Comments on: Negative equity datapoint of the day A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: DanHess Wed, 12 May 2010 23:22:32 +0000 Our real estate crash is very sooo yesterday. The great China real estate crash of 2010 is on, baby!

“Beijing Home Prices Plunge 31.4%” nset/@10063/post/1185337

(hat tip MISH)

By: AABender1 Wed, 12 May 2010 19:36:23 +0000 The only mark-to-market on home loans that I have ever seen was for super jumbo loans ($1 million and up).

Bank regulators generally allow banks to aggregate reasonably-sized home loans into “homogeneous risk pools.” And rather than mark an individual performing home loan to market, they might insist that the bank create a provision for homogeneous pool losses. Those provisions have tended to run anywhere from 0.25% to say 3.0% of the pool and are based on past loss history. Obviously looking in the rear view mirror these days doesn’t help very much. Moreover, that percentage provision in the sand states is typically less than the legal and brokerage costs of a foreclosure sale. So this provisioning works if:(i) only a few mortgages in the pool default, and (ii) if the historical underwriting Loan-to-Values(LTVs) aren’t breached by declining real estate values. But if the mortgages in these pools are highly correlated (which they are), then LTV-breaching declines in home values will create bank charge-offs that tend to look like a steep step function, e.g. a 3% historical charge-off rate goes right to say a 20%-30% OREO loss rate.

So you are correct. Many home loans may be paying for now but are significantly impaired. Even if the average home loan underwriting at inception was a relatively conservative 70-80% LTV (which was the exception as the market got exuberant), loans in markets that have experienced 40%+ price declines (sand states)have significant unrecognized impairment losses.

By: KidDynamite Wed, 12 May 2010 17:55:10 +0000 yes – there will be more writedowns – which is precisely why the Fed is pleased that BAC/JPM/C/GS had no losing trading days last quarter – that’s exactly how it was designed – so that they could extend and pretend on the mortgage paper marks, while they tried to earn the future, yet-to-be-taken writedowns back in advance!