Friday, April 02, 2010

FDIC sells $491 million in home loans - True Value of Loans?

The Associated Press

The Federal Deposit Insurance Corp. has sold $490.7 million in troubled mortgage loans from 19 banks that failed between August 2008 and March 2009 as it works through an inventory of assets from the institutions it has taken over.

The FDIC said Thursday that the winning bidder in its auction, Charlotte, N.C.-based Roundpoint Mortgage Servicing Corp., paid $34.4 million for a 50 percent stake in a new company set up to hold the home mortgage loans. The FDIC has the other 50 percent.

About half the loans are 30 or more days delinquent, the FDIC said. The agency said about 80 percent of the homes involved are located in Arizona, Florida and Georgia, which are among the states with the highest numbers of failed banks.

Last year, 140 U.S. banks succumbed to the soured economy and a cascade of loan defaults — the most in a year since 1992 at the height of the savings-and-loan crisis. The failures compare with 25 in 2008 and three in 2007. They cost the federal deposit insurance fund, which fell into the red, more than $30 billion last year.

FDIC Chairman Sheila Bair has said bank failures are expected to be higher this year than in 2009, mainly driven by losses in commercial real estate loans.

If this press release doesn't prove that most banks are actually insolvent and hiding behind fake bookkeeping, I don't know what does.

If you do the math - I'll do it for you - you find that these loans fetched .14 cents on the dollar - as follows:

Roundpoint pays $34.4 million and receives 50% stake
FDIC retains the rest of the stake which is the other 50% which is presumably worth $34.4 million.

$34.4 million plus $34.4 million equals $68.8 million or the implied value of the loans on assets originally valued at $491 million, that means these loans sold for 14% of the original value ($68.8/$491 million).

If banks today marked their loans to the FDIC values I'm positive they would be insolvent.

A client of mine just short-saled his house and settled the second for just .09 cents on the dollar (for a worthless loan - client figured why go bankrupt over a few thousand bucks). The very same second is being carried on most bank books for around 85 - 100% of the value - this is Enron type accounting and fraudulent.

Scott Dauenhauer CFP, MSFP, AIF