Chicago Short Sales: How lenders got rid of the risk on risky loans

Posted on August 10th, 2010 in Market Conditions, Other Real Estate, Short Selling/Buying.

Chicago IL – It was very easy to get a mortgage when the housing market was hot. There are many speculations as to why that happened. Here is something most people don’t know. All the traditional rules for risk had gone out the window. Your lender could give you a risky loan, but have substantially less risk on their end. Here is how they did it.

Discover how other sellers successfully did a short sale and request a free consultation by clicking here.

They transferred all the risk to a third party. For example, around 50% of all loans are owned by Fannie Mae and Freddie Mac. In case you didn’t know, Fannie & Freddie are now almost a branch of the federal government. The US Treasury has had to bail them out to the tune of $400 Billion plus. That number is still rising.

Yes, Fannie & Freddie had more stringent rules for what kinds of mortgages they would take. But, if the lender sold a loan to them, than that lender’s risk disappeared. Some people allege that this gave lenders an incentive to approve loans that shouldn’t have been approved.

Here is another way that lenders could reduce their risk. They could sell the loans to Wall Street. How do you think stock brokerage firms like Merrill Lynch lost so much money it almost bankrupted them? It wasn’t because their stock trading business collapsed.

Here is what hurt Merrill Lynch, Bear Stearns, Goldman Sachs, and other Wall Street Firms. They bought thousands of risky mortgages from lenders like Countrywide, New Century Financial, and Option One. Most likely, they paid more than the face value of the mortgage.

After all, how could the original lender make any money? They had to come up with the money for the original loan. When the housing market started to teeter, the Wall Street Firms took a bath. They were stuck with a bunch of mortgages that were worth less than what they had paid for them.

That is how the lender who gave someone a risky mortgage could get rid of most of the risk. Sell the loan to Fannie or Freddie. Let the taxpayers lose money on their mistakes. Or, sell it to Wall Street and let them take the hit.

This is why so many short seller are not ashamed that they want to short sale without owing the bank any money. After all, it’s almost impossible to know who is actually losing the money. Besides, the banks knew the risks when they gave out the risky mortgages.

Are you interested in selling your property as a short sale? Call me at (312) 953-6725 for a free consultation. When you call, I will explain how the process works in detail and answer any questions you may have. Discover how other sellers successfully completed a short sale and request a free consultation by clicking here.

Thinking about a loan modification? Our Chicago loan modification kit has the instructions you will need to get a loan modification approved with your lender. Click here to request a copy.

Thanks for reading this, Phil Buoscio.

Phil is a Real Estate Agent at Better Living Realty – Buoscio Brokerage, Inc..

Phone: (312) 953-6725.

View My homes for sale at

Phil Buoscio specializes in loan modifications and short sales in Chicago Illinois. Chicago Loan Modification Help. Chicago Short Sales. Chicago Short Sale Realtor. ChicagolandShort Sale Realtor. Chicago IL Short Sales.

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