impact of 20% home price decline on BAC

[ERICOPOLY]

Just curious about how this would be discounted.

 

Is it fair to say it would cost them $8b in extra costs?  That's $80b decline in collateral value with 10% default.

 

I believe they have about $400b in mortgages, so an $80b decline in collateral value would assume that 100% of their mortgages are already with 0% equity value (which is clearly an exaggeration).  I suppose if the underwater performing mortgages are already not marked anywhere near reality it may not be an exaggeration... would the "exaggeration" be canceled out or would the $8b climb to $12b or something?  Of course, if those people were going to default anyway then it's only the "extra" costs that we care about from the 20% further decline, so we're back at $8b maximum damage.  The 10% default rate was picked as intentionally high to simulate a surge in strategic defaulters.  Is it even fair to have a 10% default rate though?

[alertmeipp]

I don't know much but I think it depends. Prime or subprime borrowers. Primary or secondary mortgage. In which states? Is the mortgage recourse or not. LTV ratio...

 

 

 

 

[onyx1]

I leiu of a Range of Possible Loss figure for the GSE R&W exposure, BAC now gives a sensitivity to home prices:

 

Page 125 10-K:

"Viewed from the perspective of home prices, for each one percent change in home prices, the liability for representations and warranties on unsettled GSE originations is estimated to be impacted by $125 million based on projected collateral losses and defect rates. "

 

This would imply an additional $2.5bln loss if prices decline by 20%.

[onyx1]

I believe they have about $400b in mortgages..

 

Also, of these $400bln, $94bln are without credit risk as they are FHA loans which carry a full government guaranteed.

(See page 84 10-K)