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How Much Are Banks Exposed to Subprime? More than We Think,,,,,,,,,,,,More cooking the books. wow,,,,,,,,,,,,,,, 

By: capt_nemo in POPE IV | Recommend this post (3)
Fri, 13 Apr 18 8:37 AM | 87 view(s)
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A couple of days ago, when I wrote about the soaring delinquency rates in subprime auto loans – the worst since 1996 – and the collapse of three specialized small subprime lenders, I stumbled over a special nugget.

One of the collapsed small lenders, Summit Financial Corp, when it filed for bankruptcy on March 23, disclosed that it owed Bank of America $77 million. This loan was secured by the auto loans Summit had extended to subprime customers, who’re now defaulting in large numbers. In the bankruptcy documents, BofA alleged that Summit had repossessed many of these cars without writing down the bad loans, thus under-reporting the losses and misrepresenting the value of the collateral (the loans). This allowed Summit to borrow more from BofA to fund more subprime loans, BofA said.

Summit is just a tiny lender and doesn’t really matter. But there are a whole slew of these nonbank lenders, specializing in auto loans, revolving consumer loans, payday loans, and mortgages. Some of these nonbank lenders specialize in “deep subprime.” And some of these lenders are fairly large.

Since the Financial Crisis, big banks have mostly avoided subprime lending. Instead, they’re lending to the companies that then provide financing to subprime customers. And BofA is finding out just how much risk it was taking with its loan to Summit that was secured by now defaulting auto loans that were secured by cars that, once repossessed, are worth only a fraction of the loan value when they’re sold at auction.

How much banks are exposed in this manner to subprime loans – not just auto loans, but also subprime mortgages, and subprime consumer loans – is somewhat of a mystery. But some clues are percolating to the surface. According to an analysis by the Wall Street Journal of regulatory filings, bank loans to nonbanks lenders have surged sixfold since the Financial Crisis to nearly $345 billion at the end of 2017. Here are the top contenders:

Wells Fargo: $81 billion, up from $14 billion in 2010
Citigroup: $30 billion
Bank of America: $30 billion
JP Morgan: $28 billion
Goldman Sachs: $22 billion
Morgan Stanley: $16 billion.
Banks extend these loans at relatively low interest rates because the loans are collateralized and don’t expose the banks directly to the risks of lending to subprime consumers. Nonbank lenders make money off the spread between the relatively low cost of money and the often double-digit rates they charge consumers. The spread is so sweet and enticing that it caused a boom in the sector and attracted private equity firms.

more,,,,,,,,,,,,,,,,,,,,

http://www.investmentwatchblog.com/how-much-are-banks-exposed-to-subprime-more-than-we-think/




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Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.


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