Bailing out of a home sale set before the virus hit hard is 1000% the right thing to do. I’d probably have just pulled out completely.
I have no idea what this means - can you point me to a source?
The last time the NYSE was open on Good Friday was 1907, so it is normal. I assume that it generally closed because too many people were going to skip working that day anyways.
For example, if your house was worth $100k pre-Coronavirus the bank could treat it as if though it is worth no less than $80-90k even if the bank’s credit analysts would otherwise estimate it is worth $60k. Source is specific to the way my company borrows money so can’t provide a link.
Couldn’t you just have come back with your own sale of home contingency? Then just don’t sell until shelter in place lifted.
We tried that, non-starter for them. The sellers were bizarrely playing hardball throughout the negotiation. This market was super hot a month ago and I think they just completely failed to understand it’s not a sellers market anymore. I could see us getting the same house for $50k less in 2 months.
Yeah, if you’re not in a hurry then I think waiting at least a couple of months is +EV. Maybe even longer would be better.
Yep, sounds like this string of contingency sales is about to fall through and this is just the start, lol.
I’m trying to understand the context of what you’re talking about. Your initial claim sounded like for regulatory and financial reporting purposes, banks would limit their reported asset writedowns to no more than 10-20%, so that their Balance Sheets and Income Statements would blatantly be overvaluing assets and overstating reported earnings, with the blessing of regulators. That sounds like a ridiculous claim.
I don’t know what your followup means, because I don’t know what “the bank could treat it” means.
Yes, the banks are going treat the asset as valued at the higher price, meaning yes they’re overstating their balance sheets, and the regulators are allowing this. The way they are justifying is they are saying that assets not earning any money now is not a fair indicator that it has lost more than 20% of its value because of the virus shutting everything down. The bank’s credit analyst might say well not only is the asset not generating a return now, we think it’s FUBARed permanently because of knock on effects X, Y and Z.
The bank then says you may be right, but if we accepted that as true everything then everything will have to be marked way down now, balance sheets are going to be unwinding all over the place, resulting in fire sales all over the place w/ nobody having the cash to buy, leading to a spiral into hell and then we will all definitely be FUBARed.
So we are going say no more than 10-20% markdown for the next 2Qs and take it from there…
Yeah, if you’re saying that regulators are encouraging banks to deliberately overstate their assets and implementing a cap of 10-20% on asset writedowns, I’m calling bullshit.
Okay, go invest in a bank then.
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Context is different but look at home prices right now, do you think it’s really reasonable that they haven’t been slashed across the country yet given the very, very likely economic consequences of what is coming? But they haven’t because we are all just pretending this is a temporary moment of illiquidity. Same concept is happening all over the place right now.
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But banks don’t own homes. They own the mortgages on the homes. I don’t know what home prices are doing nationwide, but I know that a 10% decline in house prices doesn’t necessarily translate to a 10% decline in the value of the mortgages associated with those houses.
Yes, the banks own mortgages and the banks have agreed to a public blanket forbearance on those mortgages for several months, a very clear indicator that they see problems coming with those mortgages coming in the near future given that they are not only losing months of payments but people’s economic problems are very likely to occur well into the future affecting their ability to make payments indefinitely… meaning likely mass foreclosures at fire sale prices…meaning the bank’s credit analysts could make a fair argument for writing down the values of those mortgages on the bank’s books today. But they aren’t doing that yet, and the regulators don’t want them to.
The regulators are trying to avoid the mass foreclosures and fire sales at all costs, and part of that is pretending like there is no reason for them to ever happen.
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Ok, I’m at a total loss and it seems like you’re just hand-waving a bunch of stuff. If a bank has a residential mortgage on its books, they may be required to defer payments on that mortgage. But those payments aren’t lost - they’re just added on to the back end of the mortgage. So it’s not clear that it would cause the value of the mortgage from the bank’s perspective to go down. Plus, as I understand the CARES program, banks are only obligated to provide relief on government-backed mortgages, so it’s hard to tell a story where the banks suffer from a decline in the home’s value in those circumstances, because the mortgage is guaranteed by the government.
I guess there’s a world where the banks own the servicing rights to mortgages that they don’t own, and the value of those servicing rights is declining because of expected defaults, but that seems pretty remote from what originally started this conversation, and I still wouldn’t believe that regulators would encourage banks to artificially inflate the reported values of those servicing rights.
Jesus, I’m using residential mortgages as an illustration, you don’t think regulators are willing to do the same thing in other lending markets? You think they want everyone strictly enforcing their loan docs, and forcing each other into default/selling off assets/declaring bankruptcy?
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I’ve gotta think basically every junk bond out there is already in default. Same with CMBS.
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My only point is that I think it’s conspiracy theory-level nonsense that banks really, really want to write down their assets, but regulators are instructing them to limit those write-downs to a maximum of 10-20%.
Where did the 10-20% number come from? Is there a source? I agree it doesn’t make a lot of sense. There would be different ranges for different classes of assets or it will be obvious what is happening