Quantifying The Full Impact Of Foreclosure Gate: Hundreds Of Billions To Start

Tyler Durden's picture

As people finally realize that there is no getting away from a self-imposed (or sent from above) foreclosure moratorium reality, the next question is the quantification of what the hit to banks will be. As bank stock shares are demonstrating today, it will be substantial and is already starting to be priced in. According to FBR's Paul Miller, as cited by Bloomberg, "faulty foreclosures may cost U.S. lenders $2 billion for every month that home seizures are delayed and the tab could reach $6 billion... Investigations of how banks are seizing homes may prolong foreclosures by as much as three months, at a rough cost of $1,000 per month for each property in the pipeline. The biggest firms likely need to add staff to comb through the files, costing them each $1 million a year." This is a very a modest estimate. More importantly, a separate study by SNL Financial has determined that the total amount of residential (not commercial) mortgages in foreclosure between directly serviced, and those serviced for others, for the big three banks alone (JPM, WFC, BAC) is nearly a quarter of a trillion dollars! And this number will soon surge. Keep in mind, as we disclosed yesterday, per JPM, the bank, which is a good proxy of the Big 3, keeps mortgages in the delinquent category for on average of 448 days before moving to foreclose (and 678 days in Florida and a stunning 792 days in New York). This means that banks, and especially regional banks, are about to experience the mother of all delinquency-to-foreclosure cliff events, as squatters now certainly will have no intention of ever paying down their mortgage. Which also means that the quarter trillion in foreclosed mortgages are about to explode by orders of magnitude. The hole could end up being as large as a trillion if one throws in the CMBS properties that are delinquent and in foreclosure ($61 billion in August per RealPoint). And poof, there goes the trillion dollars currently sitting in cash and doing nothing (as well as a generous helping of excess reserves) for now... but not for much longer. 

Below is the SNL Financial estimation of properties in foreclosure direct and serviced for others. The number is a whopper. It also excludes all the regional banks which likely account for a comparable number cumulatively.

Look for the number in the bottom right to skyrocket as more research is done on this topic. Add a few trillion in puttable [R|C]MBS and we are starting to talk TARP 2 money.

And, just because it only starts here, here is our favorite chart of leverage upon leverage upon leverage upon leverage.


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Bob's picture

If I were stockholders--or auditors--I would demand that the banks hold back all that "bonus money" as reserves against foreseeable losses (whether from write-downs or legal settlements) that would otherwise jeapordize the very survival of the firms. They have no contractual claim for Gov bailouts. 

The news is out.  There is no way the banksters meet their fudiciary duties if they pay out that bonus money. 

Under the circumstances, it would clearly constitute looting the companies.

And it would be prima facie evidence of a premeditated plan to once again blackmail the taxpayers for a bailout to avert "systemic collapse."

tahoebumsmith's picture

Unfortunately Bob the Banksters are running the show and the auditors---stockholders--are simply just spectators. This is their game and they will put another gun to Congress's head before they give up that 144 billion.

Bob's picture

Then let them set themselves up for a slam dunk on RICO.  They have a lot of money, but not enough to buy all the parties who stand to gain by breaking ranks.  That's how gangsters go down. 

carbonmutant's picture

 You can only cry "Wolf" so many times...

The real problem is that they may be right and no one will believe them.

Bob's picture

They may be "right" about systemic collapse without intervention, but given that they have once again set it up while further filling their pockets, they will have no tenable argument for being TBTF.  They're undeniably Too Big To Fix.  Let them go into receivership as mortals do. 

Bring back some semblance of capitalism before it's too late.

bugs_'s picture

In 2008 without TARP and the window these shareholders would have been WIPED OUT.  No seat at the table and nothing to complain about.

Truth be told, these banks are insolvent and those shareholders aren't.

pamriallc's picture

re: Systemic Collapse


Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary. … The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as US Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.

Capitalism, Socialism, and Democracy, Joseph Schumpeter (1942)

Shawn A. Mesaros, Pamria, LLC

crzyhun's picture

Tyler, was this manufactured/created for the benefit of the up coming landslide? Pretty suspicious if you ask me.

1100-TACTICAL-12's picture

It is no wonder the Banks have all this cash on the sidlines..

pan-the-ist's picture

Which landslide is that?

Bearster's picture

I agree that the banks look to have committed some pretty egregious sins, not least of which is paying their executives such massive bonuses while cutting loan loss provisions ahead of this disaster.

But I think it's important to also say I agree that the people who reside in these homes without paying their mortgages are squatters.  If we want to see a trillion dollars of housing reduced to uninhabitable ruins (with a corresponding impact on the values of neighboring houses) we will let squatters continue to reside in them for years.  During which time they will make no repairs or perform any maintenance.  And move out when the house is wrecked.

I think, regardless of whatever disputes there may be amongst the various MBS tranche holders, underwriters, investment banks, originating banks, and mortgage brokers... it's obvious that the squatters have to be evicted and foreclosed upon!

Pedro's picture

Keep in mind, however, that the bailout these already wealthy institutions got from the taxpayors devalued these "squatters" money via printing press and contributed to the real estate bubble which contributed to the joblessness in America.  Some of these jobless people would probably be making payments had it not been for this little closed circle of money.

LeBalance's picture

thing (1): the holder of the note is unknown in many cases, so there is "real" concern as to whom to pay.

Under those circumstances it is not legally required to pay anyone until those who were supposed to have correct paperwork get it right.

thing (2): as the veils of "mortgage" fraud get lifted many will realise that banks did not risk skin in the promise to pay at any point.

Under these circumstances, you might think about not sobbing openly for the bank and just point the finger and laugh at the mushroom cloud.  Bring mushrooms, it will be a nice time to make smores.

Tortfeasor's picture

Man, you must make some effed up s'mores.  

diesel1104's picture

What's the definition of a squatter?  Someone who paid 15% down and has paid mortgage fees for years including taxes and insurance, or a shell MERS company who has no consideration and has "sold" the asset to other well paying entities without proper title?  There is such a thing as contract law and rule of law.  If one principle breaks the law by breaking the contract, the contract becomes null and void.  The offending entity can not then go back and claim damages when the contract is not followed.  We have hundreds of years of case law concerning this.  

UGrev's picture

I think people forget that these home buyers did pay something and/or continued to pay until they were underwater. Meanwhile, the banks were committing, unadulterated, fraud. Yeah, squatting is bad.. but I think flat out fraud on the back of predatory lending is much, much worse.

1100-TACTICAL-12's picture

Even if these so called "squatters" bit of more than they could chew, you have to admit they were allowed & encouraged to do so. Peer pressure form the banks . I vote for the people, time for the banks to get fucked for a change.

Life is not & will never be fair...

pan-the-ist's picture

Let me begin by saying "I TOTALLY AGREE WITH YOU" (in caps even.)

However, on the other end of this is a pensioner who has his money tied to a AAA MBS that will lose money if the property fails to generate any revenue.

If the forecloser fails, the MBS looses (even more) money.

groucho_marxist's picture


plus, many of them have put money into these properties, done up keep, etc. and now are being compared to vagrants who just happen to settle onto a property; this is both untrue, and feeds the misinformation that they are criminals who move in. The reality is more like they are transformed into criminals by a criminal system that was set up with the express purpose of robbing them. In truth, the properties are more likely to be wrecked if the people in them are forced out, rather than encouraged to stay and maintain the properties.

I'm just waiting for the fires to start because people are being driven from their homes. Sometimes the appropriate response to rampant criminality is "crime."

moneymutt's picture

how many people would be underwater if they banks had never created MBS, CDS, CDO's and mortage companies like Countrywide and mortgage brokers had never committed fraud.

House prices went sky high because of the easy money available to buy houses, not cars, not food, but houses. How made the easy money, the FED and private financial industry. Who lied to get more people to invest in MBS, thus raise house prices, the banks.

I'd feel some sense of moral outrage if people were keep gold they took out debt to buy just because they thought they get rich, but if we exclude invertors, most homeowners were just buying a house, one because they needed shelter, wanted their kids go to decent school etc and just did not want to get left behind as houses were getting more and more expensive. Sure, they wanted house to go up in price, but would have been okay if it just flatlined.

But they get a way overpriced asset because of actions of others. They are underwater now due to bad, risky financial practices of banks.

I heard some one on TV dicussing, "would our dads walked away from a mortgage?" the thing is that except for a few regional flare ups, most of our dads never had the tempations or the problems we did, their house did not appreciate much, it was not easy to get credit to buy, and their houses never dropped in price 30,40, 50 percent in a matter of just a few years. Our dads could always get jobs, even without college education.

Don't think consumers to be smarter or way more moral than banks.

midtowng's picture

What do you think happens to empty houses? They stay pristine? No, they degrade. They leak and mold.

The people who bought those houses may not have been able to afford them, but they actually wanted to live in a house. Chances are they will do upkeep on them as long as they think they will keep them.

detersbb's picture

Please do not fall for the coming re-finance move if you hold a mortgage unless you are presented with and put your finger on the actual wet ink signed promissory note.  Demand it, or tell them that all further negotiations of refinancing will only be commenced with Santa Clause, the Easter Bunny, or the Tooth Fairy.


No note, no foreclosure, period. 


Yeah, I know lets create a new debt instrument that will be taken care of to be used as documentation going forward to foreclose on?


Do fall for it!

ZakuKommander's picture

This may not be as big a deal as some think.  Remember, we all understand that just because a foreclosure takes place does not mean that the bank who obtains the property is putting it on the market and cashing in.  Many, many foreclosed homes are just left sitting, out of the market so as not to depress prices.  So sitting in a delayed foreclosure case and sitting in a holding situation wouldn't necessarily cause the books of the bank to be cooked any more or less.

Now of course without foreclosure the homeowner (so to speak) remains in place, paying nothing, and using his or her money to buy gadgets.  A good thing for retail, no?  

Don't count on the "missing documents" problem leading the banks to losses, either.  The law will come up with a fix, so no major financial donor is left out in the cold.  This is America.

Bob's picture

We'll soon find out in no uncertain terms just what America is.  People are now watching this shit. 

ZakuKommander's picture

Watching . . . and then voting in our one party system.

Smokey1's picture

All the bank fraud should be prosecuted as capital offenses. Life w/o parole is too good for most of those worthless jerks. The very same mfkrs that pay themselves millions in bonuses on top of this most recently discovered cesspool of shit.

LeBalance's picture

Coinage Act of 1792, "degradation of the currency is punishable by death."

And they did just "print" up a promise to pay from thin air.  But of course the person requesting the mortgage did request it and is therefore equally culpable.

And so are those who use a credit card which prestoes money from thin air.

That's pretty much everyone.

So everyone needs to go to the gallows!

See you there!

VodkaInKrakow's picture

Nice, gallows humour.


I doubt that many in the world amongst the lower classes know that banks are allowed to leverage, nevermind that banks are allowed to create money out of thin air on an Excel spreadsheet. More and more are waking up to that fact, however.


The person taking the loan is not equally culpable. That is the system that they are forced into. No loan, no home. And let us rid ourselves of the FICTION that you just have to save, save, save - that with all those abundant million dollar jobs that provide million dollar jobs - that anyone can get if they just TRY, TRY, TRY - exist for every American and the people of the world.


That is a lie that too many believe.


Gallows? The proper way or let them hang there for a few minutes. BRING BACK THE GUILLOTINE! And make sure you blink five times after your head rolls!

curbyourrisk's picture

SNL Financial.  Everytime I see that name I think John Belushi in a bee outfit.

Joe Davola's picture

Johnny's buzzing off, Johnny's buzzing off!

Joe Davola's picture

Every day I feel like a bigger sap for paying off my mortgage early, let alone making payments in the first place.

goldmiddelfinger's picture

Squatter class. Hey but kramer says its no worse than the BP oil spill

Charley's picture

Well, now we know what all those excess reserve were for...

Pedro's picture

How long can the banks hold out?  They have been sitting on these foreclosures already, in addition, they are going to get double whammied because I believe these assets are way overvalued due to the "mark to model" valuation.  How long?  After the election?  The Spring?  Never?  

ZakuKommander's picture

Never sounds good.

What on earth would lead anyone to believe that anything will change?  A self-imposed foreclosure freeze will not force the banks to revise their "marked to model" valuations.  And the freeze will end when the banks either "find" sufficient documentation, or some law is passed to solve the problem for them

Bob's picture

Let's just lay back and enjoy it?  Who sent you in here to peddle this bullshit? 

There's nothing that better serves the interests of TPTB than cynical resignation.

ZakuKommander's picture

I see you're chock full of solutions. So which party in our one party system is going to lead us out of the desert?

Bob's picture

Parties have nothing to do with it.  One would think that with your apparent insight regarding parties, you of all people would see that and get over it. 

Let the rule of law be affirmed. 

pan-the-ist's picture

One party system, working for the banksters.  The liberal party throws a bone to the poor, while the conservative party pretends to be for small government.  I think we all wish for the rule of law, but you have to acknowledge that you shouldn't hold your breath.

ZakuKommander's picture

Bob, my friend, who do you think controls "the law"?

Hint: TPTB


ZakuKommander's picture

Not that I don't wish that you were right!

Bob's picture

The jury is still out on that one.  The Courts obviously didn't relish the prospects of sorting out this shit mess, but now they're going to have to.  We'll see if American Judges have as much respect for their obligations as Judges in Columbia and Pakistan, who stood up and did the right thing, even when it them brought mass murders and jailings. 

pan-the-ist's picture

Gore V. Bush demonstrates all you need to know about the American Judicial system.

RockyRacoon's picture

Hey, Bob.  The Courts might be the logical choice, but after November we'll see what Congress has to say about it all.  And it won't be pretty the way they railroad the entire judicial process by decree. 

Bob's picture

We'll see if the judicial branch allows itself to be railroaded.  And whether the states will swallow abrogation of their rights.  And whether anything Congress does will be proven constitutional for a multitude of angles.

groucho_marxist's picture

isn't there a statute of limitations, beyond which the squatters become owners, whatever the banks may claim?

RockyRacoon's picture

Adverse possession may be an option but I've not heard it mentioned in any legal sense.  Takes too many years for it to manifest in most states.

VodkaInKrakow's picture

As long as they keep paying past, present, and future Administrations and Congress.