You ain’t seen nothing yet

Front page news on the Stamford Advocate but not grist for its sister Greenwich Time, lis pendens, the filing that starts a foreclosure, spiked 70% in Stamford the first six months of this year, from 1,751 in 2008 to 2,380. The reporter sounds a little confused; wasn’t the economy supposed to be improving? Weren’t housing prices beginning to go up? Not around here they aren’t; here, the fun is just beginning.

I’m not picking on Patriot Bank – it’s just a lender I’m somewhat familiar with – but when a bank can acknowledge a doubling of its troubled loans overnight, it’s a safe assumption that there’s something going on besides a sudden collective movement of borrowers to default on their loans. As a reader on these pages commented last week, just as there are homeowners too far underwater to be able to afford selling their homes, there are under-capitalized banks that can’t afford to recognize bad loans. An acknowledged bad loan requires an offsetting increase in capital to keep the bank kosher with the regulators. If a bank is tapped out of new sources of capital, acknowledging too many bad loans means trouble – like shutting down trouble. So bad loans are ignored. Rolled over, put in suspension whatever tricks there are that bankers use to avoid telling the truth. If, as rumor has it, Patriot received a fresh investment of $55 million from a third party, that would explain how it was able to suddenly recognize $47 million in bad loans last month: “lookee here at what we just discovered!”

Again – I’m not intimately familiar with Patriot’s finances and it’s entirely possible that there’s some other reason for this increase. But whatever, Patriot is not alone among banks carrying some really bad loans. I see in their note to investors that they’re still highly optimistic that these loans have a good underlying market value and that they’ll pay off without any significant loss. I don’t share that optimism – not from the properties I’ve seen, at any rate.

Greenwich is no different from Stamford – sorry, Mad Monkey. If the banks are finally moving to foreclose bad loans across the border, they’ll be doing so here soon, too. Like many realtors, perhaps they thought Greenwich was different, and hoped to avoid taking losses by holding on until the market came back. They’ve run out of time.


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2 responses to “You ain’t seen nothing yet

  1. shoeless

    chart porn

  2. shoeless

    more chart porn – delinquency rates at commercial banks: