Banks in America may suffer large losses on their mortgages
March 16th, 2023 | 
Author: 
American banks will face big problems with their mortgages.
They offer 30 year mortgages at fixed interest rate. In the early 2010s, following the 2008 financial crisis, interest rates on 30-year fixed-rate mortgages fell to historic lows, often around 3-4%. In 2020 and 2021, interest rates remained near historic lows, with rates for 30-year fixed-rate mortgages often hovering around 2-3%.
Assume that a bank had offered a fixed rate loan at 3%, and the rate has now increased to 6%, the value of the mortgage would have dropped 30% due to the difference in interest rate.
If the bank had taken long term deposits at less than 3% interest, the bank would be fully hedged on the mortage and would not suffer any loss due to the change in interest rate.
However, it appears to me (and I may be wrong) that the US banks are not matching the mortgages and funding cost in this way. The bank is taking a risk on changes in interest rate.
If the bank has $100 billion in mortgages of 30 years mortgages issued at 3%, and it is not hedged with any long term fixed rate funding, the bank would have to suffer a loss of $30 billion on the mortgages.
The bank does not need to recognize this loss immediately. They would have classified the mortgages are “held to maturity” and would be allowed to carry the mortages at “cost”. This means that they will write off a loss over 30 years, i.e. the loss is their cost of funds for the year (at the market rate) and the fixed rate that they receive on the mortgages. The loss would be about $1 billion a year over 30 years. (The actual loss will be somewhat higher in the earlier years, and will reduce in later years.)
However, if the bank faces massive withdrawals, they will have to sell their mortgages at the current depressed values and take an immediate loss on the mortgages that are sold.
The recent sharp hike in the interest rate will cause many banks to suffer large losses.
What happens if the banks issued fixed rate mortgages at high interest rate and interest rate dropped subsequently. In theory, the bank would have made a large profit on the mortgages.
However, the banks had a practice of allowing borrowers to refinance the mortgages at lower fixed rates by paying a penalty. The penalty is quite low, relative to the change in value of the mortgages.
For example, if the 30 year mortgages were issued at 6% interest and the rate dropped to 30%, the bank should have charged a refinancing fee of 30% (representing the difference in value of the mortgages at 6% and 3%). Instead, the bank charged a refinancing fee of 3% (or less).
Home borrowers benefited by refinancing their mortgages at lower interest rate when the interest rate dropped during the past decade.
When the interest rate went up sharply during the past year, the banks had to carry a large loss.
I expect many banks in America to face serious financial problems. This will apply to the big banks as well.
Tan Kin Lian
Disclaimer: I do not have a full understanding of how the banks finance their mortgages. This article may exaggerate the problem.
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Endtime Banking System is collapsing and dragging the whole world into the abyss of Total Eclapse (Economic Collapse).
One of Jesus’ (Isa’s) top missions was to stop Usury but he was persecuted by greedy people of that era. All are falling into a Hellish Loop yah!
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Think this time around,the MAJOR MONEY CENTRE BANKS WILL SURVIVE THE CRISIS aeriving from CS N SVB.
Not so,some of the REGIONAL US BANKS.
Major US banks have learnt their lessons and are much more consolidated.
Greed is Good is a BIG LIE.
Ultimately,GREED IS NOTHING good at all,hiwever you view it.
Each time GREED becomes off-tangent n exce$$ive,things fall off the cliff into HADE$,literally n figuratively speaking.
No one can win ALL THE TIME.
You cannot have your cake n eat it.
When BANK$ FAIL,TAXPAYER MONEY ARE GENEROUSLY USED TO RESUCSITATE THEM BUT NOT SO WHEN ordinary needy people NEEDS HELP?
THIS IS A RICH MAN’S WORLD LIKE ABBA sang years ago.
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Tech stocks have been seeing HUGE GAIN$ during Covid.
Same too for other stocks becos of TON$ OF CHEAP MONEY poured out by ANGMOH CENTRAL BANK.
THIS HAS BEEN ONE BIG ABERRATION,A MIRAGE.
STOCK PRICES NEED TO CORRECT TO MORE REALISTIC VALUATIONS FIRST.
THEN ONLY CAN STABILITY BE SEEN.
RICH N POWERFOOL$ HAVE BEEN BUIDING CA$TLEs in the air.
Boo$ter jab$ ,anyone?
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WHY me mwntions GREED.
Simple illustration.
If BANKSTER A GAVE A LOAN AT 3 PCT DURING LOW INTEREST RATE REGIME like during last 3 years of Covid when CENTRAL BANKS PUMP LIQUIDITY into $ystem but FUND THEIR SHORTS with cheaper short-term rates to REAP HIGHER MARGIN$,LEAVING THEIR LONGER RERM LOAN PORTFOLIO UNHEDGED AND WHEN SUCH LIQUIDITY IS WITHDRAWN N CENTRAL BANKS HIKE RATES,THE UNHEDGED LOANS NOW ARE BEING FUNDED WITH HIGHER INTEREST RATES.
GREEDY Banksters now have to PAY THE PRICE oc their OWN GREED.
You cant have your cake n eat it.
*HIGH RISK,HIGH RETURN$*?
But HIGH RISKS CAN OSO BE HIGH LOSSES.
YOU STILL REAP WHAT YOU $OW.
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CPF, we get 2%.
Other good pension funds get 8%.
The money is kept until 55, or more.
So how much do we lose?
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Lender-banks combine housing loans into Mortgage-Backed-Securities.
Pension funds, insurance companies, and deposit-banks (e.g. SVB) buy MBS.
When Fed raise interest rates, market value of fixed-rate MBS falls.
NATO must invade Iran, or else US and EU cannot pay pensions.
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Even MOST if not ALL banks of Uncle Sam suffer large losses or EVEN go belly up, it’s sup sup the water for Sleepy Joe, period. Under his match, he has already racked up multi $trillions of debts(on top of the existing 31 $Trillions of National Debts)for the unborn millions of Americunts to SHOULDER or PAY OFF!
His Treasury Secretary Janet is performing ANOTHER “WAYANG” by YELLING on top of her voice that US banking system REMAINS “SOUND” despite banks failure! All Americunts can continue to sleep like babies all NIGHT LOONG. Her best Buddy, Jurong Power will do the NEEDFUL: STOP INCREASING INTEREST RATE AND RAM UP the “PRINTER” to FLOOD MORE $trillions to the ever hungry Global MONEY MARKETS! Sleepy Joe, Jia Yu!
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Watch this Tik Tok on Europe surrendering to Putin to use Russia currency to buytheir gas and fuel products.Link -”https://vt.tiktok.com/ZS84QQWDm/”
Poland gas is cut off from Russia and Germany may be next.US dollar may become useless in future.For with money,Putin has more ability to buy more weapons to win the Ukraine war.So Singapore shameless women wing better stop donating and wasting more funds to help Ukraine.Ukraine fall is unavoidable.Better prepare all the women wings who has donated charity funds to help Ukraine and send them to
President Putin and let him cane their women backside and get them to beg Putin for mercy so that Putin will not target Singapore.Wow,Balakrishnan is most vocal on supporting Ukraine,isn’t that true ? If Halimah Yacob has donated a lot of funds supporting Ukraine,send her to Putin for caning too !
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Suppression of CPF interest rate to its members have these two effects:
1. Limit the cost to the borrower of CPF kitty fund. Who are the beneficiaries? Can you name them? Where the CPF funds goes to? Unknown.
2. Limit the pressure on government issued bonds in the past few years after 2013. This also helps to make government issued bonds more ‘attractive’ to CPF funds.
Conlusion: CPF funds are the open cheque source for the SG gov. It’s never about your retirement. Period.
Stop dreaming until there is a full reform to CPF. And even there is, it will be temporary.
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Americunt must attack China, confiscate all the monies/properties in the US.
China is the only cuntry now in the world that has meat enough to help US debt crisis.
Tech: You sibei cute, like to day-dream. You honestly believe that the US dare/can invade China at all? lol
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Dear Tech,
Why are you so naive ? Americunt don’t have to do a direct attack.
Americunt just have to make use of the useless ROC President Tsai to bait China to attack Taiwan and that’s it.
“wait until you see our plan for the destruction of Taiwan.”
https://twitter.com/GarlandNixon/status/1625945743000276995
確認毀台無誤 美認了毀台積電
https://www.youtube.com/watch?v=baQHnfjiqnk
To rephrase your question: You honestly believe that the US dare/can invade Russia at all ?
Ukraine is the canon fodder under a useless President Zelensky.
Tech: Granted that US has a treaty with Taiwan to DEFEND it, period. EVEN IF China does use force to take back Taiwan, you think US dare to send carriers or ICBMs into mainland CHina meh? You think China is still the “东亚病夫” of yesteryears? Time to wake up from your slumber. lol
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Yes, Jia yu Sleepy Joe. Keep printing more money …
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Ah Neh, go back to your first world India where you are badly needed lah.
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