Why Housing Has Another Leg Down

Posted By on May 26, 2010


 by Bmoreland     05/26/2010

Every day we hear “housing has bottomed” or “experts predict housing will rebound in late 2010”. A review of the quarterly bank data reveals some somewhat contradictory numbers:

Loans Data

The data is 1-4 Family First Liens. Nonperforming loans are defined as loans 90+ Days Past Due and loans on Nonaccrual (no longer recognizing interest income).

We have another $55 Billion in Nonperforming loans just in the last year (Q1 ’10 v. Q2 ’09). This increase alone is more than we had in 2008 Q1 which precipitated the “housing crises”. The following is the nonperforming percentage graphed: 

Loans 2

Yep, things are definitely looking up.

Needless to say, the big banks are the worst culprits. The Top 4 Banks (BAC, WFC, JPM & C) are running a 17.36% nonperforming rate. A breakdown by all Asset Sizes can be found here.

An alternative way to look at the problem is to track what the banks have as Nonperforming relative to what they are Charging Off. The following table shows that our banks are sitting on $30.45 of Nonperforming loans for every $1 of Charge Offs.


Charge Offs for Q1 were $6.09 Billion v. $7.69 for Q4 2009. Please keep this in mind when you hear that since charge offs are down “we think we’ve turned the corner.” Citigroup at $22.54 is actually doing well compared to BAC, WFC & JPM.

Please note that you should review the section on the site detailing Government Guarantees to determine the financial impact on specific institutions. I’m primarily focused on housing as a whole for this discussion. Whether or not a bank gets money bank from Uncle Sam is not going to impact that house going REO or short sale.

As bad as the 1-4 Family Liens are, Construction & Development loans are worse. Indeed, virtually all housing portfolios are trending poorly – both Multifamily and 1-4 Family Junior Liens have seen an increase in their nonperforming loans.

Shameless Plug: BankRegData.com is the updated version of  the Bank Loan Performance site at wlmlab.com. You can find performance metrics for all U.S. Banks in the following areas: Loan Performance, Asset Quality, Real Estate Owned (OREO) and Income & Expense.


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