Institutional Risk Analytics' Chris Whalen says nonpayment by mortgage borrowers and mounting foreclosure backlogs could collapse some of the largest U.S. banks in 2011.
"The improvement in loan-default rates is a mirage,” Whalen said during a recent presentation to the American Enterprise Institute, adding that banks’ subprime-mortgage losses have been hidden by bad accounting.
“The use of loan modification to make bad credits appear ‘current’ is an economic fraud perpetrated by Washington that is already becoming apparent via foreclosure moratoria,” says Whalen.
Moreover, the U.S. banking industry is entering a new period of crisis where operating costs are rising dramatically due to foreclosures and defaults, and we are actually less than one-quarter of the way through mortgage foreclosures.
“The third stage of the banking crisis involves degradation of bank operating efficiency as restructuring accelerates, expenses rise and lenders involuntarily become nonoperating REITs,” says Whalen. (more)
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