WSJ: Bank Stocks Drop Anew Amid Worry Over Falling Home Prices
Bank balance sheets may hold even more unpredictable losses in the REO portfolios as repeat home sales continue to slow and housing prices continue to drop. The true market losses are hard to estimate as there is little relevant historical data around this type of distressed transaction. In addition, many of these transactions are sitting idle with little velocity–adding to the overall risk.
The discounting is starting in bank stocks:
The steep losses on sales of foreclosed homes are painful for banks and investors in the short run but should help clear the backlog. That would allow for an eventual recovery of the housing market and clean up the banks’ balance sheets.
One example of the deep price cuts on foreclosures: A 1,230-square-foot home in Corona, Calif., was sold by a unit of investment bank Credit Suisse in June for $198,000, down from $450,000 when the property sold in a regular transaction in December 2006.
“I do not think this is the time to be holding onto [foreclosed homes] and hoping for a better day,” Daniel Mudd, chief executive of Fannie Mae, said during a conference call Friday.
Naked Capitalism makes similar observations around the WSJ article–putting some context into the potential by pulling some loss severity data from a healthy (3% annual home price appreciation) mortgage market.
One thing that has surprised me about this housing market is that while there is decent data (given that real estate is local) on house price trends, there has been surprisingly little discussion, at least in the MSM and major blogs, of loss severities on foreclosures. Admittedly, banks probably don’t want to ‘fess up to how bad things are, but this is such an important element of the equation that I am surprised that it gets far less attention than it deserves (hint: anyone with knowledge is encouraged to speak up).
Reuters: Bank of America due to get another shot in the arm from their Countrywide acquisition–Option ARM meltdown (hat tip–Calculated Risk):
Countrywide Financial Corp said thousands of borrowers with $25.4 billion in option adjustable-rate mortgages (ARMs) owe almost as much as their homes are worth as home prices slide and more homeowners abandon their properties.
Another sign of borrower distress: One in eight is at least 90 days late on payments.
As of June 30, the typical borrower owed 95 percent of the value of his home, up from 76 percent when the loan was made, Countrywide, the big U.S. lender, said in a regulatory filing on Monday.
Just in case you were wondering if it is relevant–Option ARMs represent 28% of Countrywide’s mortgage portfolio.
LA Times: Estimate: 1,300 Foreclosures every business day in California
This report seems to imply a bottoming–citing a decline in defaults and acceleration of foreclosures. I am more inclined to believe more of a wave effect that may have multiple troughs. All the same the numbers are staggering and it does not seem that government touted “foreclosure prevention” legislation is going to be timely or effective:
Banks and lenders have now foreclosed on $100 billion worth of California homes over the past two years, and are foreclosing at the rate of 1,300 houses every business day, according to a new report from ForeclosureRadar.com.
The report, covering foreclosure activity in California in July, notes that new mortgage defaults are declining, but foreclosures are continuing to rise sharply. “It is clear that far fewer homeowners are finding a way out of foreclosure,” the company reports.
MortgageLoan.com: Nehemiah Launches Web 2.0 Campaign to Save DPAs
Nehemiah makes one final, but creative attempt to battle HUD and Congress to reinstate their style of *charitable* down payment assistance program:
Nehemiah’s campaign, already claiming 75,000 letters generated and hoping to spark over 250,000 individual actions, is leveraging Web 2.0 in an effort to amass a “ground swell” of support. The launch of www.DPAgroundswell.org as a “participation-platform” and strategically leveraging social media–YouTube, Facebook, MySpace, and Twitter–may be the key to out maneuvering the classic stodgy government agency.
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