Posted on 09/29/2009 11:38:51 AM PDT by FromLori
Following up on the quick mention now that I have a story to cite from Amherst:
Cure rates for these distressed loans remain low. Amherst noted a near 0% cure rate of all loans in foreclosure, 0.8% for 90 plus days delinquent, 4.4% for 60 days delinquent and 26.5% for 30-day delinquencies. All told, Amherst expects 12.42% of units (from the 13.54% of properties delinquent and in foreclosure) to eventually liquidate.
Let's put some numbers on this.
There are roughly 125 million single-family homes in the US.
Of those, roughly 30% have no mortgage on them at all. This leaves 87.5 million single-family homes with mortgages.
Let us assume the average outstanding balance is $200,000 across the entire set and will take a 40% loss severity. This is less than S&P has estimated for subprime loans and only assumes a roughly 20% market deficiency in the home price (the rest is from legal, rehabilitation and marketing expenses.)
These numbers are, with a high degree of confidence (90%+) low - that is, losses will exceed these estimates, perhaps dramatically so. It is, for example, quite reasonable to believe that due to the concentration of defaults in higher-priced areas (e.g. California and Florida) that the average outstanding balance could be close to double that $200,000 value and the loss due to negative equity higher.
From this we can develop a "cocktail napkin" view of the losses to be taken in home mortgages for single-family homes (remember, this does not include condos, apartment buildings and similar "commercial" paper.)
$200,000 X 40% = $80,000 loss per foreclosure.
87.5 million homes with mortgages X 12.42% = 10,867,500 foreclosures.
10,867,500 x 80,000 ============= $869,400,000,000
or $869 billion in losses remaining in single-family mortgages alone.
What if the average outstanding is higher and negative equity greater than 20% (which is likely)? Losses will almost certainly be well north of a trillion dollars.
The entire banking system and likely The Fed, given the quantity of Fannie and Freddie paper it has been and is "eating", is insolvent. These facts are why the government is lying - they're well-aware of the near-zero cure rates and know that these facts mean that the banking industry has nowhere near sufficient capital to withstand these losses without folding like a paper cup getting stomped on by an elephant.
(Remember that these numbers do not include any commercial real estate losses and we have found that banks are frequently over-stating their claimed values for these loans by 50% or more - as was seen with Colonial.)
It gets better. The FDIC has a negative balance both in its fund balance and the reserve ratio projected for the end of the quarter, which is, big surprise, tomorrow. Oh, and there is this pesky problem that the FDIC has - contrary to its mandate - been issuing bond guarantees for banks, so if and when that banking insolvency is recognized the FDIC will implode into a gravity well also, since it is on the hook for the entire deficiency of those bonds that were issued with its "guarantee" should they default.
Care to argue with the math folks?
Stock up on necessities.
brass, lead, copper, food, and water.
Is the cure rate so small because the banks got billions of our tax dollars and are unwilling to assist?
Any guesses on how long before the average John Q. Public wakes up to this, and the large-scale banks runs begin?
Denninger is a tool. His $869 billion in losses assumes there will be zero value for those alleged 10 million foreclosures.
Silver FTW
He clearly assumes $80,000 loss per foreclosure, not a total loss. Try reading.
Did you even read his post? He's not saying that at all. He's assuming a 40% loss to the banks on foreclosures. He never states the underlying property will be worth zero.
$200,000 X 40% = $80,000 loss per foreclosure.
87.5 million homes with mortgages X 12.42% = 10,867,500 foreclosures.
10,867,500
x 80,000
=============
$869,400,000,000
My opinion hard to say maybe soon October? with all the news being reported but then again look the public voted for the obamanation so that makes it hard to say.
No. To “cure” the banks would have to recognize the loss and this would show them to be insolvent in many cases.
In other words, assume you are a bank and you have a $200,000 loan on the books that is late. You foreclose and sell the property later for $150,000, which is pretty good amount to get in this fire sale market. As a bank you lose $50,000.
Now divide $50,000 by $200,000 and you get 25%. Assume half your loans are of this nature, and you can see your assets need to be written down 12.5% overall.
Well, in many cases, your capital isn’t that a high a percentage of your assets. This means the write off of bad loans wipes out your capital plus some and now you have liabilities but no equity or capital. In effect, your bank is now “underwater.” To keep this from showing, many banks are not doing the foreclosures so they can pretend their assets exceed their liabilities.
parsy, who used to be an accountant
You misread the article. He assumes 40% write down on about 13% of mortgages. This is not farfetched. I helped one homeowner get a write down from about $400,000 to about $150,000. Another by over half on 7 figure numbers.
parsy, who thinks you just misread the article by accident
FWIW...this appears deliberate. It is how the Feds intend to wipe out debt...wipe out the banks eventually. Those mortgage payers remaining solvent...in one form or the other will wind up paying their mortgage directly to FHA or the Feds-in one form or the other...and the Feds basically get an additional “tax payment” from those remaining solvent. Which ..in th eend..given the ravenous Federal appetite for “cash-flow” is what its all about
Add to which banks are not even foreclosing on properties all over the country, because they would be on tap for insurance and prop tax. They’d rather let the debtor live in them free.
We have not even seen the tip of this iceberg yet.
A reasonable explanation.
They figure they can foreclose sell much later and at least break even or maybe make a little.
I would agree I think others would as well
Will they attempt to blame the next crash that Bernanke is setting the stock market up for on too high deficits, and then justify a VAT as the way to “save” the economy?
http://www.economicpolicyjournal.com/2009/09/is-obama-planning-vat-surprise-for.html
If I had a dime for every doomsayer I’ve run across in my lifetime, I’d be a far richer man.
With all the experts out there, how many of them got rich last year?
If you truly know what you’re doing, you can make money in a down market. Did any of these dirt-bags get rich last year?
I ignore almost all predictions like this.
Fortunately, American voters had the foresight to elect Superman last November, so none of this will be a problem....
Yes well the mainstream media does not want us to see all that
http://market-ticker.denninger.net/archives/1475-The-Mainstream-Fallacy-Machine.html
The USA is economic history, a combination of Argentina and Zimbabwe and the Wiemar Republic with a little Venezuela mixed in for illiterate good measure.
Our death warrant has been drawn up by the banksters, written by the Democrats, and signed by Obama.
"And I sincerely believe, with you, that banking establishments are more dangerous than standing armies;" - Thomas Jefferson, 1816
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