Foreclosure update: it’s worse then anyone thought!
Delinquent Mortgages Are Soaring; Foreclosures Aren’t
What that means is the banks are hiding more then anybody new.
The other part of the problem is that if the bank actually forecloses, there is no way that it can avoid recognizing the loss. By letting things slide, they can extend and pretend that eventually everything will get caught up. They also avoid the upkeep costs on the foreclosed property.
Bank of America as of dec 2008
Residential mortgage state concentrations
California $84.84 billion 35.6% percent of total $2.02 billion non performing 411m net charge offs
Florida $15.78 billion 6.6% of total outs $1.01 billion non performing $151m net charge offs
New York $15.5 billion 6.5% of total outs $255m nonperforming $5 mil net charge offs
Other US $101 billion 42.7% of total outs $3.2 billion non perform $303 net charge offs
Total BofA residential mortgage loans are $247 billion. Total non performing are 7 billion. 7/247= 2.83%
BofA claims that out of a mortgage loan portfolio of 247billion they have a non performing rate of 2.83%!!!! This is craziness.
To bad this is complete BS. With 42% of their mortgages in California and Florida thats just impossible. The national deliquency rates on mortgages is somewhere around 12%. I could only imagine what type of losses BofA is going to incur in the future. Lets do a realistic analysis of the Cal and FL portfolio.
Cal 84 bil outstanding Nonperforming 8billion chargeoff 1.64 billion
Here I am assuming the national default rate of 10%. All of a sudden the non performing loan amount becomes a whopping 8 billion dollars. Now the ratio between nonperforming amount 2.02 bil and chargeoffs (411m) is 4.91. In florida the ratio is 6.57. Why such a higher ratio for FL nonperforming loans?
Either way, these ratios have to come DOWN to reality. The bank loans out 500,000, the house goes in foreclosure. At auction, the bid is for 250,000. The new owner puts 25% down (62500), then gets a new note. Assuming amortization, where does BofA come up with a nonperforming to charge of ratio of 4.91? Its probably around 3 or maybe even less in this market. Assuming a conservative ratio of 3, lets go back to the 10% default scenario. $85 billion outstanding in cal, 8.5billion in nonperfoming loans, ration of 3 equals $2.83 billion in net charge offs just in california. This does not include the charge offs for FL and the other 101 billion outstanding mortgage loans in OTHER states. So the other 101bill, loss of 10 billion, ratio of 3, equals $3.33 billion from the OTHER category.
So for 2009, just from CALIFORNIA AND OTHER STATES BANK OF AMERICA IS LOOKING TO REALISTICALLY LOSE $6.16 BILLION. Reported charge offs for 2008 just on the mortgage portfolio was $925 million.
This data can be found at the above link page 64 of 2008 Annual Report for BofA.
Now the HELOCS are even uglier!!!
CAL 38BIL outstanding nonperform 857m charge off 1.4billion???? 2.2% nonperforming suuuureeeee
Total US 58 billion nonperform 866m charge off 996 m 1.71% non performing
total outstanding helocs 138 billion. Total chargeoffs 3.49 billion Total nonperform 2.670billion
With B of A stating a %1.92 rate of nonperforming outstanding HELOCS in 2008, with a chargeoff of 3.49 billion, lets just mulitply the number by 4X to get a fair amount. That would put HELOCS at a 7.68% nonperforming rate with 3.49bill chargeoff X 4 equals $13.96 billion in losses from the HELOC portfolio.
Mortgage losses at $6.16 billion and HELOC at $13.96 billion combined $20.12 BILLION in losses for 2009. This crude analysis does not include credit card losses, CDO’s, SPV’s, currency derivates, CDS, and other monsters hiding off balance sheet in the Cayman Islands.
Til next time
Banks pay back the bailout money and then change the accounting rules for reporting. Then suddenly make a profit. could any other company on wall street do this without SEC investingation? When the truth comes out, then what, more lies or accounting rule changes. Lets end the Ponzi scheme. End the Fed………..
I live in a community of $1m-2m homes (approx. 40) There are exactly 6 homes within 3 blocks that are closed up, no one living in them, and have been this way for at least a year. Not ONE has gone up for sale~! I didn’t know about 4 of them until the last month as they’ve continued to be mowed by the neighbors because of the ugliness of a bad lawn. But just this 4th when the neighbors got together I found out about this. I was wondering why as I canvassed the area with my info, no one would answer. Now I know.
As I go farther out, into the area of houses that range from $750-$1m (approx. 200), there are 17 more homes that are vacant. And again, not ONE has been put up for sale or auction.
That’s a total of 23 houses with probably an avg price of $900k in delinquent loans. $21m that is not being logged on the banks books! One neighborhood close enough to DC that there are jobs available in comparison to the rest of the country.
I’m currently working for BofA right now and though I’m just a small cog in the corporate maching this makes me extremely guilty.
The economy will not recover until housing prices stabalize.
Here’s a little personal factoid that might be relevant somehow… our junior lender (National City) is being much more aggressive regarding our loan delinquency than our senior lender (Aurora/Lehman). Seems like Nat’l City might be trying to foreclose the house out from under Aurora (if that’s possible) in order not to get wiped out by a senior foreclosure. If it’s possible for them to do this, and they sell it before Aurora pipes up, then they can claim their books are clear (debt fully recovered) and Aurora gets shorted even more than they would on the sheriff’s sale if they foreclosed themselves. Of course Aurora/Lehmans just went bankrupt, so maybe they don’t care so much about clearing their books anymore… if they even remember where they filed my note (or who they might have sold it to)!
At least 6 houses are vacant in our neighborhood… but there have only been 2 foreclosure sales, both of those had junior lenders. Maybe this is a coincedence?!?! Interestingly, there’s a whole block of new construction down the street that is sitting vacant and not even up for sale because the developer declared bankruptcy and the banks took the property as collateral. I think they’re holding onto it so that they can claim the vacant property as business loss on their taxes and get more money in the bail-outs!
It’s a vicious downward spiral. As the economy deteriorates more are thrown into foreclosure and the more that are thrown into foreclosure, the more negative is the feedback loop to the general economy. Throw in those able to make payments but so far under water that they opt to strategically default and it becomes difficult to see the way out.
In the past I was an opponent of mortgage modifications. I’m not too sure that at this juncture something fairly radical might not be in order. We might be approaching a moment at which the only choice is to simply write-off big chunks of mortgages and restructure outstanding loans based on much lower principal balances. It will be a difficult and probably vastly unfair undertaking but the alternative of letting the market work through this seems to increasingly involve the risk of things spinning totally out of control.
Wells Fargo Sows the Seeds for Next Foreclosures Crop
I don’t know if the old rules still apply, but when the savings and loan industry collapsed twenty years ago, it collapsed because the S&Ls became illiquid. Back then when a foreclosure was finalized, the S&L had to set aside 25% of the outstanding non-performing assets’s value (outstanding loan) in a basic trust account. At three months, that doubled. At six months, the entire amount had to be taken off the books. This drastically affected their ability to generate revenue because it decimated the S&Ls liquidity – availability of funds to loan to consumers and businesses. To make money, of course, banks have to loan money and earn interest. If there’s no money to loan, the institution ceases to generate a profit.
As to our current mess, it doesn’t take a genius to figure out that it is to a bank’s advantage long term to avoid foreclosure. Instead of having to tie up bizillions of dollars to cover an increasing number of non-performing loans, the bank only shows a monthly shortfall in revenues. On a deliquent million dollar mortgage, the bank’s losses are limited to the monthly mortgage payment. The bank’s capital position remains unchanged because losses only appear on the monthly profit and loss statement.