process.
- ISL 6y ago
  I was in the room. 4) wasn't a factor. The loan officers were trying hard to understand how the proffered deal wouldn't kill the borrower's company. If I ever need a loan that falls into their scope, I'm calling them first.
  - ashtonkem 6y ago
    In one case, WF cared about the customer. Given that they literally got caught perpetuating one of the largest consumer banking frauds in human history, forgive me if I don’t trust them to do the right thing consistently.

jhayward 6y ago

I think the question is one of ethics or morals, and not predation.

caseysoftware 6y ago

Potentially two reasons: - First is the moral/ethical reason - it doesn't matter your religion or lack thereof, causing someone to crash and burn, causing unemployment, and generally ruining lives is bad. - Second is their business. Banks are in the lending business. Unless the collateral was cash or stocks (unlikely based on explanation), they'd have to figure out how to repossess and then dispose of the assets. Yes, they probably have a group that handles that sort of thing but you're introducing unnecessary headaches. Either way, walking away sounds like the right and good call.

nostrademons 6y ago
There's also risk involved in taking possession of collateral. If you've written a loan such that collateral is 2x the loan amount, but then all potential buyers of the collateral fall on similar hard times such that you have to sell it at 10 cents on the dollar, then you've still lost 80% of your loan value. Prices aren't static, and they reflect what's going on in the market at any given moment. If the market basically evaporates right as your loan comes due, then the value of your collateral isn't what it was when the loan was written, it was what it is when the loan defaults.
- caseysoftware 6y ago
  Good point. I bet that "prime retail space" in January is looking more like a liability than an asset right now. Thanks for getting me to be more pessimistic. ;)
  - ashtonkem 6y ago
    Retail real estate doesn’t look anything like home real estate financially, which is why it does “weird” things compared to homes, such as leaving units empty for months in desirable areas. The core of it is how commercial real estate is financed; it’s financed on a rolling basis rather than a 1 time mortgage, like a home. This means that rather than revenue most commercial real estate owners are more concerned about what their next financing round will look like. For reasons I cannot explain, bankers care less about the rent a building does receive than they care about the rent it could receive. This incentivizes building owners to leave units empty rather than lower rates, as it actually ends up significantly cheaper for them in the long run.