CHESSNOID

Next week, some big banks are going to publish their financial earnings data. Many analysts already expect losses but are not sure how much. We have had many tens of thousands of people laid off in the real estate, mortgage, construction and other related fields. I personally know of a few people who were let go from the housing crisis. I have a feeling the big banks will follow suit in the weeks to come. According to CNN.Money:

The subprime epidemic, which has spilled over from the housing sector into other areas of the economy since its outbreak this summer, has hit the financial services and banking sector particularly hard.

In recent years, banks made a killing off subprime mortgages - home loans made to borrowers with poor credit. Some of them, such as Citigroup, did scored by slicing up and selling bonds backed by those same subprime mortgages. Savings and loans like Washington Mutual, which held such mortgages instead of carving them up into securities, got hurt when people began defaulting on their home loans.

The crisis only worsened when liquidity dried up in the credit markets, derailing the once booming private equity business and endangering the leveraged buyout deals that helped drive results at big banks such as Citi and JPMorgan.

To date, brokerages and banks have racked up nearly $20 billion in losses because they made bad subprime bets. As a result, financial sector earnings are expected to decline by 4 percent during the third quarter, compared to the 34 percent growth rate seen during the same period last year, according to Thomson Financial.

Last week, Citigroup and Washington Mutual prepared investors for bad news, announcing a combined $3.7 billion worth of subprime-related writedowns and loan losses.

At the same time, JPMorgan Chase and Bank of America, which are set to report results Wednesday and Friday, respectively, have said nothing about their subprime exposure.

But some analysts, such as Sanford Bernstein’s Howard Mason, have estimated that the two combined would report losses totaling more than $3 billion on leveraged loans and mortgage writedowns, with JPMorgan suffering the bigger hit.

Earlier this week, it was reported that we had a record number of foreclosures. I think the banking industry releases this information to try to lessen the shock of all the money it lost through bad mortgages. Kansas City Star reports:

Foreclosure filings across the U.S. nearly doubled last month compared with September 2006, real estate information company RealtyTrac Inc. said Thursday. A total of 223,538 foreclosure filings were reported in September, up from 112,210 in the same month a year ago. The number of filings in September was down 8 percent from August’s 243,947, the firm said

I work in the collections field and know it is getting worse. These foreclosures only represent the homes that have the Notice of Defaults filed. I think the banks and mortgage companies are scrambling right now to manipulate the numbers to avoid filing NODs to avoid further scrutiny from its investors. The previous company I worked for did special deferments where a customer who was behind 3 months was allowed to make one full or partial payment that would bring their loan completely current regardless of their financial situation. Of course they would still not be able to pay because they had no income coming in. So 3 months later, they were back in the same situation. When the auditors came, they noticed that certain customers had only made 1 payment in the last 7 months. I wouldn’t be surprised if some of these banks and mortgage companies are doing the same thing which is a type of fraud towards the investors because someone (s) made a bad decision and doesn’t want to face the consequence of losing their job (s). Managers who run companies at a loss are usually replaced with managers who can run it at a profit.

According to Bloomberg:

Countrywide Financial Corp., the largest U.S. mortgage company, said late payments at its servicing unit rose, foreclosures doubled and new loans fell 44 percent as housing sales slowed.

Overdue loans as a percentage of unpaid principal increased to 5.85 percent in September from 4.04 percent a year earlier, the company said in a statement. Foreclosures climbed to 1.27 percent from 0.51 percent. Mortgages funded by the Calabasas, California-based company last month declined to $21 billion.

…Total employment fell more than 4,900, with most of the dismissals affecting staff that handles new loans, said a report by Moshe Orenbuch at Credit Suisse Group. Countrywide is about halfway to the goal of 10,000 to 12,000 job cuts announced last month, he said in the report, which rates the shares “outperform.” The reductions, if fully completed, would equal about 20 percent of the workforce.

If you want to see more specific information on the actual foreclosure countrywide has you should visit Countrywide Foreclosures BLog. Right now this company has 12,370 homes for sale totaling $2,589,214,307.00. This blogger has a great graph that shows a weekly trend in the number of foreclosures.

Normally, the foreclosure process takes 3 to 6 months. With so many subprime loans made in 2006 and resetting in 2008, my guess is the graph will trend upwards until the end of 2008 before it peaks. The most subprime loans were made in March 2006, when they adjust in March 2008, that lag time from the foreclosure process won’t make that a statistic until the 4th quarter. My earlier post has the arm loans graph.

Again, Countrywide is only one company. If you want to check out what is happening in the US housing mortgage market check out the mortgage implode-meter which is up to 161. He has a great compilation of all the mortgage related companies laying off or going bankrupt.

Investors sold stock to lock in their gains. The stock market retreated and took a breather from an incredible run up for the past 3 weeks and breaking some new highs.