It’s an all-too familiar and dreaded term in today’s economy. Banks hate em’ and consumers keep getting astounded by their numbers.
According to Chapman University experts, there’s been $300 billion in write-offs over the past few years and more bank write-offs are probably on their way. As home prices keep plunging and the market spews out more foreclosures, it’s only a matter of time, they say.
Write-offs pushed the Federal Reserve to loan shaky financial firms $400 billion in liquidity over the past couple of years so they could shake off their financial demons and keep their fragile operations above water.
And more write-offs mean that tightening credit standards won’t loosen up for quite some time. Even with drastically-low interest rates, your average Joe with mediocre credit will continue to face difficulties when applying for a car loan or home mortgage.
Read for yourself what the Chapman economists have to say:
“Despite sharp cuts in the federal funds (interest) rate, a recent stabilizing in financial market conditions and a narrowing of credit spreads between riskless treasuries and corporate bond rates, banks continue to hold back on almost all forms of lending — and probably with good reason,” says the Economic and Business Review, a report released on Tuesday by James Doti, president at Chapman, and Esmael Adibi, director of the university’s A. Gary Anderson Center for Economic Research.
“The balance sheet problems leading financial institutions to curtail lending are based in large part on the $300 billion in write downs now expected on securitized mortgage bonds — very close to our December estimate of $350 billion,” it states. “These write downs are history. The real problem is the prospect of further write downs that will occur if housing prices continue to decline.”
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