Word: defaultations
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...said he thought private investors would be interested in helping fund the new banks. A number of the panelists thought the government's TALF and PPIP programs meant to boost lending were helpful but not the answer. Parkus said he thought extending the terms of commercial loans set to default would only delay the problem and make it worse. As more and more bad loans pile up, he predicted, it will become progressively harder for any of them to get refinanced...
...than the value of home loans that go unpaid in the next two years - $53 billion vs. $185 billion. But Warren said she thought the two-year horizon of the government stress test may have understated the size of the banks' commercial real estate problem. The government assumed different default rates for each of the 19 banks for commercial real estate and other types of loans. Warren said the government had not given much information as to what determined the default rate used for each bank; she plans to release a report on the stress test in early June...
...that Wells Fargo's loan losses could exceed the government's expectations. In calculating the stress tests, government bank examiners applied different loan-loss rates for different banks. For instance, bank examiners were relatively tough on Wells' primary mortgage-loan portfolio, predicting that nearly 12% of the loans would default over the next two years. This compares to an estimated loss for Citigroup of just 8% for its primary mortgage loans. That makes sense. More of Wells' mortgage loans are concentrated in California than Citigroup. And California has had more foreclosures than any other state. (Read "Can Marijuana Help Rescue...
...commercial real estate loans, it was just the opposite, as bank examiners were particularly easy on Wells Fargo. The government estimated that even if the economy turns worse, slightly less than 6% of Wells' commercial real estate loans would default this year and next, which was much less than the industry average expected loss of as much as 12%. Some economists think it will be even worse than the government thinks. New York University economist Nouriel Roubini estimates that as much as 17% of commercial real estate loans could eventually go unpaid. Regulators wouldn't say why the government predicted...
There is a small market in credit default swaps for U.S. debt. The fact that there is one at all should be troubling to the Treasury and the Fed. While the chances of American defaulting on any portion of its debt are small, if the recession drags on the odds that the government will have trouble raising money to finance the deficit will rise. To keep its credit rating, the American government will be faced with curtailing many of its stimulus programs or sharply raising the tax burden. Either action could slow any recovery making a burgeoning deficit a "Catch...