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Vet67to82 (< 20)

Good bank, bad bank or theft?



February 01, 2009 – Comments (8) | RELATED TICKERS: BAC , C , RBS

**  Fact: the losses that we are seeing day after day, are NON-CASH, Mark-to-Market Losses. The losses ONLY become REAL when a sale, exchange, or transfer takes place. Exactly what WILL happen if "bad bank" takes over. Fact: Thirty percent of all homes in America have no mortgage.  I am 100% confident that of the 70% that are mortgaged, 80 - 85% will honor their commitments through loan maturity.
    Follow the math:

    30% = 0.30

   if only 80% of the 70% pay off their mortgage:

    (1)  0.70 x 0.80= 0.56
    (2) 0.30 + 0.56 = 0.86
    (3) 0.86 x 100 = 86% of all AMERICAN residential real estate is OKAY.

So ask MF to check my math.  Ask yourself why the financial write downs to 9c - 10c per dollar.    
     Again,  follow the math:

    30% = 0.30 

   if  85% of the 70% pay off their mortgage:

    (1)  0.70 x 0.85= 0.595
    (2) 0.30 + 0.595 = 0.895
    (3) 0.895 x 100 = 89.5% of all AMERICAN residential real estate is OKAY.

Again, ask MF to check my math.  Ask yourself why the financial write downs to 9c - 10c per dollar. 

   Mark to Market is SERIOUSLY FLAWED. To solve the financial crisis all you have to do is fix "Mark to Market"!!!  History will prove me right and  show WRITE DOWNS are an blatent transfer of property and wealth without due process.  We, the many, are being ROBBED by "Mark to Market", and in the end the FEW will profit to the TUNE of hundreds of BILLIONS when they suddenly discover, oops 9c - 10c is actually 86c to 90c per dollar, but sorry, it's their money now.  . 

  Follow the math.  Follow the money. 

Sooo, what if I am wrong and only 70% pay off their mortgage:

 That's a whopping 30% decline in the 70% ...

 Again 30% with NO mortgage = 0.30

   70% x 70% = 0.70 x 0.70 =0.49

   0.30 + 0.49 = 0.79% of all homes in America are okay.  This is still a good  number. 

  The 30% of homes in America with NO MORTGAGE are paying real estate taxes, water, sewerage, gas, electric, oil, insurance, etc ... these homes are a statistical fact that is being ignored, yet has direct relevance to the VALUE of the 70% that are mortgaged, just as the  insane efforts to de-value the 70% have a VALUE DESTRUCTION relevance on the 30% ...

  The CDOs, the SIVs, etc  ... is there a valid need for them?  If the answer is yes, then create market rules, then create a market, or exchange. for them to trade on, And fix the Mark to Market Flaws.  How do you do that?  The mortgage free 30% is your basis!  Value the 30% of real estate properties  with no mortgage, by property type(s).  Now you have a base value for the mortgaged properties, by type, and it's not 9c - 10c per dollar.  The next is to account for the properties that might default or be foreclosed upon ... and it's NOT 100%  You may need minor adjustments from time to time  but it's a much better idea that the blatent wholesale  theft I'm seeing proposed.               

8 Comments – Post Your Own

#1) On February 01, 2009 at 2:44 AM, BGriffinFlorida (26.56) wrote:

Frustrating isn't it?  You can so clearly see the answer, and yet everyone else is just too slow to get it!  That frustration is a flag to check your assumptions.  

While there are certainly inefficiencies in the market and certainly bad policies administered, there typically exists a group that realizes and capitalizes on the mistakes.  When no group is taking advantage, it is a strong indicator that the advantage is not simple to either understand or explain.

In this case, if there was an easy to understand inefficiency based on mark to market, groups of investors would be purchasing individual loans, portfolios of loans and tranches of securitizations.  This would drive up the mark to market pricing and the problem would not exist. 


In the end the problem is not as simple as you suggest in your post.  There are a number of common but inaccurate assumptions in your post.  :



            >>"..fix the Mark to Market Flaws.  How do you do that?  The mortgage free 30% is your basis!....."<<  


Home values are only one small component of the value of the securities in question. The pricing problem for banks is not a problem pricing home values. The problem is valuing securities which use homes as collateral.  Complicating matters, since such a security is often a subordinate traunch in a securitization, the value of that security may go to zero if losses on the pool of loans are as low as a couple percent depending on the particular traunch.  

Usually the senior traunch takes around the first 80% of total repayments of a pool of loans. Simplifying this meaning roughly that every subordinated traunch can reach a zero value if the pool has 20% losses.

Even if you just want to use the unmortgaged homes to value the REO property of the banks (which isn't where the problem is), it doesn't help.  How do you intend to value the unmortgaged properties?  Probably by resale value (any other method is just command pricing and has no market relevance).  But the resale value is already depressed by all the distressed sales.  Unmortgaged homes values are not isolated in some sort of price vacuum.


     >> " Follow the math:

  >>30% = 0.30

 >> if only 80% of the 70% pay off their mortgage:

>>  (1) 0.70 x 0.80= 0.56
>>  (2) 0.30 + 0.56 = 0.86
>>  (3) 0.86 x 100 = 86% of all AMERICAN residential real estate is OKAY.

>>So ask MF to check my math. Ask yourself why the financial write downs to 9c - 10c per dollar.  "<<


I took your advice to 'follow the math'.  The good news is that your arithmetic is  great.

 It reminds me of the story of the enraged account holder who tells the bank teller that she has 56 checks in one check book and 30 checks in the other, so she knows she has 86 checks, so there is NO way she can be out of money!  

Good arithmetic, bad assumptions.

The securities held by the banks are not collateralized by homes without mortgages, so it does not help to reduce the write downs.

Additionally your conclusion that '86% of American Residential Real estate is OKAY'  with 14% in foreclosure, really begs the question 'what do you consider 'OKAY'?  I can tell you that with that national level of forclosure, the effects on home prices and on jobs will be extremely negative.  The 86% of American Real estate not, as of then, foreclosed upon will certainly be under more stress, than it is right now.

Even the 30% of properties without mortages would be under much more stress under your scenario.... property taxes still must be paid and maintenance is not free.  What if one of the people mortgage-free home, loses their job? Doesn't that lead to the threat of foreclosure for non payment of taxes or even condemnation if enough maintnance is left undone?


 Unfortunately this is not a simple problem.



I use to get upset in traffic because of all the idiot drivers.

 Later I began to smile blissfully in traffic when I realized that 'if i didn't understand I was surrounded by idiots, I would be one of the idiots'.

Your post has encouraged me to check myself on my blissful smile, as I am made aware that if ignorance is bliss then some bliss might also be ignorance.



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#2) On February 01, 2009 at 2:52 AM, Vet67to82 (< 20) wrote:

In discussion with others, I am amazed at the number of people that don't think this affects ALL of us. ...that this debacle only affects the 70% with mortgages and don't worry about the 30% that don't.

Hmmmmmm! I'm quite certain it IS 100% of us, whether we have a mortgage or not.  How can you think to exclude my no nortgaged home if the gov't answer to fix the mortgaged home problem DAMAGES the value of MY HOME? WE ARE LINKED. YOU MUST consider the consequences of any action in its affect on the WHOLE.

 If the government sets up the "bad bank" scenario, is the gov't only going to pass on the tax consequence and the gain or loss ONLY to taxpayers with mortgages in question? Is it unrealistic of me to think the gov't is going to stick 100% of the people with the bill?

 I'm not stupid. I see the light at the end of the tunnel and I don't have to hear the whistle to know it's a train.

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#3) On February 01, 2009 at 3:44 AM, Vet67to82 (< 20) wrote:

Thank you BGriffinFlorida for your responce. You have excellent points. I do dispute the ding on bad assumptions, I know enuf not to assume,  or to compare apples to oranges, such as comparing checks in a check book to the cash, or lack thereof,  in the account (smiling)  ... I admit I simplified to make the 100% point.  I just paid my property taxes, the value of my home declined ... my taxes didn't.  There's one method of valuing the 30% with no mortgage.  There are many assumptions open for discussion and debate.   I agree my suggestions aren't perfect.  We need to start somewhere. We need to look at what went wrong and fix it BEFORE we start transferring real money around, real money that someone is going to have to pay for ... like you and I.  Sorry,if  I don't want the gov't reaching into my pocket on an "I don't know", and handing my money over to making the rich into billioniares.   Sooner or later, I think you'll agree with me, we'll be the ones paying through the nose.  Mortgage or no mortgage, 100% of us are on the hook however this plays out. 

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#4) On February 01, 2009 at 6:15 AM, BGriffinFlorida (26.56) wrote:

I probably jumped on your post a little hard.  While I have substanative disagreements with your post,  I should have pointed out that i am in full agreement with your conclusion that the bailout is poorly designed and poorly administered.


I react strongly to oversimplifications of the problem, in large part because I see this as supporting the logic that leads to government intervention.  Because prevailing thinking is that this is a simple problem with easy solutions, politicians are compelled to meet the problem with the obvious solution. 


In the end the problem isn't simple and isn't very close to what the prevailing thinking had decided.  As such the 'obvious solution', in spite of being very expensive is highly likely to have made the problem worse instead of better.


I don't doubt that you are intellegent and that your intentions are good, and if my comments seemed to suggest otherwise, that was not my intention.



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#5) On February 01, 2009 at 12:40 PM, Vet67to82 (< 20) wrote:

 Your responce does not offend me  ... I accept it did and does challenge me.  Your post accurately depicts lots of valid points that I choose to sidestep, to boil the problem down specifically to demonstrate the problem affects us ALL.  

  One of my first sergeants told us, "If you have a complaint, I only want to hear about it if you also have a suggestion, or recommendation, to FIX the problem you're complaining about." 

  You will note, while I brought what I believe are valid concerns of MINE, to everyone's attention, I also peroffered suggestions:

  (1) more work needs to be done as haste appears to be making a manageable problem into a potential disaster that will haunt us for decades. 

  (2)  The world is watching ....   do the CDOs, SIVs, and all the other  complex structured financial products have or serve a useful purpose?  The financial community seems to think they still do.  As you so aptly pointed out with the tranches, can we reorganize securities, senior and subordinate, such that the banks that originated the loans, take back bad loans and substitute performing loans to make the securities whole??? Is it not prudent to separate the chaff from the wheat ... making it easier to deal with the chaff?? 

   (3) I deem real estate to be "okay" if they're paying real estate taxes, water, sewerage, gas, electric, oil, insurance, etc and are current.  That anyone "might" lose their job would certainly be stressful and unfortunate,  Do we have to complicate the here and now problems with "what ifs", "maybes", and "hasn't happened yets"?    No, no, no and NO. Can't that be delt with when and if it occurs?    

  (4) Much of the issue appears to be with who owns what and what paperwork should have been transfered, but either wasn't or was incomplete.  That's clearly a Nationwide need for rule(s) of LAW  for mortgages that may be  bundled, securitized, and resold,   Title law(s),  mortgage and tax laws , with appropriate transfer documentation, upfront honesty and education of  the mortgagee and mortgage with a central tracking location, so the home owner KNOWS where his/her mortgage is held. 

  (5) There are certainly privacy and identity theft concerns and issues - as the mortgage is passed around ... what info is being passed with it - without the knowledge or consent of the borrower??  I propose you need to assign a code to each property, with all personal info to remain with the loan origination bank. So when the owner of the security gets their check for an unexpected amount ,,, they get: A4, X7, and Y29 are late, B25, D14, G15, are in default ...  

 As you point out there are MANY issues ... and while you have many good points, I don't see that you've offered even one constructive suggestion or recommendation to address the problems. 

 I CHALLENGE YOU to offer a suggestion  or a recommendation ...      


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#6) On February 01, 2009 at 4:47 PM, StockSpreadsheet (69.38) wrote:


You might want to check with your county assessor regarding your taxes.  Property taxes are usually based on the value of your home.  (Others are assessed on a per-parcel basis, so those are a different matter.)  If the value of your house has dropped, you can often have your property taxes reduced.  If your property tax is a yearly assessment of 1% of the value of your home, and your home drops from $200,000 to $150,000 in value, your property tax bill should go down from $2,000 a year to $1,500 a year, saving you $500.   I know it works that way in San Diego.  I would assume it would work where you live also.


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#7) On February 03, 2009 at 4:37 AM, IIcx (< 20) wrote:

Great articles, I added you as a favorite.

There's no question that mark to market is one of the true causes of this mess but there doesn't seem to be an alternative model that everyone will adopt. Is it better to trust each lender with their own model?

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#8) On February 03, 2009 at 11:20 AM, Vet67to82 (< 20) wrote:

Thanks  IIcx.  There is some positive thinking on changing from "mark to market" to "mark to model"  As  yet the substance needs to be worked out.  With any change that is going to affect us all, I strongly recommend reading the info, and then rendering your ideas, opinions, especially suggestions ands recommendations to your own elected officials.   

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