Bank reserves and housing inventory

[bookie71]

The following article should be of interest.  It makes me wonder how good the reserves are at the big banks, which is why I like small local banks (not as much smoke and mirrors)

http://www.mcclatchydc.com/2011/10/16/127042/millions-of-homes-lurk-on-bank.html

[beerbaron]

I've been hearing about shadow inventories since 2007 but it does not strike me as relevant.

 

I don't understand how banks can make dissapear a 90 days overdue loan? Call is as you like but if you did not receive payments it needs to show up in Non-Accrual Loans. Not a lot of smoke and mirrors there...

 

BeerBaron

[Green King]

Can you explain how it isn`t relevant ?

doesn`t  this mean that it will take longer for housing to recover and hence the economy?

 

[beerbaron]

It's not relevant in the sense that it is already fully shown on the banks balance sheets. There is no black box on in terms of house inventories. No surprises there.

 

People seem to be putting a black box on all activities of banks. The black box factor is only in the derivatives portion in my opinion. The rest is pretty much fully disclosed.

 

BeerBaron

[bookie71]

BUT the big question is, "Is the value that it is shown on the bank's balance sheet realistic?" 

 

I know that when we had our crash in the 1980's (in Alaska (we lost almost 25

% of population)) it took almost 10-12 years to clean out the inventory, because the banks refused to realize that prices had dropped so much, then when it got through their thick heads, they panicked and gave it away to get rid of it.

[alertmeipp]

I thought we are done mark to market or mark to model discussion two years ago.

[Green King]

I thought we are done mark to market or mark to model discussion two years ago.

 

Link please

i wasn't here two years ago thanks ;D

[Junto]

I know that when we had our crash in the 1980's (in Alaska (we lost almost 25

% of population)) it took almost 10-12 years to clean out the inventory, because the banks refused to realize that prices had dropped so much, then when it got through their thick heads, they panicked and gave it away to get rid of it.

 

FYI, banks have to write down to appraisal upon ownership, need to impair/appraise values quarterly for call report, and in Minnesota for instance, after five years need to fully amortize so that after ten years the value is zero on the banks books. The FDIC is currently a stickler on the regs regarding this right now. I know, I am a banker at a community bank.

 

Regarding inventories, look at the attached graphic by the calculated risk blog (http://bit.ly/rliT2q):

 

http://cr4re.com/charts/charts.html?Delinquency#category=Delinquency&chart=MBANDSQ22011.jpg

 

Click on graph for larger image in graph gallery.

 

This graph shows the percent of loans delinquent by days past due.

 

Loans 30 days delinquent increased to 3.46% from 3.35% in Q1. This is probably related to the increase in the unemployment rate.

 

Delinquent loans in the 60 day bucket increased slightly to 1.37% from 1.35%.

 

There was a slight decrease in the 90+ day delinquent bucket. This decreased to 3.61% from 3.65% in Q1 2011.

 

The percent of loans in the foreclosure process decreased to 4.43%.

 

This guy follows the statistics very closely and provides nice summary information. I highly recommend following his site.

 

 

Here is a link on REO inventory:

 

http://www.calculatedriskblog.com/2011/08/q2-reo-inventory-estimate.html

 

The second graph shows REO inventory for Fannie, Freddie, FHA, Private Label Securities (PLS), and FDIC insured institutions. (economist Tom Lawler has provided some of this data).

 

Total REO decreased to 495,000 in Q2 from almost 550,000 in Q1.

 

As Tom Lawler has noted before, the FDIC does not collect data on the NUMBER of REO properties held, and there are different estimates of the average carrying value of 1-4-family REO properties at FDIC-insured institutions. This graph uses an an average carrying value of about $150,000 (Q2 2011 is estimated since the FDIC hasn't released the quarterly profile yet).

 

As Tom Lawler noted: "This is NOT an estimate of total residential REO, as it excludes non-FHA government REO (VA, USDA, etc.), credit unions, finance companies, non-FDIC-insured banks and thrifts, and a few other lender categories." However this is the bulk of the REO - probably 90% or more. Rounding up the estimate (using 90%) suggests total REO is around 550,000 in Q2.

 

 

[rjstc]

Junto; Great site. Thanks for the link.

[bookie71]

BUT you are missing my point, if all the repo's are put on the market at once then the value of all collateral drops and suddenly more people walk away and again the values drop.  I believe that the big banks and Freddy and Fannie are very vulnerable in this area.