The Toxic Asset Conversion and Transfer (TACT) Program is a simple and effective solution to the banking and real estate crisis, that does not require government funding. It builds on the progress made by banks and real estate investors to bring us back from the brink of a liquidity disaster. The dilemma is that most senior bank executives are not aware of the TACT Program yet, and because it is not a government program they are not being encouraged or forced to implement it. Since the housing bubble burst, bank executives have been reacting to mandates from the government, the Federal Reserve, and FDIC. Banks have not been proactive, and it appears the major banks are not likely to change in the very near future. I would have thought the Great Recession was long enough, deep enough, and that 140 bank closures in 2009, and 157 in 2010 would get bankers interested in finding alternatives.
Our real estate fund, and many other home providers (aka investors), have been acquiring distressed properties since we resolved the defaults in our own portfolios. Yes, we were faced with foreclosures and defaults just like the banks. We solved our own problems, and then developed the TACT Program based on our experience. We are now willing to share our experience with banks and acquire more properties if financing is available. This is the key advantage of the TACT Program. When buying a distressed property the bank that owns the property, or holds the non-performing loan, actually has the money available to finance it. That money happens to be locked up in the toxic asset itself. The proceeds from the sale can be used to finance the buyer! If we went to a different bank to finance that same property, they have to use their scarce funds to provide a loan. Those other banks also have a problem with toxic assets on their balance sheet and are not anxious to make new real estate loans.
We recently submitted a number of offers on Bank of America’s short sales and bank owned properties (aka REO) contingent on obtaining financing under the TACT Program. Many of our purchase contracts were approved by the REO and short sale departments. When I contacted Bank of America’s mortgage lending department to obtain their approval, the response was what I expected, “our system does not have TACT Program listed as a loan type.”
I therefore contacted BofA’s EVP/Chief Financial Officer to ask him to consider the benefits of testing the TACT Program to fix the bank’s balance sheet. It does not take an in-depth knowledge of finance to appreciate the impact a significant decrease in REO and non-performing loans would have on BofA’s profitability and financial condition. The CFO would certainly realize that a 50% decrease in toxic assets could increase their ability to borrow and lend, and thus increase their performing asset base by over $200 billion.
After many detailed discussions regarding the TACT Program, which took place over several months, with various people on the CEO’s executive staff, we received their decision – NO. The executive staff said they would not finance the properties they are selling under the TACT Program. Unfortunately they would not provide that decision in writing so we had to contact each Realtor to cancel our purchase contracts.
The decision was disappointing, although their rationale for not participating in the TACT Program was very encouraging. They agreed that this program would have significant benefits to Bank of America, and that the $60 Billion of toxic assets on their balance sheet is indeed hindering their ability to borrow and lend. They also agreed that further deterioration in the housing market was a significant risk to their future financial condition. They would gladly sell us those properties even at lower prices than we offered, if we would buy them using cash.
This has been a major issue with all banks. They will accept low cash offers and thus are willing to continue the downward spiral of market values by selling below market value. The bankers may not realize that this further decreases the value of their existing loan and property portfolio. This practice of discounting the price to get it sold has been the perfect formula for ensuring further deterioration in the housing market.
So what was the reason for saying NO, at least for now? Bank of America is too big to make a major a strategic decision in such a short time-frame. They saw the advantages, but would not go ahead with financing those properties for us, at this time. They suggested we continue to work with smaller banks to acquire their properties.
As most sales seminars emphasize, a sale is rarely made on the first sales call. The typical number of sales calls required is seven. Those sales seminars also teach us that objections are merely questions that they need our help to answer. My resolution to Bank of America – I will be back. I will provide more evidence that the TACT Program works, and that we are ready, willing, and able to help them sell off their toxic assets at market prices.
Bank of America is the first bank to decide not to implement the TACT Program. Several Arizona banks we contacted about buying their toxic assets did not decide soon enough, and have been closed by the FDIC. I cannot be sure we could have saved those banks from closure, although the FDIC would certainly have given them more time if they had a clear strategy, and could show steady progress toward improving their financial condition ratios. I am not worried about Bank of America being closed by the FDIC anytime soon, so I will be back!
The TACT Program continues to move forward, despite Bank of America’s decision. TACT is a very simple and practical solution to the housing and banking crisis that takes banks’ Toxic Assets and Converts them to performing loans by Transferring those assets to a qualified buyer. Those buyers convert foreclosures to family homes!