Whenever I look at stats, and numbers I like to compare it to the little things. I find the little things usually make all the difference. HP has an update from Casey, and I advise you to read it. In particular the following made me take a close look.
Not sure what I’m gonna do about the approx 500K of debt still in my
name. That figure includes both credit cards, deficiencies on
mortgages and a private loan. Its just an estimate as I won’t know
until all my bank-owned properties get sold.
What does this tell you? Before I tell you what I think let’s look at Casey’s track record and see how the numbers add up. On his Wikipedia page I calculated he took on debt of 2.419 million, and has a valuation of 1.6 million. This leaves a net debt of 773,000. If Casey says he has about 500K including credit card, etc I think we could safely say that mortgage debt is about 400K
If this is the case then the banks might have taken a hit on the books of 50%, but they are still leaving 50% on the books. Yet you have to ask yourself can Casey even afford this level of debt? Can Casey afford 500K? Answer is no way. Folks, this should scare the heck out of you!
What I am wondering about is what the banks wrote off. Did they write off the 50%? Did they write off half of Casey’s debt and leave the other half? Did they write off the entire debt? Did they write off the debt based on valuation? Since Casey still has debt that the bank is leaving on the books I am tempted to believe that the bank is hedging on the side of optimism.
If Casey has a debt of 500K I am assuming the bank has taken the hit and wrote it off on the books, but Casey is still being held accountable. Though the total calculation is 773K in ideal conditions. We are missing about 250K to about 300K of debt that is not on the books.
My 773K calculation is based on ideal conditions, the fair valuation of the house. Yet when things go to heck in a hand basket fair valuation goes out the window. I know from having bought a distressed house the bank has to take a huge hit. Whenever a property becomes distressed the bank does not want to service the debt since it throwing money out the window.
Thus here are the things I see (by extrapolating the situation from Casey, since he did buy under the same conditions as most flippers, and I am just using Citi as an example because they brought out numbers):
- Citi took a 1.4 billion dollar hit which would account for the 400K hit from Casey.
- Left over under ideal conditions is 300K of accounted for debt, and the servicing of 1.6 million.
- Using Citi as an example, that means Citi has an exposure of about 5.6 billion that needs to be serviced. This entails a yearly cost of 266 million.
- Citi still has an unaccounted for 1 billion dollar hit under ideal conditions. I am guessing though it is closer to a marked to market value of 1.5 to 2 billion.
My numbers are extrapolations, though they seem to indicate that the other shoe has not yet fallen. I am thinking that if the spring 2008 real estate season does not pan out there are going to be some serious profit warnings. I am thinking regardless of the accuracy of my numbers the credit crisis is nowhere near to over. What bothers me is that the pain before the rate drop seemed like Armageddon, and now all is ok? No, I am suspicious.