1.) "Each potential BHC (bank holding company) was instructed to estimate potential losses on its loan, investment securities, and trading portfolios." Does anyone see a problem here? The banks estimated the losses. That's a great example of the fox guarding the hen house.
2.) Consider the following table:
Click for a larger image
This is the set of assumptions provided to the firms that were "a common set of indicative loss rate ranges for specific loan categories under conditions of the baseline and the more adverse economic scenarios. Firms were allowed to diverge from the indicative loss rates where they could provide evidence that their estimated loss rates were appropriate."
Where available, let's compare these rates to information from the latest Quarterly Banking Profile from the FDIC.
Above is a chart for the non-current rates on loans secured by 1-4 family residences. This is the current experience. The numbers in the table are for the cumulative two year loss rate in percent. Currently, the actual experience of first lien mortgages are right in line with the baseline scenario. The first lien and HELOCS are below. It's extremely important to remember these numbers don't exactly correlate -- one is a quarter over quarter change and one is a cumulative two year scenario.
Above is a chart of non-current C and I loan rates.
Above is a chart for currrent credit card loss rates.
Remember with all of these chart we have to convert the current numbers into a "cumulative 2-year loss rate". But, given current numbers the collateral assumptions aren't bad.
4 comments:
HALF off all mortgages have defaulted in the last two years? I find that hard to believe. No wonder my Citi refi loan officer said my credit was fantastic! (Twenty years with Citi and never missed a payment, that used to be considered NORMAL!) Do peple regard contract payments as optional? I don't mean to sound condescending, five million are out of work. But half of all mortgages?
Thought you would like this article which discusses fuzzy math used by finance on recent earnings:
http://finance.yahoo.com/news/ALL-BUSINESS-Accounting-apf-15191774.html
To Anonymous (#1): If you are referring to this image (http://tr.im/l1jj), I think you are misreading 5.0% for 50%.
It's not 50% of all first-lien mortgages that are noncurrent, but 5%.
Thanks for the link, anonymous #2.
Yes, JimDotz, I must have misread it. Blame it on my old eyes (presbyopia). Five percent is a big problem. Fifty percent would be Gotterdammerung.
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