Caroline Baum: Banks Have No Exposure to Mortgages?
Submitted by
CalculatedRisk on Sun, 04/16/2006 - 9:50pm (9 comments)
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It doesn't matter if the loan stops performing because they don't own it.
sure, and once the market for CDOs will crash, will they issue new loans ? No. And what happens in a credit crunch? Bankrupcies
If people can not refinance on their house,they may be unable to repay other kinds of debt which IS owned by banks.
Banks do lend some money some time, don't they ?
And if they won't, they own stocks of banks and institutions that do lend.
Lets not forget that the folks that lose money on bad secularized loans are going to speed dial their lawyers.
Even the insurers of the debt will want to recover their loses.
The bank will have to justify the loan in court.
I think local banks have an over-exposure to riskiest class of real-estate speculation... construction loans, loans for pure land speculation and land development loans, usually to small, local companies. As far as I know, few of these show up as mortgages on their books, but are rather booked as short-term business loans. If the market goes bad, the bank will end up owning a lot of these properties in various states of completion.
For the record, I work for a large private bank and we portfolio all of our residential loans that are $650,000 or more and all commercial loans. This is obviously risky however, through the use of credit default swaps, the risk is supposed to be minimised. My question is, these swaps really haven't been tested in a crisis situation. I find that a little alarming.
On the bright side, everybody loves holidays, and we can always have another "Bank Holiday." And besides, prudential lending is so passe when you have a printing press.
i've shorted a couple of sub-primes to zero and the stuff they keep is what won't fit into any of the tranches cause it's toxic waste.
How many of this construction is a potential target for a hurricane?
"Throw in agency- and mortgage-backed securities, and the exposure to outright and securitized mortgage loans is 44 percent."
so who is stuck with the other 54%? are the japanese and chinese buyers of our gse's going to foreclose? they'll have a tough time being long distance landlords.