Citigroup reported last week, and so did Bofa – from HW:
Bank of America reported $35.7bn in nonperforming loans, leases and foreclosed properties in Q210, which is 15% above levels measured in the same quarter of last year.
These loans and properties increased more than $5bn in total aggregate balance since Q209. The total did drop by more than $200m worth of these loans and properties from the $35.9bn reported in Q110. They represented 3.74% of all outstanding loans, leases and foreclosed properties at the end of Q210.
BofA reported $3.1bn in Q210 earnings despite losses in its mortgage division. BofA is continuing efforts to keep these troubled mortgages out of foreclosure. Since 2008, BofA and the acquired Countrywide completed nearly 650,000 loan modifications. During Q210 alone, BofA completed 80,000 modifications, including 38,000 trial modifications that were converted into permanent workouts under the Home Affordable Modification Program (HAMP).
If a modification does fail, BofA is putting an emphasis on selling the home through a short sale ahead of foreclosure. At REO Expo 2010, Matt Vernon, the short sale and REO executive at BofA said that the bank added 1,000 employees to the short sale staff and will “do everything possible to liquidate property prior to foreclosure.”
All these banks sould have been allowed to fail.
All BofA is doing here is formalizing the unwritten rule that they will control the amount of supply on the market. Not the forclosure process.
I can see how perspective buyers might want to see the market flooded with inventory, however, I think the banks are making the right decision to allow the inventory to trickle into the marketplace to meet demand–it is simply protecting the value of its assets (REO’s and Non-REO’s).
With the ability to borrow at close to zero interest, not having to mark to market and keeping the customer on the hamster wheel, why not?
There’s going to be a lot of free rent out there in the coming years what with the banks now wanting to avoid foreclosures at all costs. Too bad the banks will still lose a lot of (taxpayer’s?) money with all the short sales lowering the comps to suspiciously low levels.
No point in being honest anymore, is there?
Agree with other posters here – now it is all about keeping banks afloat – nothing to do with housing anymore – 3 years of free rent?? No problem, just keep the bank’s house in good shape for an eventual sale.
There was an old joke in the tech industry during the “tech wreck” of 2000-2001 . . .”Cisco and Intel should hire a bunch of ships, take all the servers and equipment out in the Pacific and dump them overboard. . . then write them off as defective for a tax loss.” Presto, no more overhang of tech equipment!. . .don’t give the banks any ideas, or they will hire a bunch of arsonists.
IMHO–The Lesser of Two Evils–Flooding the market with inventory will add to even more REO’s, making things worse for everyone (except non-homeowners)
I don’t see the problem here. If the loan isn’t modified, then the bank can deal with the underwater homeowner by 1) agreeing to a short sale that repays the bank a portion of what is owed or 2) foreclosing, then selling it, probably for less than was originally owed. So, the bank is being foolish only if you think outcome #2 yields less money than #1. I’m not so convinced. And, even if you are convinced, then its at least close enough as between the two that its a rational decision.
Given the stigma and condition issues associated with REOs, #1 seems like the best way to minimize the loss here.
Daniel,
I’ll pound the drum here as I have done dozens of times. Mark to market has nothing to do with foreclosure. Mark to market is an accounting recognition step, not an asset performance metric.
What you’re seeing here is federal regulators (Bank, regulators, from the FDIC) going light on nonperforming assets. The Mark to Market conditions is an accounting recognition and controlled by the FASB, not the FDIC. One can be forced to mark to market a security (which Mark to Market rules only apply) while simultaneously holding a nonperforming asset on its books.
I suspect that FDIC regulators are being soft on banks because that’s what they’ve been told to do by Sheila. She controls how fast the banks are forced to liquidate into performing assets or cash. As long as there is a badly performing economy and Ms Bair is in charge, there will be holdback on foreclosures, it seems.
Do not confuse accounting standards (of securities) with sound banking policies for nonperforming assets, they have little to do with one another.
So those mbs just don’t matter to the overall housing market?
Thank you for the clarifcation, Chuck. That makes quite a bit of sense.
Chuck,
Doesn’t marking the assets to market matter where reserves are concerned? Aren’t the banks able to use more leverage as long as they keep marking the value of these assets to an artificially high price? With the Fed keeping rates at these lows while marking assets at high values, isn’t it accelerating/increasing profits for the banks?
Thanks for your help with this!
shadash-As I’ve pointed out before, allowing the banks to fail in 2008 would have triggered the Second Great Depression. You, and me, and most everybody reading this, still have jobs because this didn’t happen.
REMEMBER! The bank is NOT your friend.
Well, yes, and no.
To be sure, there are instances when marking to market would harm a bank, in terms of it’s ability to borrow from the FED.
However, even if the security was marked to zero, there is no push to foreclose and liquidate to actually test that value.
So, there is a little of putting the cart before the horse. Banks don’t mark to market because they don’t plan on selling it, and there is not a deep market for MBS right now, so they are allowed to mark it to a model (which I’m not convinced that they aren’t fairly realistic right now with most 2nd liens being marked to a pittance anyway). However, the overlying security has not forced the house into foreclosure, and the servicer is enjoying collecting fees all the while. However, most of these pseudo foreclosures, or “limbo lairs” tm are “owned” by a consortium or FNM/FRE and are not being foreclosed on which don’t comply with any mark to market, and even if they did, are now government owned entities and do not need to comply with FASB rules anyway.
You know, the “anything but foreclosure” garbage that is spewing forth from every regulatory body in the entire freaking planet! Yes, let’s keep every last american a debt serf if they don’t want to, or better yet, let them leach off of the holders of American Dollars so we don’t have the deflation boogeyman get us and eat us alive.
Much better solution.
But, no, mark to market, even of thinly traded securities will not enforce sound banking policies, and I am convinced of that 100%. The real problem is the FDIC, Federal Reserve, and the Federal Government owned mortgage securitizers (FHA, FNM, FRE). Not the FASB.
Chuck
Thanks for your insights, Chuck.