OCC Says Bank Losses Mounting on Defective Foreclosures and Loans

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Editor’s Comment:  

This has been my point, although the article below only covers a small part of the losses that will eventually befall the banks and servicers. The banks are carrying assets on their balance sheet that do not exist — especially, as this article points, out home equity lines of credit that are second in priority to the first mortgage. We already know that those home equity loans are worthless. But even the first mortgages are claimed as assets despite the fact that the bank didn’t put up one dime to fund the mortgage or purchase it. How the big accounting firms are permitting this, why the SEC is not objecting to it, is amystery only if you believe in the tooth fairy. They are missing it because they have been told not to bring down the banks — at least not yet. Eventually though, the true figures will emerge and the so-called large or mega banks will be shown for what they are — the same sham that was created in the origination of the loans.

Regulator Warns of Mortgage Losses for U.S. Banks

by Alan Zibel

WASHINGTON–U.S. banks may be hit with a new round of mortgage losses over the next five years as borrowers who took out home-equity loans a decade earlier face increased monthly payments, a regulator warned Thursday.The Office of the Comptroller of the Currency warned that more than half the amount borrowed on equity lines at national banks, or $221 billion out of $380 billion, will face higher payments from 2014 to 2017, exposing banks to the possibility of losses if some equity-line borrowers default.

Home-equity lines extended during the mid-2000s housing-market-boom years typically had a 10-year period in which the borrower made only interest payments. When that period ends, borrowers must start to pay back the principal balance as well, increasing monthly payments for some homeowners who have seen their incomes and property values decline.

Darrin Benhart, deputy comptroller for credit and market risk at the OCC, said “banks are going to have to be thinking about ways that they’re going to address” the problem, including debt restructuring. Analysts have been voicing similar concerns. In a May report, Deutsche Bank identified First Horizon National Corp. (FHN), PNC Financial Services Group Inc. (PNC), TCF Financial Corp. (TCB) and Huntington Bancshares Inc. (HBAN) as institutions that are most exposed to losses from home-equity lines.

The OCC report, the first in a series of semi-annual reports on financial risks in the banking system, also said banks have shifted to higher-risk investments to boost interest-rate returns, a development that could create future losses for banks.

The OCC separately is studying which banks could be hit the hardest if interest rates rise. For larger banks the regulator said it will focus on problems with mortgage servicing as well as underwriting standards for business loans and exposure to European institutions. The agency also will scrutinize smaller banks to look at loss exposure from commercial real-estate loans and new types of auto and other lending products

The report said banks still face a huge overhang of delinquent and foreclosed properties stemming from the nationwide housing bust. And the nation’s largest banks “continue to face profitability challenges” from deficiencies in their foreclosure-processing operations, which bank regulators are forcing the nation’s largest mortgage servicers to overhaul.

The report, however, said that banks are in a far stronger financial position than before the recession of 2007-2009, with higher levels of capital around the industry, particularly at the largest banks.


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