Covid Mortgage Bomb Is Going To Explode

[Brierley]

5 minutes ago, scubascuba3 said:

Is this a real fact or made up fact? people keep repeating but if you could provide a decent link it would be good

I heard it from Britman...:)

 

I'll see what I can find.

[Airalee]

The banks will hold onto properties until inflation (or subsequent bubble) bails them out.

 

Mark to market vs mark to myth.   Their solvency depends on mark to myth.  If they were forced to mark to market, it would show the precarious financial position that many of these banks are in.  The laws regarding how long a bank could hold (a certain percentage) REO (real estate owned) on their books was changed in the US when the 2005-2007 housing bubble popped.  It was just one of many ways to backstop the banks.  

 

The best properties will be held for as long as necessary and the dregs will always be the first ones offered for sale.  This is why when you look at bank owned condos for sale, you will most often see multiple (many) units in much older buildings for sale as due to the lower initial purchase prices (and hence, mortgage balances), these units are always the first to be bailed out via inflation.  Newer units, and those still owned by insolvent developers will be either kept off the market or listed at their inflated prices thereby making the older foreclosures listed for sale appear to be better bargains.  The banks will also be much more lenient in dealing with the developers because, to be quite frank, they are better customers than the individual borrowers.  It is what it is.

 

The system is more important than the individual borrower and that is why it is imperative that a rosy picture be painted as to the health of the banks and the banking system in general.  If people panicked and there was a run on the banks, they would all be essentially insolvent.

 

The takeaway from all of this is...

 

The banks will always win.  Always.

 

 

 

Edited May 20, 2021 by Airalee

[DTL2014]

banks have been rebounding recently,on better profits so i doubt they are over exposed ...

[Sydebolle]

4 hours ago, digger70 said:

The Banks don't like losing money, they Foreclose but they don't have a Low Price tag on the Foreclosed houses . 

There are Many  buildings that are in need of a Lot of attention and have been Empty for years ,They have a Too High of a price tag on them .

They Can't sell them . They Will get stuck with them.

I bought property at auctions and trust me, they are willing to part at any price as long as their mortgage outstanding is covered. The loser in this case is always the customer who bought the property and got it financed; the latter takes the hit. 
But then again - you cannot buy cars, houses and God-only-knows-what while using up the entire limits on all the credit cards and then be surprised that all this "wealth" disappears over night while leaving a nasty trail of financial damage and face loss behind ...... we saw all this during the Tomyamkung crisis 24 years ago already  once ........ 

[Sydebolle]

4 hours ago, The Cipher said:

 

How do you find out when these auctions come up? If true, I could imagine myself bidding on these.

 

Check with your bank, they certainly know when and where those auctions take place ....... they even have listings of property which needs to be auctioned off before the auction takes place ???? 

[placeholder]

6 hours ago, RocketDog said:

Same story in America. Many people don't know that FDIC only has funds to cover 1.6% of bank deposits. If all banks failed at once all accounts less than 250k$ would only get about 1% of it at most back. Everything above that goes to money heaven. 

More likely the Fed could would print money just to replace lost savings.

[digger70]

6 hours ago, Brierley said:

Banks are not allowed to sell at a value that is less than the outstanding loan so they will sit on them until they achieve that value. Banks don't want to own property, they want people to make mortgage payments on those properties.

Well now they will have a problem then hey, getting stuck with overpriced Properties.

Many times the mortgage owned is Higher than the Property value.

[digger70]

2 hours ago, Sydebolle said:

I bought property at auctions and trust me, they are willing to part at any price as long as their mortgage outstanding is covered. The loser in this case is always the customer who bought the property and got it financed; the latter takes the hit. 
But then again - you cannot buy cars, houses and God-only-knows-what while using up the entire limits on all the credit cards and then be surprised that all this "wealth" disappears over night while leaving a nasty trail of financial damage and face loss behind ...... we saw all this during the Tomyamkung crisis 24 years ago already  once ........ 

Yes you said ,it as long as the mortgage outstanding is covered.

Many times from what I have seen is that the outstanding Mortgage is higher than the Real value of the Property. 

They will get stuck with it .I wouldn't want to pay more then the real Value .

[Brierley]

12 minutes ago, digger70 said:

Well now they will have a problem then hey, getting stuck with overpriced Properties.

Many times the mortgage owned is Higher than the Property value.

I don't fully understand the detailed calculation but book value doesn't include the value of future interest that would have been earned, had the loan not defaulted. In other words the clock stops accruing interest for accounting and resale purposes at some point. If the bank/lender follows their procedures to the letter, 30 days past due, 60 days past, 90 days past and then into default, the level of accrued defaulted interest is not huge at all.

[thasoss]

7 hours ago, thaibeachlovers said:

Nothing at all to do with printing money.

It has everything to do with printed money...too much money in circulation with too little to spend it on as inventories are low,raises the prices.....but the biggest killer will be inflationary food prices because poor people spend more of their budget on food.

[thasoss]

3 minutes ago, thasoss said:

8 hours ago, thaibeachlovers said:

Nothing at all to do with printing money.

It has everything to do with printed money...too much money in circulation with too little to spend it on as inventories are low,raises the prices.....but the biggest killer will be inflationary food prices because poor people spend more of their budget on food.

sorry beachlover the quote was from placeholder,not you.

[Thomas J]

Some have written on this post that banks can not sell the property for less than the loan value so as a result they hold on to the properties.  If that is true, that is just foolhardy.  It ignores the fact that each year that goes by, the bank could have been using the proceeds from selling the property even if for less than the loan value to make other loans or investments that provide a return.  It also ignores that it is expensive to carry properties.  In my village each of the banks is paying 20,000 baht each year in community fees saying nothing about the cost of hiring professional management companies who attend to the property and any other expenses such as landscaping, It also ignores that those properties continue to deteriorate making them worth even less.  Some in my village are over 6 years vacant.  Broken windows letting the rain in, leaking roofs, roaming cats and dogs living in them, etc.

The number of foreclosed properties hurts overall property values.  The more homes there are for sale, the lower the value.  Law of supply and demand.  If suddenly the banks did sell those properties for distressed value the adjacent properties would see the value of their homes diminished.

Throughout the decade preceding 2008 the USA pushed a policy of “homes for everyone”  Through its government agencies Fannie Mae and Freddie Mac it bought mortgages irrespective of the credit worthiness of the buyers.  In 2008 it crashed.  People who could not pay for their mortgages stopped and the banks repossessed them.  Those homes all went on the market for resale which depressed housing values. Now owners who were paying their mortgage saw the value of their homes plummet to below the mortgage they had on them, and they stopped paying thinking it was ludicrous to continue to pay a mortgage that was for an amount more than the house was worth and even more homes hit the resale market.  Fannie Mae and Freddie Mac obtained their money to buy those loans issuing bonds called Mortgage Backed Securities.  Those plummeted in value as the mortgages that were backing those bonds were not paying and the properties foreclosed were sold at far less than the loan values.  Many banks, insurance companies, governmental units etc had as part of their “reserves” those mortgage backed government securities believing that since they were government backed that they were safe investments.  They weren’t  As the banks and insurance companies had to write down the value of their assets and reserves to reflect the market value of the now depressed bonds they found they were insolvent.  That led to the financial meltdown in 2008.

If the Thailand banks have on their books those properties whether they are personal residences, condos’ business locations, inventory, equipment, or accounts receivable still at 100% of their book value, they are significantly overstating what their true financial position is.  Even if it does not topple the banks the greater the number of non-performing assets a bank has on its books, the less financially healthy it is going forward since a portion of the assets it uses to make profit are not making any profit at all.  Quite the reverse, they are costing the bank money to manage

[Brierley]

8 hours ago, Thomas J said:

Some have written on this post that banks can not sell the property for less than the loan value so as a result they hold on to the properties.  If that is true, that is just foolhardy.  It ignores the fact that each year that goes by, the bank could have been using the proceeds from selling the property even if for less than the loan value to make other loans or investments that provide a return.  It also ignores that it is expensive to carry properties.  In my village each of the banks is paying 20,000 baht each year in community fees saying nothing about the cost of hiring professional management companies who attend to the property and any other expenses such as landscaping, It also ignores that those properties continue to deteriorate making them worth even less.  Some in my village are over 6 years vacant.  Broken windows letting the rain in, leaking roofs, roaming cats and dogs living in them, etc.

The number of foreclosed properties hurts overall property values.  The more homes there are for sale, the lower the value.  Law of supply and demand.  If suddenly the banks did sell those properties for distressed value the adjacent properties would see the value of their homes diminished.

Throughout the decade preceding 2008 the USA pushed a policy of “homes for everyone”  Through its government agencies Fannie Mae and Freddie Mac it bought mortgages irrespective of the credit worthiness of the buyers.  In 2008 it crashed.  People who could not pay for their mortgages stopped and the banks repossessed them.  Those homes all went on the market for resale which depressed housing values. Now owners who were paying their mortgage saw the value of their homes plummet to below the mortgage they had on them, and they stopped paying thinking it was ludicrous to continue to pay a mortgage that was for an amount more than the house was worth and even more homes hit the resale market.  Fannie Mae and Freddie Mac obtained their money to buy those loans issuing bonds called Mortgage Backed Securities.  Those plummeted in value as the mortgages that were backing those bonds were not paying and the properties foreclosed were sold at far less than the loan values.  Many banks, insurance companies, governmental units etc had as part of their “reserves” those mortgage backed government securities believing that since they were government backed that they were safe investments.  They weren’t  As the banks and insurance companies had to write down the value of their assets and reserves to reflect the market value of the now depressed bonds they found they were insolvent.  That led to the financial meltdown in 2008.

If the Thailand banks have on their books those properties whether they are personal residences, condos’ business locations, inventory, equipment, or accounts receivable still at 100% of their book value, they are significantly overstating what their true financial position is.  Even if it does not topple the banks the greater the number of non-performing assets a bank has on its books, the less financially healthy it is going forward since a portion of the assets it uses to make profit are not making any profit at all.  Quite the reverse, they are costing the bank money to manage

I agree that the carry costs for banks of having repo's on their books is an overhead they could do without. The bigger picture though is that legislation prevents banks from playing accounting games by writing down distressed assets in order to improve their balance sheet and avoid paying tax. The thinking is, you estimated its value to be X, either you sell it for X or you own it, you can't sell it for X-15% just because your customer can no longer afford it. I think the idea has merit.

 

Mortgage lending in Thailand is a very profitable business for the banks, as long as they get the LTV part right which you would expect most do. The reason it's so profitable is that the mortgage lending rate is tied directly to the credit worthiness of the borrower and higher risk borrowers pay a risk premium. The base lending rate is established via the BOT MLR or Minimum Lending Rate which is then adjusted upwards according to risk. The BOT rate may be 0.50% but the MLR will be around 3%, poor credit ratings can then boost the mortgage rate to MLR+5% of more.

 

A mortgage is usually the last assets that borrowers will default on because they need a roof over their heads hence it it is an immovable asset that represents solid collateral. The overall NPL rate is 3% at present, that's nowhere near the level it could begin to damage the balance sheets of banks. And most banks have offered payment holidays to their customers during covid, that will cost the customer more in the longer term because interest will continue to accrue whilst capital is not being reduced, but at least the customer is still the owner, not the bank.

[Brierley]

Sorry, I said earlier that the mortgage rate is the MLR+, it's not, it's the Minimum Retail Rate or MRR+ which is 0.50% higher.

 

example: Kasikorn MLR is 5.47%, their MRR is 5.97%. The highest mortgage rate for their high risk customers who have never defaulted before is MRR+5 or 10.97%, if they have defaulted previously the rate is 15%

 

The BOT policy rate is 0.50%.

 

[BritManToo]

8 minutes ago, Brierley said:

Sorry, I said earlier that the mortgage rate is the MLR+, it's not, it's the Minimum Retail Rate or MRR+ which is 0.50% higher.

 

example: Kasikorn MLR is 5.47%, their MRR is 5.97%. The highest mortgage rate for their high risk customers who have never defaulted before is MRR+5 or 10.97%, if they have defaulted previously the rate is 15%

 

The BOT policy rate is 0.50%.

 

So how come my home SCB mortgage is 4.745%?

(MLR = 5.25%, MRR = 5.995%)

 

And this is in the name of a Thai lady whose previous 500,000bht default expired 2 months before the loan was issued.

Edited May 20, 2021 by BritManToo

[Brierley]

7 minutes ago, BritManToo said:

So how come my home SCB mortgage is 4.745%?

(MLR = 5.25%, MRR = 5.995%)

 

And this is in the name of a Thai lady whose previous 500,000bht default expired 2 months before the loan was issued.

Dunno! Perhaps SCB has different rates or policies, perhaps your good lady is entitled to some sort of discount (in the case of government and medical workers), perhaps there was a guarantor (did you act as guarantor?). Or perhaps the deposit that was put down on the property brought the LTV down, again, dunno, I only quoted Kasikorns' vanilla advertised rates.

 

https://kasikornbank.com/en/rate/Pages/lending.aspx

Edited May 20, 2021 by Brierley

[Thomas J]

5 hours ago, Brierley said:

The bigger picture though is that legislation prevents banks from playing accounting games by writing down distressed assets in order to improve their balance sheet and avoid paying tax.

Not sure I understand that thinking.  If I write down an asset I am not improving my balance sheet I am hurting it.  Avoid paying taxes, yes possibly if they can book the "accrued loss" against current income.  However that is really not an accounting gimmick it is recognizing the "loss" today when the non performing loan stops paying and the loss to the bank actually happens.  Kicking the can down the road by not allowing them to recognize the diminished value doesn't change the taxes paid, it only changes when.   Again, it makes no sense for the neighborhoods, or the banks to have thousands of unoccupied homes that have been repossessed.  The banks should be required "if they are already not" to write down the bad loan to what its true value is and when the repossessed property is actually sold to settle up for what the loss truly turned out to be. 

Holding on to foreclosed properties is just bad banking.  Each year they cost the bank thousands in carrying expenses plus they don't appreciate in value they continue to depreciate as their condition continues to deteriorate. 

[Sydebolle]

15 hours ago, digger70 said:

Yes you said ,it as long as the mortgage outstanding is covered.

Many times from what I have seen is that the outstanding Mortgage is higher than the Real value of the Property. 

They will get stuck with it .I wouldn't want to pay more then the real Value .

You can take it even further. Say, you buy something at one million and get 900'000 mortgaged; the prices drop to half that or even less (take hospitality real estate at the moment in places like Pattaya, Phuket etc.). 

The bank wants the mortgaged amount back but is unable to get it; depending on their burden of unpaid mortgage contracts they will sell it even at a mortgage loss. 

I met, more than once, Thais who bought their own property back where the bank had to take a hit. No wonder with this bureaucracy and - in many cases pure ignorance - on the professionalism of assessing/granting a mortgage in the first place. 

Another beauty is, that private sales of property sometimes sees (pricewise) inflated sales contracts, so the buyer gets 100% or 110% of the actual sales price mortgaged. The bank, sometimes using outsourced "experts", grant the loan - and the trap closes in. 

All this happened 1998 already once; is it an "encore" lining at the horizon? 

 

[Thomas J]

23 hours ago, RocketDog said:

Same story in America. Many people don't know that FDIC only has funds to cover 1.6% of bank deposits. If all banks failed at once all accounts less than 250k$ would only get about 1% of it at most back. Everything above that goes to money heaven. 

Yes you are correct.  The FDIC was set up to cover if there were individual bank failures not a total collapse.  The other thing that has happened is the explosion in size of the biggest banks.  JP Morgan Chase alone has about 2.28 trillion in deposits. 

Should any countries banking system fall into economic collapse the government insurance is not sufficient to cover the losses.  Now will they do so.  Perhaps, they can just run the printing presses and pay you exactly what you have lost but the value of the currency will plummet since they are creating currency out of thin air. 

[tlandtday]

On 5/20/2021 at 8:02 AM, bert bloggs said:

On our estate the bank has had a house for sale for 29 million for years,i reckon as it deterirates its value now is 8 million tops 10 when it was first put on the market,so go figure,how many more like this do the banks have?

They likely don't want to sell it to show the loss.  They are now pretending it is an asset worth 29 million.

[digger70]

4 minutes ago, Sydebolle said:

You can take it even further. Say, you buy something at one million and get 900'000 mortgaged; the prices drop to half that or even less (take hospitality real estate at the moment in places like Pattaya, Phuket etc.). 

The bank wants the mortgaged amount back but is unable to get it; depending on their burden of unpaid mortgage contracts they will sell it even at a mortgage loss. 

I met, more than once, Thais who bought their own property back where the bank had to take a hit. No wonder with this bureaucracy and - in many cases pure ignorance - on the professionalism of assessing/granting a mortgage in the first place. 

Another beauty is, that private sales of property sometimes sees (pricewise) inflated sales contracts, so the buyer gets 100% or 110% of the actual sales price mortgaged. The bank, sometimes using outsourced "experts", grant the loan - and the trap closes in. 

All this happened 1998 already once; is it an "encore" lining at the horizon? 

 

For sure ,It's been happening and it will keep on going with those scruples assessors and expert Loan Granters who get a Cut from each Sale Being Not 100% Legal

[digger70]

16 hours ago, Brierley said:

I don't fully understand the detailed calculation but book value doesn't include the value of future interest that would have been earned, had the loan not defaulted. In other words the clock stops accruing interest for accounting and resale purposes at some point. If the bank/lender follows their procedures to the letter, 30 days past due, 60 days past, 90 days past and then into default, the level of accrued defaulted interest is not huge at all.

Never mind that.The Money owned to the bank is in many cases Higher than the Real Value of the property Because of the Jacked Up Loans that are Higher than they suppose to be.

The money Borrowed is More then the Value f the property

[placeholder]

3 hours ago, Thomas J said:

Addressing your concern about "greed" 

I would imagine you have always accepted a lower rate of compensation than you could have gotten because "you didn't want to be greedy"  I also imagine when you sold a home, car, or personal property you always sold it for less than you could have because "you didn't want to be greedy"   CEO's get what the market allows them to get.  Is the system being gamed a bit by CEO"s putting friendly board of directors that approve that compensation.  Of Course. 

With that said, there are only 500 companies in the Fortune 500.  The CEO's are the elite in their field.  By contrast there are 1,000 players with contracts to play Major Leqgue Baseball, 529 in the National Basketball League, 1,696 active players in the NFL, There are 113,000 professional soccer players in the world.  Yet no one seems to care that these people make millions because of their talent.

 I have included a list of the highest paid  CEO's and celebrities. 

I am sure you would agree that it is so much more fair and not "greedy"  For Floyd Mayweather to make more that 2.5 times what the highest paid CEO makes because he has the ability about twice a year to pummel an opponent with his fists. 

 

 I am sure you would agree society receives so much greater value from the contribution George Clooney makes at $239 million than Doug Millon the CEO of Walmart who only has the responsibility to guard the $407 billion in market cap value of Walmart for its shareholders and continue employment for its 2.3 million employees and for it makes $23 million. 

I am sure you don't have any problem with Connor McGregor who made $180 million in 2020, I guess his pay was only "slightly" higher than the average worker who cleans the stadiums, sets up the ropes, and others who are in the fighting industry.  Certainly like Mayweather the world is far better off because McGregor can punch a man into unconsciousness rather than the contribution made by Pfizers CEO Anthony Bourla at $21 million.  After all Pfizer only had $26 billion in revenue, 2,500 employees and created the vaccine to ward off Covid. 

Does the CEO pay bother me?  No   Frankly I can't understand why there is such jealousy, envy, and hatred for people who own businesses, run business, and are successful but by contrast no such envy, hatred or jealousy against people who can throw a baseball 95 MPH or dunk a basketball or twirk like Miley Cyrus.   Personally I find it more vile that Labron James making $88 million dollars which is many thousands times what the average employee in the NBA makes just because he can put a ball through a hoop. 





 

One of the major that CEO's boost their pay is by tying bonuses to the value of stocks. The way they inflate the value of their companies' stock is through buybacks. Until the Reagan administration changed things, stock buybacks were illegal because they were reckoned to be stock price manipulation. And the reason that they are reckoned to be that is because they obviously are. When the Trump administration allowed US corporations to repatriate funds, the majority went to stock buybacks.

[Heng]

It's situations like these that all those folks that cheer other folks on to take 'cheap interest' loans for the tax benefits or whatever instead of closing out one's mortgages or paying cash outright don't mention.  

 

For acquaintances in similar situations, I recommend at least making sure you have ONE place to live, even if you have to combine multiple households into one house.   You have to put everything in motion before the legal proceedings start to keep it legal.

[placeholder]

On 5/20/2021 at 7:57 PM, thasoss said:

It has everything to do with printed money...too much money in circulation with too little to spend it on as inventories are low,raises the prices.....but the biggest killer will be inflationary food prices because poor people spend more of their budget on food.

No. Just because money gets printed doesn't mean it goes into circulation. The greater the inequality in wealth - and Thailand is one of the most unequal in that regard - the more that money just sits and gathers dust since a disproportionate amount of it lies in the vaults of the wealthy. Another way to look at it is velocity. How fast does each baht circulate. The less wealthy you are, the greater the percentage of your money you are likely to spend. The more wealthy you are, the lower the percentage you are likely to spend. Econonomist call this 'marginal propensity to spend".  So in a country like Thailand where the wealthy hold a disproprortionate share of money, the less there is that will circulate.

[Airalee]

On 5/21/2021 at 5:12 AM, Brierley said:

Mortgage lending in Thailand is a very profitable business for the banks, as long as they get the LTV part right which you would expect most do.

Except....

 

“The Thailand central bank's new rules to relax credit underwriting standards for mortgage loans are credit negative for banks, Moody's said.

The rating agency said the new rules could weaken Thai banks' asset quality by weakening credit underwriting standards for newly originated mortgage loans.

Under the new rules, the maximum loan-to-value, or LTV ratio for mortgages on first homes will be raised to 110% from 100% for homes worth less than 10 million Thai baht.”

 

https://www.spglobal.com/marketintelligence/en/news-insights/trending/zu7FIF6ze8M6f-OHcYx7lg2

 

Then....when you add the fact that banks are issuing mortgages with negative amortization/teaser rates etc.   well...we know how well that worked out in the US.

[wprime]

This is a non-issue. The default risk of these people pose a deflationary risk to the economy. This is because when banks writeoff/writedown debts, they must sell assets to meet capital adequacy requirements. The sale of assets (typically loans) pushes their value down further increasing yields. Rising yields are deflationary. To compensate, central banks will keep rates low. Low rates mean most people can manage these mortgages. There will of course be a slight rise in defaults, but overall the impact to the economy will be limited.

 

Note this will naturally have a downward impact on the THB as it becomes less desirable to hold THB due to the expectation of longer-term low yields, but most other major economies are doing the same thing so the relative impact would be minimal.