Unrealized Losses on Payment Option Arms are still projected to be 46%

No banks haven't written all this off yet.  They still have yet to write off some of this.  In fact, most of the losses have yet to be realized.  Yes, some tranches of this crap was sold to Fannie Mae, Freddie Mac, after which the Federal Reserve teamed up with the treasury to give the banks a "fair" price for their payment option arms.   It's called Maiden Lane. 

When we were originating this crap at GMAC, we would often speak of the big "what if" scenario.  What if POA blows up, what do we do?  We made the decision to sell everything 100% to manage our risk.  When subprime blew up, we started talking about "what when" POA scenario.  What when this blows up?  We were right to sell it all

Estimates for losses from those originating Payment Option Arms have been coming in and they feel like the end of the world.  No wonder the US banking system is technically bankrupt. 

Losses projected from moody's on outstanding principal have come in at 46%.  Yea, you read that right.  For every one dollar principal remaining on their mortgages, the banks expect to get back just over half.  It gets worse.  For every loan that goes to default, they can expect to get back 22 cents on the dollar.  For every one dollar lent out in 2006 and 2007, they only expect 69 cents back . 

Aggregate POA Pool Data Via Moody's.

Original Principal:  $113.8 BB
Outstanding Balance:  $54.6 BB
Projected Defaults:  50%
Projected Loss Severity (Loss Given Default):  68%
Projected Lifetime Loss: 31%
Projected Remaining Loss:  46%


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