Banks are adding reserves for the mortgage fiasco - but not enough

Here is a long, but very interesting post Sub-prime? So Over! Part 1 on the banks funding the toxic mortgages, the funds they are setting aside for reserves, and why that may be totally inadequate to cover their losses.

Back in the US housing market, meantime – the source, remember, of all those defaults and delinquencies now hitting investment-bank profits – the trouble looks to have barely begun:[googmonify]4494413162:right:250:250[/googmonify]

  • Construction of new homes plunged to its lowest level in 14 years last month, down more than 10% from August according to the Commerce Dept., swamping consensus forecasts of a 4.2% decline;
  • US home foreclosures rose by 93% in the year to July said John Dugan, US Comptroller of the Currency, in recent testimony;
  • Fitch – the ratings agency – has caught up with the junk it previously stamped as investment-grade, hiking its default forecast for one set of bonds by 50% this summer;
  • More than $250 billion worth of US mortgages will reset to sharply higher interest rates in 2008 and 2009, and “another $700 billion will do so in 2010 and beyond,” says a study from First American;
  • Four months after issue, 6.3% of the home-loans bundled into mortgage-backed bonds during the first half of 2007 were 60 days late with repayments or more. “The rate was 4.2% after four months for bonds created last year,” says research from Moody’s.
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Posted in  Real Estate