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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Clase Azul who wrote (96867)	12/10/2007 3:57:50 PM
From: Perspective	Read Replies (1) \| Respond to of 306849

Foreclosure losses obviously are not 100%. However, they are large, which is probably part of the reason lenders used to want 20% down. In addition to putting some borrower skin in the game, it gives you a buffer in case you must foreclose and want to sell quickly. I've seen estimates anywhere from 10-40%. It's important to remember that this is the loss on the process. If the appraisal was fraudulently inflated, that adds to the loss. The weak state of the real estate market will lower recoveries. And anyone foolish enough to have loaned on a second mortgage is a 100% loss in foreclosure. Likewise for anyone that accepted first-loss or mezzanine debt from CDOs. What I'm still unclear about is all the equity slices of the CDOs. The originators typically had to hold onto those pieces as far as I understand. They are completely worthless. Have the holders of that waste come completely clean? Also, consider CFC. Countrywide holds $27B option ARMs and $32.5B home "equity" mortgages in its $80B portfolio. What is that $50B really worth? Any home equity loans for homes that go into foreclosure are 100% worthless. How many of those option ARMs are going to go into foreclosure and what will be the losses on loans that ran up to 110% LTV? A 40% loss on 30% of the home equity and option ARM portfolio is a $6B hit. The 40% loss could be realistic; the number of those losses may be half that 30%. But that assumes they don't have to liquidate anything in a fire sale. If they are forced to cough these up and deleverage ala E-trade, those loss estimates would be understated. BC