No Green Shoots in CA’s Banking Compost Heap

ForeclosureRadar tracks foreclosure activity in California, and their latest monthly report for July 2009 [pdf] is not a pretty picture (h/t CalculatedRisk). Leading ForeclosureRadar’s report:

The number of properties scheduled for foreclosure sale – new Notices of Trustee Sale minus those sales that have cancelled or sold – rose to a record level of 124,874, nearly double the levels reached during the foreclosure peak last year.

Later on they add, "The increase appears to be primarily due to the fact that lenders are willingly postponing foreclosure sales." Why postpone? Keep reading, and the answer pops out: "The average California foreclosure has a total loan balance of $425,134 on a home that is now worth $236,739."

If the bank sells these homes now, at these prices, the bank will have to book the difference between the loan balance and the home sales price as a loss. Chances are that right now, they are carrying these houses on their books with higher guestimated values (the bank version of mark to model, not mark to market). Once they sell the houses, however, they will have to book the actual prices — and actual losses.

*getting out the calculator* . . .

$425,134 loan balance minus $236,739 present value is a loss of $198,405 per repossessed and resold home. Multiply that amount by the 124,874 homes scheduled for sale . . .


That’s $24,775,625,970 in losses waiting to happen.

Not including any costs associated with selling the home.

In California alone.

Assuming no more foreclosures after these 125K homes are sold.


Something tells me that some/many/most of these banks don’t have the space on their balance sheet for taking losses like that. And if those homes all did hit the market, the prices would then drop further because of the oversupply, making the losses even worse.

Judging by the FDIC’s list of job postings, I think they may have quietly reached the same conclusion last week.

Click on "View All Vacancies" and scroll down about a quarter of the page, and you’ll see that the FDIC is looking to fill 24 mid-to-upper level "Resolution and Receivership Specialist" positions in their Irvine CA office. The window for submitting an application opened last Thursday and closes next Wednesday — a fast two-week period — and the jobs are open only to current FDIC employees as a "temporary promotion opportunity."

In the year or so I’ve been watching the FDIC job board fairly regularly, I’ve never seen postings like these. To me, these job announcements translate like this: "We’ve think we’ve got a sh*tload of trouble coming fast in CA, we don’t have time to train a bunch of outsiders to handle the mess, so we’ll give anyone who’s up for a challenge a temporary bump in rank and pay if they’ll pick up a shovel, grab a wheelbarrow, and move west for a while. You’ve got two weeks to decide if you want to take this offer."

Put these two stories together, and it looks a lot like the FDIC is going to work on a decomposing compost heap that is cooking itself down, and not tending a garden filled with green shoots.

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