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Jan. 28 (Bloomberg) -- The Federal Deposit Insurance Corp. may manage the so-called bad bank that the Obama administration is likely to set up as it tries to break the back of the credit crisis, two people familiar with the matter said.

Bank Management

The bad-bank initiative may allow the government to rewrite some of the mortgages that underpin banks’ bad debt, in the hopes of stemming a crisis that has stripped more than 1.3 million Americans of their homes. Some lenders may be taken over by regulators and some management teams could be ousted as the government seeks to provide a shield to taxpayers.

http://www.bloomberg.com/apps/news?pid= ... refer=home

OK. Let me ask a question that may seem stupid. But, I really don't care.

When Roubini says that there are 2 trillion worth of insolvency in banks, is he talking about these toxic assets? And to call them "toxic", does that apply to all the mortgages that are out there, or only the ones that aren't paying. Because, you know that lots of people are going to continue to pay on their mortgages. Not 100% of sub-primes and primes are going to default. right? If these are included in the "toxic" category, then it's not realitstic. right?

death dealer wrote:OK. Let me ask a question that may seem stupid. But, I really don't care.

When Roubini says that there are 2 trillion worth of insolvency in banks, is he talking about these toxic assets? And to call them "toxic", does that apply to all the mortgages that are out there, or only the ones that aren't paying. Because, you know that lots of people are going to continue to pay on their mortgages. Not 100% of sub-primes and primes are going to default. right? If these are included in the "toxic" category, then it's not realitstic. right?

DD:

Quit making sense....you're only going to confuse us.....

Those mortgages were given for the loans to buy the property. The title to the property is for the most part the security on the mortgage. The notes are worthless if the lender is basically bankrupt.

What part of this is hard to understand, by all parties to the transaction?

Again, I wasn't trying to make a statement for or against the "bad bank" model. I am seriously just not sure what exactly people like Roubini are referring to when they say that banks have 2 trillion worth of "toxic assets". Define that term, please? The way it sounds to me, they are including any mortgages that fall in certain categories, even if they haven't defaulted yet. So, all of them won't be "toxic" in the end, they only appear so now?

Now come on! I know there is at least one former banker, and a VP of an S&L on here. Can't someone explain this in a way a simple-minded dentist can unerstand?

death dealer wrote:Now come on! I know there is at least one former banker, and a VP of an S&L on here. Can't someone explain this in a way a simple-minded dentist can unerstand?

I could "explain" it, but I can't answer the question. I'm not sure if they're including adjustable rate mortgages currently NOT delinquent in the $2 trillion number. Hell, I'M in an adjustable rate mortgage, potential negative amortization, all the bells and whistles....maybe MY mortgage is included in that number. Who knows?

death dealer wrote:Again, I wasn't trying to make a statement for or against the "bad bank" model. I am seriously just not sure what exactly people like Roubini are referring to when they say that banks have 2 trillion worth of "toxic assets". Define that term, please? The way it sounds to me, they are including any mortgages that fall in certain categories, even if they haven't defaulted yet. So, all of them won't be "toxic" in the end, they only appear so now?

I am not sure what their criteria is, but it could be any number of things. As AZ mentioned it could be ARMs. It could also include delinquent mortgages, subprime mortgages (not yet delinquent), and normal mortgages that now carry negative equity (not including any bad loans for business properties). You put all of those together, you'd easily hit $2 trillion I would think. My guess is it's mortgages already delinquent, subprimes, and any potential delinquent mortgages for people with good credit, but maybe a high DTI (and guaranteed negative equity). Add in loans to companies that are failing and that is what I would assume are considered the "toxic assets."

ASUMountaineer wrote:

death dealer wrote:Again, I wasn't trying to make a statement for or against the "bad bank" model. I am seriously just not sure what exactly people like Roubini are referring to when they say that banks have 2 trillion worth of "toxic assets". Define that term, please? The way it sounds to me, they are including any mortgages that fall in certain categories, even if they haven't defaulted yet. So, all of them won't be "toxic" in the end, they only appear so now?

I am not sure what their criteria is, but it could be any number of things. As AZ mentioned it could be ARMs. It could also include delinquent mortgages, subprime mortgages (not yet delinquent), and normal mortgages that now carry negative equity (not including any bad loans for business properties). You put all of those together, you'd easily hit $2 trillion I would think. My guess is it's mortgages already delinquent, subprimes, and any potential delinquent mortgages for people with good credit, but maybe a high DTI (and guaranteed negative equity). Add in loans to companies that are failing and that is what I would assume are considered the "toxic assets."

Here's the thing: as I said in a different thread, we (my credit union) ALONE are sitting on about $30 million in essentially unsecured HELOC's. If they're including home equity loans in the mix, the $2 trillion number is probably WAY low.

AZGrizFan wrote:

ASUMountaineer wrote:
I am not sure what their criteria is, but it could be any number of things. As AZ mentioned it could be ARMs. It could also include delinquent mortgages, subprime mortgages (not yet delinquent), and normal mortgages that now carry negative equity (not including any bad loans for business properties). You put all of those together, you'd easily hit $2 trillion I would think. My guess is it's mortgages already delinquent, subprimes, and any potential delinquent mortgages for people with good credit, but maybe a high DTI (and guaranteed negative equity). Add in loans to companies that are failing and that is what I would assume are considered the "toxic assets."

Here's the thing: as I said in a different thread, we (my credit union) ALONE are sitting on about $30 million in essentially unsecured HELOC's. If they're including home equity loans in the mix, the $2 trillion number is probably WAY low.

Absolutely. Some companies, including Countrywide (last year) have begun locking HELOCs so customers cannot access the credit because of house prices dropping. As you say, the HELOCs being unsecured because of declining equity. HELoans will be hard to maneuver, so I'm curious if they include Home Equity credit in that. I don't see that they can at $2 trillion.

What were the requirements at the credit union for the HELOCs? I always thought the bank I worked for was too lax when it came to setting up HELOCs.

Thanks for the info. Those are the things I don't understand. I think I need to better understand how they classify "toxic" before I can develop an opinion about this stuff. For instance, what does "mark to market" rules have to do with it?

ASUMountaineer wrote:

AZGrizFan wrote:
Here's the thing: as I said in a different thread, we (my credit union) ALONE are sitting on about $30 million in essentially unsecured HELOC's. If they're including home equity loans in the mix, the $2 trillion number is probably WAY low.

Absolutely. Some companies, including Countrywide (last year) have begun locking HELOCs so customers cannot access the credit because of house prices dropping. As you say, the HELOCs being unsecured because of declining equity. HELoans will be hard to maneuver, so I'm curious if they include Home Equity credit in that. I don't see that they can at $2 trillion.

What were the requirements at the credit union for the HELOCs? I always thought the bank I worked for was too lax when it came to setting up HELOCs.

Our requirements were no different than anybody elses out there. We were doing 100% LTV HELOC's, because "values always go up!". We are sending out letters to the bulk of our HELOC portfolio as we speak, locking/reducing/eliminating their lines of credit.

AZGrizFan wrote:

ASUMountaineer wrote:
Absolutely. Some companies, including Countrywide (last year) have begun locking HELOCs so customers cannot access the credit because of house prices dropping. As you say, the HELOCs being unsecured because of declining equity. HELoans will be hard to maneuver, so I'm curious if they include Home Equity credit in that. I don't see that they can at $2 trillion.

What were the requirements at the credit union for the HELOCs? I always thought the bank I worked for was too lax when it came to setting up HELOCs.

Our requirements were no different than anybody elses out there. We were doing 100% LTV HELOC's, because "values always go up!". We are sending out letters to the bulk of our HELOC portfolio as we speak, locking/reducing/eliminating their lines of credit.

Now that stuff is crazy. I actually had a banker tell me not that long ago that they could do 120% LTV HELOCs.


In cases like that I want to say "sucks for you, you dumbasses. You should have known better."

Love your signature by the way.

AZGrizFan wrote:

ASUMountaineer wrote:
Absolutely. Some companies, including Countrywide (last year) have begun locking HELOCs so customers cannot access the credit because of house prices dropping. As you say, the HELOCs being unsecured because of declining equity. HELoans will be hard to maneuver, so I'm curious if they include Home Equity credit in that. I don't see that they can at $2 trillion.

What were the requirements at the credit union for the HELOCs? I always thought the bank I worked for was too lax when it came to setting up HELOCs.

Our requirements were no different than anybody elses out there. We were doing 100% LTV HELOC's, because "values always go up!". We are sending out letters to the bulk of our HELOC portfolio as we speak, locking/reducing/eliminating their lines of credit.

I don't doubt it. It sucks, but when house prices go down, you lose your equity. If they want unsecured credit, take out a credit card with a high interest rate. I mean, it would be nice to give them an option and say, you can keep part of your HELOC, but it is now just a LOC and your interest is now prime + 6%.