What’s really going to do all the damage is the dollar amounts of the losses from the Alt-A loans.
When a $400k mortgage goes down those losses have been amounting to (generally) $100k – $150k after consideration of the holding costs, foreclosure costs and costs of resale as REOs. The Alt-A loans were the financing vehicles of choice for all these $600k+ mortgages throughout the new subdivision areas. When they go down the losses will start at $200k each and work their way up.
The other thing that I think will happen is that these markets will be playing catchup with the bottom end. That means the pricing structure will collapse all that much more quickly, thereby running the losses up even faster.
The last time we went through a correction the pricing structure compressed. That meant that there were huge differences between what you got for $250k vs $300k, even though $50k doesn’t sound like a lot of money right now.
Really, how many $500k losses will it take to gut any lender?
