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Statistics on Real Estate Loans

From The Federal Reserve Bank of St. Louis
<<http://research.stlouisfed.org/fred2/series/REALLN?cid=49>>

1) Real Estate Loans at All Commercial Banks

2) The numbers are in billions -- so 3,642 = $3.642 trillion.

3) Therefor --- in September, all banks lent $3.642 trillion minus $3.623 trillion -- or $19 billion -- so the credit market is not "frozen".

4) I know from reading about defaults on Real Estate loans -- that defaults never go as high as 4% of all loans (in normal times). They mostly average less than 3%. (Bad judgement on my part -- mrc --. I don't know the ultimate percentage the defaults -- but it was way over 4%. In the words of Roseanna Roseannadanna -- "never mind". See the data in blue at the end of this URL) BUT -- that error does not invalidate all of my reasoning. The reasoning in #9 below should still be valid. Whatever the loss -- it will be made back in less than 6 months on the loans that did not go bad as long as the bad loans are less than 50% of all loans in dollar value.

5) If 4% of all the existing $3.6 (rounding) trillion in loans go into default -- that is $.145 trillion or $145 billion. By the way, If every home had a current market value of $145,000. There would be a million houses involved. To get a better handle on the numbers, think of the United States as a country of 300 million people divided into 1,000 communities of 300,000 people each (300,000 is about the average size of a good size community -- it would include a number of small cities or some fraction of a large city). So in an average "community", we would have about 1,000 houses in default. See the last cell in this table to see various cities near 300,000 in population.

6) Paulsen and Bush want the right to spend $700 billion, with virtually no oversight, to ward off financial disaster. That does not make sense.

7) The government could buy all the loans, that are likely to default, for $145 billion. Why should they spend five times that amount?

8) Why and how would they spend $700 billion?

9) And note -- those defaulting loans do not mean there is no value in the property. Each property could probably be sold for 50% of the book value of the loan at an auction -- so the worst case would be that $72.5 billion will be "lost" (1/2 of $145 billion). And it would not be the borrowers that lose that money -- they will only, in the worst case, lose whatever down payment they made -- which would be less than 20%. The loss ($72.5 billion) would be borne by the foreclosing bank. And why should the lending bank be protected? Aren't losses part of their cost of doing business -- shouldn't that be their risk -- in light of the enormous interest they make on money they essentially get free? (see all the information we have on this website explaining how banks get their money for the cost of the printing -- less than 5 cents / dollar for real bills and almost nothing for electronic entries.

Remember -- the banks were collecting something like 6% interest on the entire $3.6 trillion -- that is about $200 billion / year or $16.6 billion / month. That $72.5 billion loss is trivial when compared to the $200 billion they have been making, and will continue to make every year. The banks will make that one-time loss back in less than five months.

Write to everyone you know to stop this giveaway by Congress and power grab by The President.

These are most of the cities that have a population of between 250,000 and 350,000

The numbers to the left show the city's ranking in size

52 St. Louis, Missouri
53 Santa Ana, California
54 Tampa, Florida
55 Anaheim, California
56 Cincinnati, Ohio
57 Bakersfield, California
58 Aurora, Colorado
59 Pittsburgh, Pennsylvania
60 Toledo, Ohio
61 Riverside, California
62 Stockton, California
63 Corpus Christi, Texas
64 Newark, New Jersey
65 Anchorage, Alaska
66 Lexington, Kentucky
67 St. Paul, Minnesota
68 Buffalo, New York
69 Plano, Texas
70 Glendale, Arizona
71 Fort Wayne, Indiana

Source -- http://www.gao.gov/products/GAO-08-78R

Information on Recent Default and Foreclosure Trends for Home Mortgages and Associated Economic and Market Developments GAO-08-78R October 16, 2007 Full Report (PDF, 61 pages) Accessible Text Summary Substantial growth in the mortgage market in recent years has helped many Americans become homeowners. However, as of the latest quarterly data available, June 2007, more than 1 million mortgages were in default or foreclosure, an increase of 50 percent compared with June 2005. Defaults and foreclosures on home mortgages can impose significant costs on borrowers, lenders, mortgage investors, and neighborhoods. Additionally, recent increases in defaults and foreclosures have contributed to concern and increased volatility in certain U.S. and global financial markets.

These developments have raised questions about the extent and causes of problems in the mortgage market. To provide some insights on these issues, Congress asked GAO to analyze (1) the scope and magnitude of recent default and foreclosure trends, and how these trends compare with historical values, and (2) developments in economic conditions and the primary and secondary mortgage markets associated with these trends. Overall, the number and percentage of mortgages in default or foreclosure rose sharply from the second quarter of 2005 through the second quarter of 2007 to levels at or near historical highs, but there was significant variation among market segments, loan types, and states. The overall default rate grew by 29 percent, reaching a point at which just over 1 in every 100 mortgages was in default, almost a 28-year high. (that is only 1%)

The foreclosure start rate did reach a 28-year high, rising by 55 percent. The subprime market experienced substantially steeper increases in default and foreclosure start rates than the prime or government-insured markets, accounting for two-thirds or more of the overall increase in the number of loans in default or foreclosure during this time frame. Among types of loans, ARMs experienced relatively steeper growth in default and foreclosure rates, compared with FRMs which experienced no or modest increases. According to mortgage industry researchers and participants, the number and percentage of loans in default and foreclosure are likely to worsen through the end of 2007 and into 2008, due partly to scheduled payment increases for many ARMs. A number of studies and industry data indicate that a combination of economic and market developments contributed to recent increases in default and foreclosure rates.

First, the rapid decline in the rate of home price appreciation throughout much of the nation beginning in 2005 may have reduced incentives for borrowers to keep current on their mortgages and made it more difficult for borrowers to refinance or sell their homes to avoid default or foreclosure.

Second, in some states with foreclosure rates that were already relatively high in 2005, weak labor market conditions likely contributed to mortgage problems.

Third, more aggressive lending practices--an easing of underwriting standards and wider use of certain loan features associated with poorer loan performance--reduced the likelihood that some borrowers would be able to meet their mortgage obligations, particularly in times of economic hardship or limited house price appreciation.

Fourth, growth in the market for private label RMBS beginning in 2003 provided liquidity to some brokers and lenders to support these more aggressive lending practices. Investors were attracted to these securities because of their seemingly high risk-adjusted returns. A number of other factors--including incentives that potentially emphasized loan volume over loan quality and growth in the incidence of mortgage fraud--may have contributed to recent default and foreclosure trends, but additional information would be needed to fully assess their impact.