What’s $24 billion of potential losses among friends? If you want to know what a zombie bank is, the foreclosure situation in California is textbook:
Later on they add, “The increase appears to be primarily due to the fact that lenders are willingly postponing foreclosure sales.” Why postpone? Keep reading, and the answer pops out: “The average California foreclosure has a total loan balance of $425,134 on a home that is now worth $236,739.”
If the bank sells these homes now, at these prices, the bank will have to book the difference between the loan balance and the home sales price as a loss. Chances are that right now, they are carrying these houses on their books with higher guestimated values (the bank version of mark to model, not mark to market). Once they sell the houses, however, they will have to book the actual prices — and actual losses.
In CA alone, that is $24 billion of losses–and this assumes that there are no more foreclosures (umm…..ok?) and that foreclosure costs are minimal. And it seems that this so scary the FDIC is ready to get busy:
Something tells me that some/many/most of these banks don’t have the space on their balance sheet for taking losses like that. And if those homes all did hit the market, the prices would then drop further because of the oversupply, making the losses even worse.
Judging by the FDIC’s list of job postings, I think they may have quietly reached the same conclusion last week.
Click on “View All Vacancies” and scroll down about a quarter of the page, and you’ll see that the FDIC is looking to fill 24 mid-to-upper level “Resolution and Receivership Specialist” positions in their Irvine CA office. The window for submitting an application opened last Thursday and closes next Wednesday — a fast two-week period — and the jobs are open only to current FDIC employees as a “temporary promotion opportunity.”
In the year or so I’ve been watching the FDIC job board fairly regularly, I’ve never seen postings like these. To me, these job announcements translate like this: “We’ve think we’ve got a sh*tload of trouble coming fast in CA, we don’t have time to train a bunch of outsiders to handle the mess, so we’ll give anyone who’s up for a challenge a temporary bump in rank and pay if they’ll pick up a shovel, grab a wheelbarrow, and move west for a while. You’ve got two weeks to decide if you want to take this offer.”
OK, even I’m not nerdy enough to cruise FDIC job boards, but, nonetheless, it would appear that too much shit can smother ‘green shoots’. Keep in mind that if banks are leveraged at 10 to 1, that means that up to $240 billion of potential credit will go up in smoke.
And the ARM recasts of 2010 haven’t even hit yet….