More mortgage losses.

Several months ago on the Guardian and more recently here, I argued that the much discussed ‘stimulus exit strategies’ would just not appear. The central banks, I argued, could not withdraw any part of their stimulus because without that cash , there simply has not been and will not be any recovery.

There has been no recovery in house prices, none in employment, very little in manufacturing output and almost none in lending. But no matter, because the fast money is to be made not in recovering but in gaming the stimulus. And for that the stimulus obviously has to stay.

Any hint, of any part of the stimulus being withdrawn and the banks start to scream. Not only that but their promises of how they would be paying us back are now being revised, pushed back or recognised as ‘probably lost’ (See AIG and GMAC for examples)

Does it matter that the stimulus will not be withdrawn? Well, yes. Because at the same time as the banks insist their stimulus has to stay, these same banks sonorously advise that government debts are too high and must be brought under control. But if spending on bank stimulus isn’t to be touched that only leaves spending on unimportant things like your children. Save the banks, screw the children. Has ring to it doesn’t it.

Of course they are right that government debt is out of control and is going to cause us horrible harm. And they are also right that if the stimulus is withdrawn the banks will die.

Latest figures from the US confirm that bank losses are not going to slow any time soon. I have talked about Option ARM’s and HELOCS before. Today let’s talk about the top end mortgages.

Latest figures show that in PRIME US mortgages ‘serious delinquency’, which means 60 days or more behind, jumped 16.5% in just the last quarter. This was the main part of an increase in delinquencies of 90 days or more across all US mortgages of 21%. A 21% increase in delinquencies in one quarter!! So the sector getting worse fastest is the prime end. People who should never default are on the march to do just that.

These defaults, and the bulk of those who fall behind do end in default, are either because the loan wasn’t really prime (someone lied- surely not!) or because unemployment and negative equity are killing them. Which means these defaults will occur if unemployment is ignored and house prices don’t rocket back very soon. Remember that, next time you hear an expert airily dismiss the human misery (someone else’s of course) of unemployment, because it’s just ‘a lagging indicator’.

Now I don’t know about you, but I dislike percentages. They are slippery and generally tools of the dishonest. So lets have some cash numbers.

The pool of mortgages covered by this survey (Done by the Office of the Comptroller of the Currency and the Office of Thrift Supervision, which are part of the Treasury Department) covers mortgages with a total value of about 6 Trillion dollars. The total percentage of what are called non-performing mortgages ( all stages of delinquency non payment) is 13.6%. 13.6% of 6 Trillion is 816 BILLION dollars. Of that about 282 Billion dollars worth is the 90 days plus delinquent. Generally 90 days delinquent just don’t recover even if ‘modified’.

So banks in the US, which means their too-big to fail and OURS AS WELL face losses on 816 Billion dollars worth of loans. Now some of that will not default and the rest will still recover some money when the houses are sold. Oh but wait!

If the banks foreclose in order to recover cash from a sale what will that do to property prices? If prices go down again more prime mortgage payers will be in negative equity and around it goes.

Face it, the banks cannot survive without continued and renewed government bail outs. You are going to be forced to pay to save their life styles for a long time yet.