Bank stress test results and comments
May 21st, 2009 4:09 PM
Nearly a Quarter of Homeowners "Under Water"
More homeowners are underwater as a two-year slide in housing values continued into the first quarter, according to data service About 22 percent of homeowners carry mortgage balances that are greater than their houses are worth, the firm said. At the end of the fourth quarter, 17.6 percent of homeowners owed more than their original mortgage, up over three percent, from 14.3 percent, three months earlier.
Property values dropped 14 percent from a year earlier in the first quarter, reducing the median value of U.S. single-family homes, condominiums and cooperatives to $182,378, Zillow said. The decline has left about 20.4 million of the U.S.'s 93 million houses, condos and co-ops covered by loans higher than the properties are worth, which could lead to more bank repossessions, Zillow said.
The numbers are more drastic than those reported by First American Core Logic, whose report said the recession cut home values by $2.4 trillion last year and left more than 8.3 million U.S. mortgage holders owing more than their properties were worth. They said an additional 2.2 million borrowers would be underwater if prices decline another five percent. The U.S. market with the biggest drop in home values in the first quarter was Salinas, Calif., where the median price fell 37 percent to $301,793 from a year earlier, Zillow said.
In 85 of the markets tracked, the annualized home-value change over the past five years was negative or little changed. About 20 percent of all home transactions in the past 12 months were foreclosures, and short sales made up about 12 percent.


HUD Realeases New Single Family Lenders Guide
The Department of Housing and Urban Development has released a new handbook known as HUD 4155.2, Lender's Guide to the Single Family Mortgage Insurance Process. Included in this latest release is a chapter dedicated to property valuation and appraisal that details, among other topics, the purpose of property valuations and who is eligible to perform them; the Federal Housing Administration's policy on appraisals, appraisal reporting standards and policy on appraisal repair requirements; and the prohibition of property flipping (and the appraisers responsibility to analyze prior sales of a property).

To view the handbook in its entirety, visit
Fed's Release Stress Test Results

The results of the Federal Reserve's much-anticipated "stress tests" conducted on the nation's 19 largest banks have finally been made public after more than a week of delay. The outcome? The nation's financial giants are not out of the woods yet, but they're also not as lost in those woods as many had feared they would be. As projected by the federal government, the 19 banks tested are at a combined risk to lose up to $599 billion through the end of next year should the economy perform worse than expected. As a result, 10 of the 19 banks have been ordered to raise a combined $74.6 billion in capital to cushion themselves. Though $599 billion is still a staggering number, many industry insiders were predicting the potential for losses to be much higher.
Treasury Secretary Timothy Geithner called the results of the stress tests "reassuring." In an interview with PBS' Charlie Rose Program, Geithner stated that "There [are] very significant cushions in these institutions today, and all Americans should be confident that these institutions are going to be viable institutions going forward."
Federal Reserve Chairman Ben Bernanke also was upbeat about the results of the stress tests, referring to them as "encouraging." However, Bernanke also emphasized that banks should conduct internal stress tests to identify other potential risks, especially risks that the government's tests did not address.
"Ideally, the stress tests used in the assessment program should be part of a broader palette of internal stress tests conducted by firms," Bernanke noted last week at a Fed conference hosted by the Atlanta Fed district bank. "Indeed, we do not intend that the capital assessments should be taken as all that those firms need to do."
Bernanke's comments mirror concerns that have grown in recent months regarding the health of the commercial real estate sector. According to an article that ran in the Wall Street Journal, regulators are increasingly worried about banks exposed to commercial loans. As projected by the stress tests, losses could be up to 12 percent - or $216 billion - on commercial real estate loans by the end of next year.
The results of the Fed's tests are the culmination of weeks of investigations into the banks' lending practices, funding strategies and securities and loan portfolios. After officially announcing the stress test results, regulators set a timetable for banks that need to bolster their capital. These institutions will have until June 8 to develop a plan and until Nov. 9 to implement it.
Under the stress tests, each bank was put through two "what if" scenarios by regulators. Under the first scenario, it was assumed that the unemployment level will reach 8.8 percent in 2010 and house prices will decline by 14 percent. In the second scenario, banks were analyzed for what would happen during a worse-than-expected downturn; one where unemployment levels would hit 10.3 percent in 2010 and house prices would drop 22 percent this year

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Posted by Philip Jernigan on May 21st, 2009 4:09 PMPost a Comment

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