This chart shows the loss severity for subprime first-lien mortgage loans in the tri-state area (New York, New Jersey, and Connecticut). Loss severity is defined as the average size of a loss if one occurs. A loss occurs when a foreclosed home sells for less than what the borrower owes to the mortgage lender. The amount of that loss includes the costs to foreclose and liquidate, as well as taxes and declines in property value. This report uses all securitized nonprime mortgage loans from First American CoreLogic’s Loan Performance data set.
Source: Fed U.S. Credit Conditions
Seems to me the banks have a lot of unsold inventory. Also they are not in the position of lending to anyone approaching sub-prime. Likewise, those of us who wisely won’t be seeking additional debt will be sitting on the fence until we observe real signs of recovery.
Therefore, ‘leading indicators’ in the consumer sector suggest zero foresseeable growth. No need to specualte on a rebound in housing until there is a major shift in the (ahhhem,) Federal budget ‘break’down.
Greece reported a previously undisclosed $50B. loss just yesterday. Germany can tenporarily take up the slack, but all of the EU is perilously near a breakdown as well.
So what is the % of defaulted paper being sold into collection and how much cash is that to the bankers (or is it the same group just a shuffle)? When the local housing market in Alaska tanked years ago the paper was bought up. Individuals that walked away, down the road when they recovered were slammed again to pay the debt on the long gone house. Seems to me this will pretty much destroy the financial future of a generation of Americans. That rotten apple so to speak could rot the whole barrel.
By the way a Townhouse I rented for 1300 a Month. The owners paid $550K for it and it is now worth $280K
Before long it will be worth $100K
People we have seen nothing yet.
Have none of you heard of Elizabeth Warren. She has already stated on national TV that we have a Ksunami of Foreclosures coming between now and 2011.
Minimum Foreclosures coming, 81/2 MILLION.
Elizabeth was hired by Obama to over see the TARP Bailout Money. Elizabeth has informed the President of this and yet YOU do not hear him say a word about it or address it with the Public.
A Billionaire Realestate Investor stated by the time the Housing Market bottoms out. A $500K house will cost $100K.
THAT IS WHEN I AM BUYING…………………………
Hey there:
This only counts those losses that occur. Shouldn’t there be a representation of what percentage of these foreclosures result in a loss? Or factor in loss-less or profitable (if there are any) foreclosures.
PS
Madoff went to prison for ripping people off.
If AIG and Goldman Sachs and the Big Boys have destroyed the nation’s pensions…
When do they walk the plank?
Recently, Megan Mc Cain said that “young people start revolutions, not old people.”
If the old people of this country have to face cuts in Medicare and Social Security and then find out their pensions have gone bust due to AIG and GS, etc. Um… watch out!
“Politicians and Bankers Beaten to Death by Cane-Wielding Persons!” Ack!
Amen to Dr. J and Jaybee.
My thoughts, exactly!
Next thought: how this plays into the value of pension funds and endowments.
AIG was a big player in pensions, as were many of the other “players.” Goldman Sachs stopped buying securitized mortgages three YEARS before they stopped selling them, including to foreign entities, mostly in Europe. Cities, counties, states, private and public pension funds, both here and abroad. University endowment funds, charities’ endowments.
Trillions destroyed.
Hedge funds “insuring” these “investments,” with NO money to back up the policies!
No oversight, no regulation, “free marketeers” who tolerated no interference. Great.
Politicians in their pocket. The SEC asleep. The ratings agencies bought and paid off.
As you say, what happens when the banks have to acknowledge these losses?
When do we find out how bad off the pension funds really are? Do we have any idea, yet?
Tons of them were already under-funded. Now, they could have evaporated.
Hope I am wrong!!! But, this is what I have been asking myself for about two years, now.
Can anybody put my mind at ease on this? I just see big bankers making a run for it!
seems like a pretty simple scam to me if you want to dispossess the middle class. reduce interest rates, create a bubble, export industry so that your victim can no longer be self sustaining while distracting them with fake equity that they think is wealth, (that they use to buy consumer goods, giving the illusion of affluence) in a phony service economy that produces barely anything of value, buy up real assets/productive capacity in both real terms and on the stock market, soak up housing inventory so as not to pop the bubble too fast, slowly make borrowing more difficult, eventually start tweaking interest rates and viola! – you now own 95% of the world, the former middle class is helpless, and you spend the rest of your days eating sushi off the bodies of hot naked chicks…although there is the slight problem of a very annoyed, formerly wealthy public with a bunch of guns
The present strategy to encourage lending, prevent foreclosures and keep house prices high is not for the benefit of the poor schmucks who are underwater with their mortgages but to prop up the banks who have all these non-performing “assets” on their books. How does the average Joe benefit from a government strategy to drive the price of housing higher? This is what has been happening ever since the inception of the GSEs. By making mortgages more easily obtainable, the government increased the pool of buyers vs sellers in the real estate market. Simple market economics tells you that this will drive the price up. Who benefits, not the poor slob who grabbed the cheap mortgage. It was the seller who profited initially. Then it was the banks who were incentivised to write as many of these mortgages as they could because they were going to securitise them and pass them on to a greater fool. The problem is that the greater fool now turns out to be the tax payer whose grandchildrens’ future has been consigned to indentured servitude by the massive government borrowing to support the banks by buying all this toxic financial waste. Meanwhile the banks are allowed to mark to fantasy the value of this garbage so that technically bankrupt institutions can declare massive profits and pay huge bonuses. This is madness and will not end well. The people at the top are smart enough to know this. Why are they not acting in your interest by bringing this colossal farce to an end? Who is benefiting from this? Follow the money!
we need more illegals to drive wages down!!
The ONLY ‘good’ the graph shows is that the loss severity index has temporarily plateaued; understand that this loss index rate shown is geometrical. Please keep in mind that the chart is showing, “This report uses all, securitized nonprime mortgage loans from First American CoreLogic’s Loan Performance data set.” , and that number, unfortunately, also includes a large number of non-subprime loans that were included as part of the “securitization” process by the folks at Goldman Sachs, AIG, Lever Brothers, Morgan Stanley, yadda, yadda, yadda so they [Wall St Bankers] could sell those worthless pieces of paper to unsuspecting investors as MBO’s [mortgage backed bonds] and conceal the underlying risks. Folks, THINK! The amount of ‘paper’ dollars involved here is literally, TRILLIONS of dollars. Several posters above wanted a crash or a continued real estate devaluation; to those folks – I suggest you do all your transactions in cash – you don’t understand money or mathematics. This graph IS scary; what is even scarier to me is that Corporate America and Wall Street has not changed their behavior, still spend millions to influence Congressional representatives and Senators to make no oversight or regulatory changes in their business models. EXXCCUUSSEEEME!!!! THIS IS WHAT CAUSED THE PROBLEM!!!!!
Keep firmly in mind that the dollar is not backed by gold, it is now only based on “full faith and credit of the US government” and ask yourself just exactly what “sound as a dollar” really means? Also keep in mind that the US dollar is the standard that all other countries use as a measurement for their currency valuation AND also is the standard used for crude oil purchases in world wide markets.
That is no big deal just raise taxes and whala ….. problem solved
I think, ALT-A is what you should be looking forward to. The commercial wave of default, and when that happens, the banks wont have any money to lend the poor little patient renter to buy a 15,000 dollar home. I am waiting to find a nice cheapie and drop one on the books too, so let the rich eat each other and I will walk away with your CHANGE, and HOPE you do also.
WallaceN, so you danced while the music was playing knowing full well (or should have known) the music would stop.
And did you also know there were no chairs?
Used to sell a lot of subprime mortgages. Not surprised really. Most borrowers had best intentions but their “plan” had no room for error. And, as a result, this is what you get. Probably the hardest problem to “fix” (aside from jobs). You’re not just moving paper around like the Wall Street casino crowd. And in the tri-state, with taxes being owed, not by the homeowner who walked out, but by the bank, the storm is not going to let up. Take the total tri-state present and projected foreclosures X say $10,000 annual taxes, and all of a sudden, it real money. And the bail outs are done. What do the banks do now? No more going to the piggy bank, and you can’t hold non-performing assets for ever. And while they’re wringing their hands they won’t see the big wave just over the horizon, commercial real estate, coming onshore. What’s Timmy Geitner & Co gonna say then, ” We didn’t see it coming”!
Note this graph refers only to subprime loans, which are a pretty small part of the housing market overall, getting smaller these days. I’d bet the top of a bell curve is coming soon, as the quality of the book of subprime loans improves, and the housing markets stabilize.
Oh, and the default rate is only 3%. Not sure if I’m right to say “only.”
Illuminating.
The graph, as labeled, doesn’t seem too scary. Yet reading through the comments, it seems that beneath the jargon and gibberish, the chart actually depicts a terrifying situation of 70% losses. If the commentary is correct, than we are in a difficult bind.
Finally, nobody should be rooting for a crash. All will suffer – and the poor, as so often before, will suffer more. Let us find a way forward together. Perhaps the Obama administration could revise their failed mortgage bailout programs?
Joe @ #23, has it occurred to you that if the housing market crashes, it may well take the economy and your job with it? Be careful what you wish for.
@Duke: get some facts from source other than Sarah “Fail’in” Palin’s made up lies next time. Obama is leaving in place the tax cuts for most of the middle and working classes and raising them for those earning over $200k (single) and $250k (joint)–not even close to everybody. In Oregon, for example, only 3% of working population earns over $125k let alone $200k. I am no fan of the little or nothing he’s accomplished, but I know he’s better than McCain and Palin and we only had those 2 choices. Frankly, he’s kept most of GW Bush’s poor policies in place including two nation-bankrupting wars costing over a trillion to date, he continued the fat cat bailout, and he has done nothing to fix healthcare costs. As for housing, greedy shortsighted people who bought more house than they could handle deserve to lose.
I really hope the housing market crashes.
It’s been 15 years or so now that I haven’t been able
to afford to buy housing because the prices are
so wildly inflated.
Crash please, crash.
This is typical. As a former owner of a community bank (you don’t want to know), I will tell you that
1) Bankers SUCK at getting rid of REO. They are the worst marketers in the world, and the biggest chickens in the world. An insider can steal things at 20% of actual (post-writeoff) value all day long from the dimwitted folks that run the REO desks.
2) This is bad, but it is going to get worse.
3) When it gets worse, you won’t believe how bad it is.
4) Nobody is going to pay for these notes or REO’s because the government has completely screwed everybody’s ability to appropriately value an asset. Unless somebody is getting them for 5% of the original value, and is going to buy ONE, to LIVE IN, they are going to sit on the banks’ books so they don’t have to realize the enormous losses they have.
Yes, that chart is scary. But not nearly as scary as this: http://www.occ.gov/ftp/release/2009-161a.pdf
Derivatives are the 800 lbs gorilla nobody wants to look at. U.S. $200 Trillion. Worldwide $500 Trillion.
# # 1 Constant Learner Says:
February 2nd, 2010 at 10:19 pm
How is a 0.7 % loss scary ? Or is it 70 % ?
# # 2 jck Says:
February 2nd, 2010 at 11:33 pm
70%
///////////////
A 7% loss would be horrible when the healthiest of the TBTF are leveraging at 15 to 1. 70% loss when your leveraged even 1.5 to 1, which is something approximizing Chinese savings accounts and nobody on this side of the Pacific would even consider… is catastrophic.
Janus, there are people who are probably worth $200k to their company; however, there is no one worth what bankers are being paid. I favor reducing taxes on those who create value (i.e. make things) and increasing them on those who trade things (i.e. bankers). One improves the economy, the other is a parasite. Oh, and the children of those who are favored for creating value? I favor redistributing their inheritance to eliminate the problem of George W. Bush, er, self-perpetuating wealth. Tax policy should be used to favor what adds value, not just what makes money.
@Janus ” Good. I have yet to see any evidence that anyone is worth half that, in terms of what they produce for this country.”
Lol! That’s the smartest thing I’ve read all month.
Duke? About “higher taxes on everybody being promised by the white house”?? The white house promised and delivered tax cuts to 95% of us. If you get more than $200,000 dollars a year, you might have a significant increase in your taxes. Good. I have yet to see any evidence that anyone is worth half that, in terms of what they produce for this country.
With no jobs in sight and higher taxes on everybody being promised by the white house, expect more homes to go to foreclosure. In certain areas non-preforming loans are about to eclipse preforming. And do not forget that the non-preforming loans are the loans that thus far have been the most profitable. After foreclosure lenders are replacing what had been a 350k loan and interest payments with 100k if and when a buyer will come forward. Walk away now if you can, this train is already off the tracks.
Those numbers don’t look too surprising, especially for the market the graph represents. Things might be a little better here in the mid-west, but nothing I would be writing home about. One interesting question might be why, given how much the banks stand to lose by holding these properties, they are so difficult to deal with on the sales side. I have seen countless deals blow up because the bank doesn’t seem ready to sell, or they simply move so slowly that the potential buyer has already moved on.
these charts mean nothing. what matters is that GS employees get there bonus each year. Thats what matters to our economy. all else is just noise. Charts mean nothing because it has alrady been proven that no matter how much you loose, if you are a GS employee you automatically are a profitable person.
That is a first class steamer.
Who says that graph can’t go higher? Only you say that Mr. Merkel. Wait until the Obama homebuyer tax credits expire in April, the massive REO sitting on bank balance sheets starts hitting the market and foreclosures accelerate, which they will. You will eat that statement.
FYI: You can have greater than 100% severity, if your carrying costs are greater than your recoveries (such as forwarding interest to securities). Severity is just for those loans that do default, the number does not imply anything about what percentage of homes are or will foreclose.
Frankly I’m shocked by the 70% number, and a little annoyed that the methodology includes projections. How much of that number is real results and how much of it depends on their transition matrix?
This is yesterday’s news. The pain has already been taken by the financial system so this chart, while “scary”…is nothing more than a rear-view mirror of what we already know.
I would like to see a loss severity chart for Commercial Real Estate, the black swan that few are really paying attention to. I wrote a paper about the precipitous decline in indexes such as the NCREIF (National Council for Real Estate Investment Fiduciaries) returns index. I’m sure loss severity there is horrendous.
It really is simple, folks: housing prices have to fall until young people can afford them.
If you think we are anywhere near that point, pass me some of what you are smoking, please.
I have noticed the neighborhood I own property in NYC has had a markedly increased number of properties listed for sale. When done by zip code, the number of properties has gone up by ten pages worth of new listings, nearly double what it was six months ago. This spring will bring a bounce of listings to the market that we haven’t seen in a while if this trend holds. The inflation in the tri-state area real estate market most resembles the run up in Tokyo RE in the 1980′s compared to other cities in the US. This is not a good sign.
yes, it is 70%, the axis on some fed charts is mislabelled.
It’s obviously 70%, but is it really surprising? I believe the price of these securities have been reflecting this for more than a year. Now if banks haven’t marked them down appropriately, that could be a problem. I guess we’ll have to wait for Q1 results to see about that.
It can’t go much higher. Quite a graph.
I am still not certain what scale the left axis is using… Even after tracking down the original data source…
http://data.newyorkfed.org/creditconditions/#
Loss Severity, Subprime First-Lien
This chart shows the loss severity for subprime first-lien mortgage loans in the tri-state area (New York, New Jersey, and Connecticut). Loss severity is defined as the average size of a loss if one occurs. A loss occurs when a foreclosed home sells for less than what the borrower owes to the mortgage lender. The amount of that loss includes the costs to foreclose and liquidate, as well as taxes and declines in property value. This report uses all securitized nonprime mortgage loans from First American CoreLogic’s Loan Performance data set.
READ THIS FIRST:
Data and Methodology »
Loss Severity Charts – These charts show expected losses thirty-six months from the most current date by market or by market and asset class. Expected losses are calculated using the probability of loss thirty-six months from the most current date; this calculation assumes that the most recent transition matrix and loss severity for each date persists for the next thirty-six months ^5. The charts illustrate this past projection for each historical remittance date.
^5 Expected loss = loss frequency * loss severity, where loss frequency is the number of losses per number of exposures.
70%
How is a 0.7 % loss scary ? Or is it 70 % ?