Reality Check for Bank Investors, Mortgage Investors and Home Buyers

Last week I posted a Bloomberg news article supporting
my suspicions that investors are putting bad loans back to the banks at
an increasing rate. I used JP Morgan as a specific example -Banks Swallow Another $30 billion or So
in More Losses as Their Share Prices Surge (Again).

A few
commenters on syndicated sites appeared to have really underestimated
the significance of this development. In the article, it is alleged
that Freddie and Fannie are forcing banks to eat up to $30 billion in
soured mortgages under the warranties and representations clauses of
the sales contract. To highlight the significance of this development,
let me remind all that Fannie and Freddie are benchmarks for mortgage
lending in the US.

(Bloomberg) -- Taxpayer losses from
supporting Fannie Mae and Freddie Mac will top $400 billion,
according to Peter Wallison, a former general
counsel at the Treasury who is now a fellow at the American Enterprise
Institute.

“The situation is they are losing gobs
of money, up to $400 billion in mortgages,” Wallison said in a Bloomberg
Television interview. The Treasury Department recognized last week that
losses will be more than $400 billion when it raised its limit on
federal support for the two government-sponsored enterprises, he said.

 The U.S. seized the two mortgage financiers in 2008
as the government struggled to prevent a meltdown of the financial
system. The debt of Fannie Mae, Freddie Mac and the Federal Home Loan
Banks grew an average of $184 billion annually from 1998 to 2008,
helping fuel a bubble that drove home prices up by 107 percent between
2000 and mid-2006, according to the S&P/Case- Shiller home-price
index.

The Treasury said on Dec. 24 it would
provide an unlimited amount of assistance to the companies as needed for
the next three years to alleviate market concern that the government
lifeline for Fannie Mae and Freddie Mac, the largest source of money for
U.S. home loans, could lapse or be exhausted.

Lax
regulation of Fannie Mae and Freddie Mac led to the mortgage companies
taking on too many risky loans, Wallison said.

“It
turns out it was impossible to regulate them,” he said. “They were too
powerful.” He said no one knows how much will be needed to keep the
companies solvent.

With this in mind, I
want to parse the logic behind my posting the Fanie/Freddie issue in
the first place. This is not about Fannie and Freddie, this is
about all investors they have sold MBS and mortgages to as well as all
insurers they have bought insurance from. The monolines are putting bad
loans back to originators too. The admins of loan pools, CDO's etc.
also wish to minimize their losses. If the banks had to eat a 50% loss
of all of the bad loans they have sold (which is at least a third of
all of the loans sold from '05 to '08) then we are talking significant
numbers. The loss rate on subprime mortgages is nearly 50% now. 

Bloomberg : Real estate
loans at U.S. banks that are at least 90 days overdue or that are
expected to default almost doubled in 12 months to 7.1 percent, according
to December FDIC data. Non- performing
loans for construction and development rose to 16 percent from 8.6
percent. 

...The sale of loans from
failed banks in 2009 brought on average 43 percent of their book value,
according to an FDIC summary. Non-performing loans, those on which the
borrower has defaulted or there is little prospect of repayment, were
sold for 26 percent of their book value on
average.

In the meantime,
the collateral behind these loans are still trending downward in value
after many hundreds of billions of US tax dollars thrown at the
situation! For residential values, see It's Official: The US Housing Downturn
Has Resumed in Earnest, -   If Anybody Bothered to Take a Close
Look at the Latest Housing Numbers... and "A Fundamantal Investor's Peek into the
Alt-A and Subprime Market". For commercial property
values, see  CRE 2010 Overview
2009-12-16 07:52:36 2.85 Mb.

Of course,
this data invalidates the findings of the government SCAP stress tests
for US banks (see links towards the bottom of this post). 

Now, on
to the latest data available for Alt-A and subprime mortgage
performance.

The following informative reports, data sets and spreadsheets from which this post's findings are derived are available to download for paying subscribers. The Alt-A Report is the full text from which certain datapoints were culled to create this blog post. ALt-A and Subprime Loan Performance Summary for Q4-2009: Details and summarizes both the quarterly performance and changes from last quarter for retail and professional subscribers Q4-2009 Subprime Data Sheet: For professional and institutional subscribers, presents the full data sets behind the analysis to allow you to run your own numbers.  Q4-2009 Alt-A Data Sheet: For professional and institutional subscribers, presents the full data sets behind the analysis to allow you to run your own numbers.

  The Facts as reported by the FDIC and the NY
Federal Reserve Bank (their numbers, not mine)

• Foreclosures
  on First Lien Mortgages increased from 11.5% as of 31st October 2009
  to 11.74% as of 31st January, 2010.
• Mortgage charge-off
  rates on Prime loans and Alt-A loans increased by 25bps and 21bps to
  7.66% and 12.23% respectively over the same period.
• Delinquency
  rates for first lien mortgages on the other hand decreased by
  7bps to 5.6%, for the quarter ended December 31, 2009.
• While
  Net Charge-off rates for Alt-A loans increased by 2.12% points
  q-o-q to 30.49% as on 31st Dec 2009, delinquency rates
  dropped by 27bps over the same period to 12.1%.
• In
  the case of Subprime loans, Net Charge off rates and
  Foreclosure rates, both rose to 44.6% and 15.6% respectively during
  4Q09, compared to 42.9% and 15.4% during 3Q09.
• Delinquency
  rates declined from 26.4% in 3Q09 to 25.3% in 4Q09.
• Net
  charge off rates for HELOCs rose 13bps to 3.34% during 4Q09
  while delinquency rates had a negligible decline.
• Net
  charge-off rates and delinquency rates for Business Loans (C&I
  loans) marginally declined during 4Q09 remaining more or less constant
  at 2.5% and 4.5% respectively.

  Delinquency rates under CRE
  loans remained steady during 4Q09 at 8.8% when compared with 3Q09. While
  delinquency rates for multifamily loans did not show any drastic
  changes in 4Q09, net charge-off rates under construction loans
  increased considerably from 6.3% in 3Q09 to 8.4% in 4Q09

  Credit cards had a better quarter with net charge off rates and
  delinquency rates showing marginal improvements in 4Q09. Net charge off
  rates declined from 10.2% in 3Q09 to 9.5% in 4Q09, while delinquency
  rates declined from 6.6% to 6.4% over the same period.

• Other
  consumer loans showed a healthier 2.7% net charge off rate in 4Q09 as
  against 3.2% in the previous quarter. Delinquency rate in this segment
  also improved marginally, declining by 19 bps to 3.5% in 4Q09.
• Net
  charge-off rates and delinquency rates for Other loans marginally
  increased. While net charge off rates increased from 1.7% in 3Q09 to
  1.8% in 4Q09, Delinquency rates remained constant at 1.1% over 4Q09.

 This is all against a backdrop of what was increasing home prices
in many (if not most) MSAs for the quarters in question, which is a
definitively positive development for it was the drop in home prices
that precipitated much of the financial malaise of the last few years. Click
any graph below to enlarge.

The direction
of home prices has a very high correlation with foreclosures and
delinquency rates (as well as unemployment), not to mention the
trillion dollars or so of direct and indirect fiscal and monetary
stimulus. While the delinquency data definitely shows a positive
uptrend, when taken in light of what it took to get it and its
correlation to home prices and employment (must read Are the Effects of Unemployment About
To Shoot Through the Roof?), I believe we are definitely in a wait
and see scenario with a potentially negative outlook.

In
analyzing the performance of Alt-A and subprime loans, it is best to
look at things against the backdrop of housing prices for the
comparable period.  As you can see, the trend for pricing is down for
both the last quarter and December of 2009, and from my anecdotal
research and extrapolation from the data sets will be down Q1-2010 as
well as for some time after that. Thus, it is fair to say that the
collateral behind these loans will continue to be challenged. As a
result of this in combination with stubbornly high unemployment, there
will probably be a decent amount of pressure on delinquencies. Things
have not gotten better from a fundamental or macroeconomic perspective,
thus at this point I do not see a sustainable upward trend. As I
stated earlier, we are in a wait and see mode. 

As you can
see, the residential housing uptrend is now apparently over, and we are
resuming the downward decent.

Let's look at the improvement in
delinquencies and losses as compared to home prices in the grand scheme
of things, a birds-eye view so to speak...

Now,
hopefully all can see what I mean in terms of the recent downtick in 30
delinquencies.

Loss Severity and Potential Loss Severity According
to the Most Recent Data Points

Alt-A Loans

• Total
  loan value of Alt A loans declined from $615 bn in 3Q09 to $590 bn in
  4Q09, maintaining an average FICO score of 705 in both quarters.
• In
  4Q09, nearly 43% of Alt A loans had least one late payment over the
  past year, while 3Q09 had nearly 40.7% of such loans. In Florida nearly
  57.2% of Alt-A loans had at least one late payment over the past year
  in 4Q09 followed by Nevada with 53.9% and California with 48.7%. The
  percentages were comparatively lower in 3Q09 at 54.5%, 50.9% and 46.5%
  respectively.
• Nearly 8.2% of Alt A loans were 30-89 days past
  due during 4Q09, marginally higher when compared to 8.1% in 3Q09.
  During 4Q09, Rhode Island and West Virginia witnessed the highest
  delinquencies with 11.1% and 10.6% of loans 30-89 days past due,
  respectively.
  Alt A loans 90+ days past due increased to 12.1% of
  total loans in 4Q09 compared to 10.1% in 3Q09. Nevada and California
  had the highest 90+ days loans past due at 18.4% and 16.9% of total
  loans, respectively in 4Q09. 
• Total Alt A loans past due stood
  at 16.3% of total loans as of December 31, 2009 (30-89 days past due
  loans and 90+ days past due loans) compared to 14.6% as of September
  30, 2009. Additionally, in 4Q09, 11.5% of Alt-A loans were under
  foreclosure, marginally higher than 3Q09 share of 11.1%. Share of REO
  loans were 3.0% in 4Q09, compared to 3.2% in 3Q09. There was an
  increase in the share of “Alt-A loans in risk of default based on
  pro-rata share” (based on weighted average foreclosure / past due loans
  and REO loans for each state with weights based on average loan
  outstanding at each state) from 34.3% in 3Q09 to 36.6% in 4Q09. 
• As
  of December 31, 2009, approximately 43.3% (43.0% as of September 30,
  2009) of Alt-A loan outstanding originated on or before 2005 while
  35.0% (35.2% as of September 30, 2009) and 21.7% (21.8% as of September
  30, 2009) of loans were originated during 2006 and 2007, respectively. 
  With S&P Case Shiller declining by nearly 17% , 28% and 28% since
  2005, 2006 and 2007, respectively, most of these loans are still
  underwater and there has not been much improvement in view of the fact
  that average LTV at origination for Alt-A loans has been constant at 81%
  in 4Q09 as well. To estimate current LTV for Alt-A loans we have used
  housing price decline for each of these states (based on S&P Case
  Shiller Index with weights based on percentage of loan origination for
  each year) and LTV at origination to determine current LTV. As seen from
  the table below current LTV for Alt A loans in U.S is at 111.5% with
  California and Florida (which together account for 53% of Alt-A loans)
  having one of the highest LTV ratio at 115% and 126%, respectively. LTV
  for Alt A loans remained more or less constant compared to 3Q09.
• Note:
  The "total" line is actually a simple average.

Subprime Loans

• Compared to 3Q09 when
  almost 66% of subprime loans had least one late payment over the past
  one year, 4Q09 fared worse with an increase in the category to 67.1%.
• This
  is a very interesting tidbit that many probably did not realize. The
  total value of subprime loans outstanding drifted from $421 bn in 3Q09
  to $403 bn in 4Q09 with a constant average FICO score of 616 in both
  quarters.  California and Florida together constituted nearly
  24% and 11% of total subprime loans followed by New York and
  Illinois. Despite these demographics, in Florida and New Jersey nearly
  75.9% and 74.5% of subprime loans had at least one late payment over
  the past year. It appears as if the California/Florida coastal
  state combo are no longer the loss leaders in the subprime malaise. It
  is getting worse, and it is spreading!
• As of December
  31, 2009, 15.9% of subprime loans were 30-89 days past due, an
  improvement from 16.4% recorded as of September 30, 2009 (I sense this
  mostly due to the acceptance of short sales by the lender, which will
  end up as losses through the income statement – eventually). Mississippi
  and North Carolina witnessed the highest delinquencies with 19.7% and
  19.5% of loans 30-89 days past due, respectively. Loans 30-89 days past
  due for California and Florida stood comparatively better at 11.6% and
  11.9%, respectively. Again, the malaise is spreading outward
  and beyond the highly damaged coastal states.
• At the national
  level, Subprime loans 90+ days past due worsened materially and
  significantly in 4Q09 at 20.2% compared to 17.7% in 3Q09. Nevada
  and Massachusetts having the highest 90+ days past due at 27% and
  26.5% of total loans, respectively California and Florida were stood at
  24.6% and 18.7%, respectively as of December 31, 2009. Again,
  the malaise is spreading outward and beyond the highly damaged
  coastal states.
• Total loans past due for subprime stood at 34.3%
  as of December 31, 2009 compared to 32.9% in September 30, 2009.
  Foreclosed and REO loans stood at 13.9% and 3.7% (the REO
  numbers are highly suspect due to many reports on the ground indicating
  that banks are refusng to take back delinquent properties),
  respectively in 4Q09 as compared to 13.5% and 2.3% in the previous
  quarter. Overall, in 4Q09, 54.3% of subprime loans are in risk
  of default based on pro rata share (based on weighted average
  foreclosure / past due loans and REO loans for each state with weights
  based on average loan outstanding at each state), a deterioration
  compared to 3Q09 share of 52.6%.
• As of December 31,
  2009, nearly 49.5% of current subprime loan outstanding were originated
  on / before 2005 while 35.2% and 15.3% of loans were originated during
  2006 and 2007, respectively.  These percentages stood 49.2%, 35.5% and
  15.2% respectively as of September 30, 2009. With S&P Case Shiller
  declining by nearly 17% , 28% and 28% since 2005, 2006 and 2007,
  respectively most of these loans are still underwater and there has not
  been much improvement in view of the fact that average LTV at
  origination has been constant at 84% in 4Q09. As seen from the table
  below, the current LTV for subprime loans is at 111%, with
  Michigan and Arizona having the highest LTV at 147% and 141%,
  respectively (again, the malaise is spreading outward and
  beyond the highly damaged coastal states). LTV for Subprime loans
  remained more or less constant compared to 3Q09, due to the short-lived
  upward blip in home prices.

Note: The
"total" line is actually a simple average.

As can be seen from
the chart below (3Q-09), there are still plenty of losses to be taken
in these loan categories.

 

So
banks are doing well, after all their stock prices have went up over
100% from last year's lows, right? You see, I am a fundamental investor,
and the fundamentals say many of the banks are nothing but big, black,
sinkholes. The stock market has decided to "all of a sudden(ly)"
disagree with this assessment. I wonder why?????. Of course FASB has
allowed them to absolutely ignore everything in all of the charts you
see above.

Reality
is, after all, reality - and it will hit, sooner or later. At that
time we will have a dot.com style moment, except we will be talking
trillions of dollars instead of billions. For more on this, see "How Regulatory Capture Turns Doo Doo
Deadly". 

I have written A LOT on the topic of banking, fraud
and bogus stress testing. The numbers that you see above reveal the
stress tests to be a fraud. as does Barney Frank's admission that
second lien loans essentially have no economic value (more on that
later, I have alleged this for over 2 years now)...

The Truth! The Truth? Banker's Can't
Handle the Truth!!! ... though. Let's glance at the non-conforming
loan losses that have already occurred in comparison to the SCAP
projections that justified the return of TARP in many cases. Recovery
rates had the illusio...

Residential Lending Credit Losses
Worsen as Unstainable Government Support Proves... Unsustainable
...though. Let's glance at the non-conforming loan losses that have
already occurred in comparison to the SCAP projections that
justified the return of TARP in many cases. Recovery rates had the
illus...Monday, 21 December 2009

Welcome to the Big Bank Bamboozle! I
have produced a downloadable PDF which clearly shows exactly how far
off the banks and SCAP bank stress tests are from the
delinquency and foreclosure information that the Federal government
distr... Tuesday, 12 May 2009 About the Politically Malleable FASB,
Paid for Politicians, and Mark to Myth Accounting Rules Johnathan
Weill has an excellent article on Bloomberg today illustrating just how
BS the BS FASB accounting changes regarding mark-to-market really
were. For all of those who wondered why I Thursday, 25 February 2010

 

At What Point Does Accounting
Gimmickery Become an Outright Lie? Let's Ask PNC ...1:22 590.98 Kb
 PNC Report_update final - Retail 2008-10-15 13:21:38 337.21 Kb
 PNC SCAP Results recast using FDIC and NY Fed data -
Pro 2009-05-15 07:31:21 455.37 Kb  PNC... Tuesday, 27 October 2009

 

If a Bubble Bubble Bursts Off Balance
Sheet, Will Anyone Be There to Hear It? Pt 5 - PNC Bank

...  PNC Report_update final - Retail 2008-10-15 13:21:38 337.21
Kb  PNC SCAP Results recast using FDIC and NY Fed data -
Pro 2009-05-15 07:31:21 455.37 Kb ... Wednesday, 21 October 2009

You've Been Bamboozled, Hoodwinked and
Lied To! Here's the Proof. What Are You Going to Do About It?...rnment
issued what amounted to "take home" stress tests for the big US
banks. These tests were known as SCAP (Supervisory Capital
Assessment Program) tests. I have warned about the inaccuracies of
the...Friday, 06 November 2009

The Real Stress Test Results ...as
other private sources. A very big difference from what was proffered
through the media:  PNC SCAP Results recast using FDIC
and NY Fed data - Retail 2009-05-15 07:30:25 395.18 Kb  P... Friday,
15 May 2009

America, You have been outright lied
to! Bamboozled! Swindled! Hoodwinked! The Worst Case Scenario

(Reggie Middleton's Boom Bust Blog/MyBlog)

...ntly
stating that banks are well capitalized! The table below presents a
comparison of the Fed's SCAP (stress test) assumption for
cumulative 2 year loss rate and likely two year cumulative e...

Monday,
11 May 2009

The Truth About the Banks Has Been Released: the open source spreadhseet edition (Reggie Middleton's Boom Bust Blog/MyBlog) ...ed up, depending upon which side of the Truth you are on):  BoomBustBlog.com's Realistic Recast of SCAP 2009-05-12 14:52:09 Any bank or government official who significantly disagrees with... Thursday, 14 May 2009 The Re-Release of the Open Source Mortgage Default Model (Reggie Middleton's Boom Bust Blog/MyBlog) ... errors from a reader, along with suggestions on how he felt the model could be improved. I checked the SCAP Loss Assumptions file that he sent and although there is a difference of approach followed ... Monday, 18 May 2009 Green Shoots are Being Fertilized by Brown Turds in the Mortgage Markets...ings are you referring to?] § WFC Investment No... § WFC Investment No... § PNC SCAP Results ... § PNC SCAP Results ... § BoomBustBlog.com'... § Small r... Friday, 10 July 2009  Beware of Bank Earnings Propaganda - They are still in BIG trouble!... you referring to? then take a look at the hard data released by the FDIC and the NY Fed:  Revised SCAP Assumptions Public Open Source Version 1.1 2009-05-18 15:15:47 1.21 Mb) as well as an expla... Monday, 06 July 2009  Banker Busted? ... data in my recent posts if you doubt this:  BoomBustBlog.com's Realistic Recast of SCAP 2009-05-12 14:52:09 My comments on the NYC condo market which seems to have wrinkled a ...Friday, 05 June 2009 If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It? Pt 4 - Wells Fargo ... WFC Full Forensic Analysis & Research Note with Anticipated Capital Requirements under revised SCAP/Stress testing 22 May 09 - Professional 2009-05-27 01:56:54 853.53 Kb This is the document ... Monday, 19 October 2009  Fact, Fiction, Farce and Lies! What happened to the Bank Bears? ...ears, Wells Fargo's capital would fall short by US$34.3 billion and not US$13.7 billion as shown by the SCAP result (see America, You have been outright lied to! Bamboozled! Swindled! Hoodwinked! The ... Thursday, 13 August 2009   PNC plus CRE = Doo Doo hitting the Fan ...d earnings are you referring to?] § WFC Investment No... § WFC Investment No... § PNC SCAP Results ... § PNC SCAP Results ... § BoomBustBlog.com'... § Small ret...Tuesday, 28 July 2009

Other
banks to look at with suspect portfolios:

JP Morgan Chase

(Free
Preview)  JPM Public Excerpt of Forensic Analysis Subscription 2009-09-22
14:33:53 1.51 Mb

 JPM
Forensic Report (092209) Final- Retail 2009-09-24
03:12:17 130.93 Kb

 JPM
Report (092209) Final - Professional 2009-09-24
03:13:31 550.72 Kb

Bank of
America

 BAC Swap
exposure_011009 2009-10-15 01:02:21 279.76
Kb

PNC Bank

 PNC Report
050508 revised 2008-08-30 06:38:42 711.95
Kb

 PNC
Report_update final - Pro 2008-10-15 13:21:22 590.98
Kb

 PNC
Report_update final - Retail 2008-10-15 13:21:38 337.21
Kb

 PNC SCAP Results recast using FDIC and NY Fed
data - Pro 2009-05-15 07:31:21 455.37
Kb

 PNC SCAP Results recast using FDIC and NY Fed
data - Retail 2009-05-15 07:30:25 395.18
Kb

 PNC
Simulated Government Stress Test 2009-05-01 13:09:19 664.87
Kb

 PNC Stress Test Pro 2009-04-13
02:10:17 3.11 Mb

 PNC Stress Test
Retail 2009-04-13 02:11:08 323.51
Kb

 PNC
Stress Test update - Professional 2009-04-21
15:55:56 3.00 Mb

 PNC
Stress Test update - Retail 2009-04-21 15:53:52 777.50
Kb

 PNC
stress test write up - public lite 2009-07-27
02:37:11 995.30 Kb

Sun Trust

 STI update 2009-09-03
06:33:371.08 Mb

 Sun Trust Bank
Report 2008-08-30 06:39:22 391.89
Kb

 Sun Trust Bank Stress Test Scenario
Analysis – Government Simulation 2009-04-30
03:43:18 665.82 Kb

 Sun Trust Banks Simulated Government Stress Test 2009-05-05
11:37:13 1016.17 Kb

The
Government Stress Test

 The Supervisory Capital
Assessment Program: Design and Implementation 2009-04-30
02:16:44 286.90 Kb

Wells
Fargo 

 WFC
Investment Note 22 May 09 - Pro 2009-05-27 01:56:54 853.53
Kb

 WFC
Investment Note 22 May 09 - Retail 2009-05-27
01:55:50 554.15 Kb

 WFC Off
Balance Sheet Exposure 2009-10-19 04:25:53 258.77
Kb

 WFC Research
Note Sep 2009 2009-09-30 13:01:30 281.29
Kb

All subsribers can download the data that
generated the graphs above here:

• ALt-A and Subprime Loan Performance Summary for
  Q4-2009: Details and summarizes both the quarterly performance and
  changes from last quarter for retail and professional subscribers
  
• Q4-2009 Subprime Data Sheet: For
  professional and institutional subscribers, presents the full data sets
  behind the analysis to allow you to run your own numbers. 
  
• Q4-2009 Alt-A Data Sheet: For professional
  and institutional subscribers, presents the full data sets behind the
  analysis to allow you to run your own numbers. 
  

Click here to subscribe.  The dataset
contains a LOT of data to slice and dice, and is broken down by state,
so you can actually back into your favorite bank's propsective
portfolio performance if they give a geographic break up, like Wells.
See the following screen shots. Click to enlarge...

 

Comments

[Anonymous]

Hey Reggie,

Great research. As one of those underwater & in pre-foreclosure homeowners, I can tell you from my research the banksters have duped everyone, the ratings agencies, investors, home buyers, everyone. Plus the counties across the US should be up in arms over the loss of recording fees brought forward by MERS. And while on that subject, by transfering title to MERS (who is a straw man at best), these banksters have created dubious title to over 60 million homes. How that will shake out in the future and the resultant lawsuits might be the final death knell for the big 4 banks.

[Rick64]

Meanwhile over at yahoo financials

"S&P gains as Financials Outlook Improves"

[dumpster]

reggie

kudos

very fine presentation

[Anonymous]

reggie

kudos

very fine presentation

[Ned Zeppelin]

Execellent, persuasively argued post and facts and figures that no one outside of ZH has any serious interest in hearing. 

I'd love to hear the counter-arguments.  I really would like to understand why this is all wrong.

[Reggie Middleton]

Trust me, I constantly look for credible counterarguments as part of the analysis.

[Alexandra Hamilton]

http://www.washingtonexaminer.com/local/012909-Ex-Fannie_Mae_worker_char...

I think the significance of this story needs to be reevaluated then. Just imagine this had succeeded...

[Anonymous]

Reggie, you do the best analysis I see on this type stuff. But to think there's going to be a bust because of these imbalances you must have been asleep for the past couple years. The government will steal from the taxpayers in a thousand different ways to fill in the sinkholes, and we'll all go along like sheep. They'll borrow bajillions so the Fed can make computer entries into to banks' reserve accounts, inflate the currency to steal from our savings accounts, and repudiate their debts to us (see Mr. Erskine Bowles promise to the North Carolina bankers that they're going to "mess with" Medicare, Medicaid, and Social Security). We're going to start hearing a lot about the "original intent of the program" and the "nobility of sacrifice". The kleptocracy has brainwashed us to believe that it is unpatriotic, not to mention hopelessly naive, not to support "the system" with our last ounce of blood, in other words, that fascism, not greed, is good.

[Reggie Middleton]

lying, cheating and stealing does not avert a bust. It simply prolongs it and makes the ineviable bust that much worse. Trust me, just like every other time in the history of civilization, it is NOT "Different this time!".

The mere fact that you tax the chocolate out of the populace means significantly decreased spending with leads to lower GDP and a smaller economy. There really is no free lunch, simple a purchased lunch, a made lunch, or a lunch had with borrowed monies (this can include a stolen lunch as well, but that ain't free because eventually you get caught, and somebody else pays for it in the meantime).

[Anonymous]

+1, sad but true

[Anonymous]

I work in a major financial institution ( I know, scab) and the internal talk is to prepare for a housing decline of 1% every month for the next five years. So, yes, " they" know.

And also found out yesterday that my neighbour is on the verge of foreclosing.

MNam

[Ripped Chunk]

So that's a no on my HELOC app??????

[Anonymous]

I bought at a good price per square foot in May of 2008 after unloading my previous house at a good profit. Little did I know that the slowdown was going to turn into what it did.
I just sold the new place at a 10% loss and feel good about it.

[Ripped Chunk]

You should feel good about (10%). 

I bought in May 2008 also, about a year after I got divorced. I should have kept renting.................

[deadhead]

thanks for sharing.

of course they know, they are not stupid.  the Fed knows. the treasury knows. larry summers know.  hell, he even a dumb guy like me knows.

but, they will keep lying, distorting as long as humanly possible.  

[Anonymous]

That would be a total decline of 45%. Doesn't seem likely.

[Anonymous]

45 percent? If they're looking at a 1% decline monthly for the next five years, that's 60 months, which equals SIXTY percent.

Math aside, I find a decline of an additional 60% from here to be wildly pessimistic. I could realistically see another 25 - 30% down from here...

...I hope...

[Anonymous]

On the maths, 45% is right, assuming that each month the property loses 1% of the value it had in the previous month (99% ^ 60 ~ 55%)

That doesn't sound impossible

[Anonymous]

Actually, no. It's a 1% month-over-month decline, which comes out around 45%. It's a reverse of interest compounding - if you start with $1,000,000, the first month you go down by 10,000; second month, 9,900; etc.

[Reggie Middleton]

My friend, you should look at this from a historical perspective...

If I am not mistaken (have to check the dates), that first big blip was the Gold Rush and the massive immigration that was the foundatio of what this country is today - just to put things into perspective.

After an additional 45% drop, there are some who could (and credibly, may I add) argue that home prices still haven't reached equilibrium!

Thus, not only is a 45% additional drop possible, and one can actually argue probable, it may not even be the and of the line...

[rawsienna]

Put nominal GDP on that graph and you will see that a 35-40% drop from the top just gets us back to trend. The initial break occured in 1996 and peaked in 2005. 

[Anonymous]

The Japanese beg to differ.

[Anonymous]

Thanks for your efforts here Reggie. Great info you won't get anywhere else but ZH.

The "4Q09 Alt A Loans" table was published above twice.
I believe the second instance should be "4Q09 Subprime Loans"

[RSDallas]

You are the data man Reggie.  I will say there are very few people who really understand what's going on better than you do.  So here is my question based on your statement...

"Of course FASB has allowed them to absolutely ignore everything in all of the charts you see above."

So are their any developments along the lines of FASB going back to mark to market?  It seems to me that FASB holds the key that could potentially force these banks to face reality.  Are they on the take as well?  Are they controlled by congress?

[deadhead]

ultimately, the SEC controls FASB as I understand.

the FASB was pressured into the 157 changes and the vote was 3-2 for it (some people have integrity as did those 2 no votes).

We will not see a 157 change for years in my view because the banking system would collapse immediately.  same goes for the obama/barney short sell "permanent principal reduction" program.  it's not going to happen because banking system would collapse.

our bank system will stay a zombie for years because those responsible for overseeing it will not force the changes.  the bankers will continue to take every nickel of profit and stuff it in their pockets vs retaining for capital/loan loss reserving.

the end game is zombie banks for years (and a housing crises that will outlast that time frame) or collapse.

[Anonymous]

Some Friday afternoon we will have a few moderate quakes. Then Friday evening an 8.0 in the U.S. shadow banking system.
Then come Monday morning,
The Sun does not come up.

[hettygreen]

Reggie

Thanks for all the work you put into this research and for availing it to the more curious (suspicious) members of the general public.

What do you know about the Canadian banking system? Is it really the healthiest horse in the glue factory?  Seems to me it is enabling a housing bubble of historic proportions in this country although folks keep arguing, not to worry, the whole shebang is tax payer back stopped through CMHC (Canada Mortgage and Housing Corporation) which serves, I think, as our version of Fanny and Freddy.

This warranties and representations business has me wondering if the same thing could not happen up here (eg. some of our "world class" banks may have to eat more than a few of the mortgages they issued because they got hubristic and careless and failed to dot i's, cross t's and do proper diligence, at least, ultimately as seen through the eyes of the insurer of this garbage CMHC). Witnessing some of these huge profit generators (several of whom were in deep with Enron) being bitten in the ass because of fraud would recharge my schadenfreude for at least a year.

[Reggie Middleton]

I haven't looked heavily into Canadian banks, thus cant' comment other than they appear to be more stable than US and Euro banks.

This warranties and representations business has me wondering if the same thing could not happen up here (eg. some of our "world class" banks may have to eat more than a few of the mortgages they issued because they got hubristic and careless and failed to dot i's, cross t's and do proper diligence, at least, ultimately as seen through the eyes of the insurer of this garbage CMHC).

In the US, it wasn't hubris, it was OPM (other people's money). When you are going to sell the loan off, who gives a frog's fart whether the borrower pays it back or not.

[Anonymous]

Interesting information.. This is a complete guide

Regards,
Tony
http://www.foreclosurelistings.com/

[Anonymous]

+1. Tried to give you a 5-star rating, but ZH isn't letting me. I do see a "

" before the stars though, so perhaps that has something to do with it.

Clearly it worked for someone though. Just FYI.

[Anonymous]

So THAT'S what a slow motion train wreck looks like! I too enjoy the spectacle of people litigating the fraud. Instead of Mad Magazine's "Spy vs Spy", it is "Crook vs Crook", and the fight is over who keeps the flaming bag of dog excrement.

[Tic tock]

But Reggie, the stock market 'is' place to park short-term cash with some risk. when you print this many dollars, where else are they supposed to go? The dollars can't be brought out of the stock market, in a rush. so the more dollars get printed... it prevents inflation. Unless no-one stops printing.. in which case the dollar quickly becomes worthless. What happens to equities if that happens, that's a good measure for the tightness of the chain of command.

Now, relax, have fun, get a beer, this is supposed to be a revolution.

[Anonymous]

Ye ye ye, good research. But no1 seems to care today, financials are leading the (only) way UP!

[JimboJammer]

Good  Job...  if  JP  Morgan / Chase / Wa-Mu    had  to  mark to market

all  these  vacant  houses..  their  stock  would  be  $ 1.00  /  share.

A  big  crash  is  coming... States  are  raising  property  taxes  on  houses

that  are  underwater ..  Realitors  can't  move  them... I  know ,   I  am 

going  thru  this  right  now ..

[pooplagrande]

Great report Reggie...

Still amazes me that this is not more widely known. What is scary is that the bankers are aware of this and so are some within the government...and they choose to cover it up. If/when this comes to roost, and the truth surfaces on the scheme...look out. Blood on the streets won't be caused by the destitution, but the insidious cover up that made it worse and deceived the world. I am not sure they are aware of the powder keg they are toying with.

[Madcow]

Satisfying to see these people begin to turn on each other.

Now that they're hiring lawyers, trying to cover their tracks, and desperately trying to convince themselves and others that they're on the right side of the law, we'll enjoy the shocking spectacle of whistle-blowers, grand juries, and special prosecutors.

Lets give everyone in DC a truck-load of crystal meth - and get it over with faster.

[Ripped Chunk]

"we'll enjoy the shocking spectacle of whistle-blowers, grand juries, and special prosecutors"

I for one have had enough of the kabuki theater.  A few scapegoats will go. This one will be nothing like the "S&L Crisis" witch hunt. Most are going to skate.

[deadhead]

On the bright side, Reggie, we are now witnessing such a classic Ponzi with bank stocks.

Not only do we have wall street/banks executing this Ponzi for the umpteenth time, but we have the collusion of the Fed, US Treasury, and SEC along for the ride.  While we have so many examples of the bank Ponzi within the past year, the C extravaganza of the last couple of days is a beauty.

I certainly don't know how long it will take before the eventual unraveling, but I enjoy holding on to my bank short position and sleep well at night doing so.  once they rolled out a.j. cohen yesterday and cramer insisted that people get into bank stocks with a vengeance, I knew we have reached the maniacal and orgiastic period.  give those bank bulls a few more rocks of meth and watch the insanity.

[MatrixSurfer]

Deadhead:  be sure not to ignore the snooze alarm on your friendly bank regulators, because they will likely rob you of your ability to short the banks.  Now why would they do that?  hmmmmmm....