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This Sounds Like 2008 - US Banks On Hook For $150 Billion In "Frozen Loans", Write-Offs Expected

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  • Reynolds
    Moderator
    • Oct 2018
    • 3033

    This Sounds Like 2008 - US Banks On Hook For $150 Billion In "Frozen Loans", Write-Offs Expected


    US Banks On Hook For $150 Billion In "Frozen Loans" As Millions Of Americans Skip Credit Card And Car Payments





    Weren't most of these banks bailed out in 2008?



    With banks set to be hit with tens of billions in charge offs – for which they are trying their best to reserve even if they have no idea just how bad the hit will be.... the Big 4 banks have reserved an additional $24BN in Q1 for future loses ... banks will have to take another $75-$100BN in reserves on loans that go bad, wiping out years of profits, which were used not for a rainy day fund but to pay for – buybacks. As we concluded, “this to put it mildly, is a major problem for banks which until now were seen as generously overcapitalized, because if the US banking sector is facing $100BN (or more) in loan losses, then the Fed will have no choice but to once again step in and bail out the US financial sector.” However, the longer consumers ignore, or are simply unable to make a scheduled payment, the higher the odds that a delinquent loan will eventually end up in default, resulting in a loan loss for the issuer bank.

    It all started with the shock from the enforced shutdowns in March, when as coronavirus cases surged in the U.S. and businesses shut down, millions of people told their lenders they wouldn’t be able to pay their bills. In response lenders allowed borrowers to miss payments for as long as several months on credit cards, auto loans and personal loans. And while millions of Americans have been ignoring their monthly credit card and auto loan statements, perhaps hoping that banks will simply forget about their obligations, the forbearance programs from March are nearing expiration dates, when many banks are set to decide whether to continue letting people put off roughly $150 billion of debt including credit cards balances, personal loans and car payments. Congress time to unleash trillions in fiscal stimulus including unemployment benefits and offer emergency aid to businesses ... The goal was to avoid a tidal wave of defaults by borrowers who began losing income when states locked down commerce to slow infections. More than 30 million people have since filed jobless claims.

    In an attempt to avoid shocking the US economy into a depression, many banks offered to postpone bills with no proof of hardship, and many borrowers kept working. Now, two months later, the dust from the initial shock has settled and banks are starting to assess just how much exposure they have to tens of millions of unemployed Americans who collectively owe over $100 billion in debt. The numbers are staggering: ... some mid-sized banks placed more than 15% of their loan books into forbearance by the end of March. Consumers who can’t pay could be sent to collections. Furthermore, lenders can only shoulder the unpaid loans for so long, and many are bracing for a mountain of defaults that they’ll eventually write off as a loss.

    The bottom line is that the confusion will likely persist for another quarter ... Moving ahead, some banks are considering letting customers continue skipping payments but reinstating interest on loans, a move that could make forbearance less enticing for those who don’t absolutely need it. Others might require customers to show additional proof they’ve been impacted by the virus. It’s not that they “want to genuinely help” – it’s that they know that once they accelerate a default, they will have to show it on their books as deferred payments don’t impact delinquent amounts Citigroup Inc. was one of the first banks to offer forbearance, initially granting a 30-day reprieve ... Which means that in less than two weeks, millions of Americans will have to start paying down their debt.... government stimulus checks continue to plug the income gap for millions of households. But those, too, will soon run out... households may be postponing payments to keep an extra cash cushion just in case the economy worsens. Read more ...

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