Mortgage

Standard & Poor’s Ratings Services hiked its estimate for how many bad mortgage investments banks will have to write off their books, though the ratings agency said Thursday the end may be in sight.

S&P expects banks to record $285 billion in “write-downs,” or assumptions that their investments are no longer as valuable. Banks including Citigroup Inc (C, Fortune 500). and Merrill Lynch & Co (MER, Fortune 500). have written off more than $150 billion of investments, in part because they are backed by home loans considered unlikely to be repaid.

S&P’s previous estimate for write-downs was $265 billion.

The ratings agency said Wall Street is likely more than halfway through the write-downs it will have to record. In many cases, it seems like banks have written off a lot more than actual losses are likely to be, S&P said.

Bank of Canada Governor Mark Carney said an end to the turmoil in financial markets “is not yet in sight,” though regulators should use their new understanding of the problems to craft a careful response.

“While the need to restore well-functioning markets is of paramount importance, the official sector can afford to take some time to ensure that the actions they take are appropriate,” Carney said today in a speech to the Toronto Board of Trade, followed by a news conference.

The Bank of Canada, acting alongside policy makers in the U.S. and Europe to ease a global credit shortage, on March 11 said it will lend commercial banks and brokers C$4 billion ($4 billion) for 28 days. The steps indicate the Bank of Canada, the U.S. Federal Reserve and other central banks are concerned that an exodus of investors from credit markets may deepen the global economic slowdown.

Carney, 42, gave no hint of how big the next policy move may be. The central bank cut borrowing costs on March 4 by half a point to 3.5 percent, the biggest reduction since 2001. The bank will keep its focus on the “real” economy and inflation, he also said.

Inflation pressures in Canada are “well contained,” Carney said in response to a question from the audience after his speech.

By : Gary North

An upside-down mortgage is a mortgage for which the home owner owes more on the mortgage than the home is worth.

According to a report on the CBS TV “Early Morning Show” on March 10, if house prices fall another 10% nationally, 20 million households will be in an upside-down condition.
As of the year 2000, at the last census, there were 83 million residential properties. Almost 68 million were owner-occupied. Of these 68 million properties, 67% had a first mortgage. So, about 45 million homes had mortgages.

If the 20 million figure is correct, then about 43% of all mortgage-owing households would be stuck with underwater mortgages. But this assumes conditions of 2000, before the really maniacal phase of the bubble took place.

The source of this estimate was not identified on the broadcast. It may be wildly pessimistic, but I doubt it. Millions of home owners have borrowed on their home equity since 2000. When people have sold their homes at a profit, they have moved up – more expensive homes, more debt.

Lenders will not lend money to families whose collateral is a home on which the mortgage owed exceeds the market value of the home. This will put a crimp in consumer spending. It will make the transition to a new capital structure – the recession – that much worse.

There are three other factors to consider. First, the actual sale prices of these homes will be lower than the listed prices – maybe substantially lower. It already takes almost a year to sell a home nationally. This delay period is going to get longer. Those who need to sell will take lower prices.

Second, the appraisal agencies are in panic mode, fearful of lawsuits for overinflated prices. They are cutting appraised values. This is possible for them because, with liquidity gone, homes are staying on the market far longer. Appraisers are assuming the worst regarding market value. The appraised value is the “sold today” value. That is a discounted value.

Third, it costs $50,000 to foreclose on a house. Incredible, isn’t it? The lenders made loans on the assumption that they would not have to foreclose to get the properties back. Now that assumption is seen as naïve. Owners can live rent-free simply by paying property taxes.
The recession has only just begun. The number of abandoned homes is rising.

The holders of these now-dead mortgages cannot get renters in fast enough. Weather and vandalism and crackheads are now threatening the collateral of the loans even before foreclosure.

By : Gary North

An upside-down mortgage is a mortgage for which the home owner owes more on the mortgage than the home is worth.

According to a report on the CBS TV “Early Morning Show” on March 10, if house prices fall another 10% nationally, 20 million households will be in an upside-down condition.
As of the year 2000, at the last census, there were 83 million residential properties. Almost 68 million were owner-occupied. Of these 68 million properties, 67% had a first mortgage. So, about 45 million homes had mortgages.

If the 20 million figure is correct, then about 43% of all mortgage-owing households would be stuck with underwater mortgages. But this assumes conditions of 2000, before the really maniacal phase of the bubble took place.

The source of this estimate was not identified on the broadcast. It may be wildly pessimistic, but I doubt it. Millions of home owners have borrowed on their home equity since 2000. When people have sold their homes at a profit, they have moved up – more expensive homes, more debt.

Lenders will not lend money to families whose collateral is a home on which the mortgage owed exceeds the market value of the home. This will put a crimp in consumer spending. It will make the transition to a new capital structure – the recession – that much worse.

There are three other factors to consider. First, the actual sale prices of these homes will be lower than the listed prices – maybe substantially lower. It already takes almost a year to sell a home nationally. This delay period is going to get longer. Those who need to sell will take lower prices.

Second, the appraisal agencies are in panic mode, fearful of lawsuits for overinflated prices. They are cutting appraised values. This is possible for them because, with liquidity gone, homes are staying on the market far longer. Appraisers are assuming the worst regarding market value. The appraised value is the “sold today” value. That is a discounted value.

Third, it costs $50,000 to foreclose on a house. Incredible, isn’t it? The lenders made loans on the assumption that they would not have to foreclose to get the properties back. Now that assumption is seen as naïve. Owners can live rent-free simply by paying property taxes.
The recession has only just begun. The number of abandoned homes is rising.

The holders of these now-dead mortgages cannot get renters in fast enough. Weather and vandalism and crackheads are now threatening the collateral of the loans even before foreclosure.