Federal Regulators Are Preparing For Massive US Bank Failures As $750 Billion In Losses Is Now Due

 Do you think $750 BILLION in losses might be a bad thing for the economy?

Of course I ask that firmly tongue-in-cheek because we all know that will be devastating.

But that’s exactly what’s right around the corner.

Allow me to explain in plain English so I can make it really simple for everyone to understand what’s coming and what it hasn’t already hit us just yet….

I’ll try to make this super easy to understand because I know finance and economics can sometimes be a confusing topic.

But trust me when I tell you this is extremely relevant to your life and to the next few years America is about to go through.

It all starts with interest rates, simple right?

Rates were low for many years and so investors and in particular real estate investors borrowed as much money as they could!

At low rates, almost any deal worked and made money.

And with rates being low for so long, many NEW real estate investors had never lived through an economy with higher interest rates, and even seasoned investors believed rates would never go back up that high — or if they did, it certainly wouldn’t be quick.

But here’s what most people may not realize….unlike your home mortgage which is most commonly a 30-year loan, that’s not how most real estate loans work.

You see, the banks don’t like to get locked into that long of risk, so commercial real estate loans are much more commonly 3, 5 or 10 years only, and they typically have a 25 or 30 year amortization schedule on them.

You don’t need to understand how all of that works, all you need to understand is that real estate investors often need to refinance every 3 or 5 years, meaning your deal might have worked great at 3% interest but what happens when you suddenly need to refinance and rates are now 7 or 8%?

And you still have a huge chunk still unpaid because of that longer term amortization (called a “balloon payment”).

Worse yet, some investors did what’s called “interest only loans” and they haven’t paid anything back at all, and they are likely going from a 3% interest rate to an 8% interest rate.

Without going into all the details of how the math works, the bottom line is this: a deal that worked and cash-flowed at 3% is likely upside down at 8%.

Does it all make sense now?

Why didn’t the market crash when rates shot up so fast?

Because real estate investors were still locked into those 3, 5 and 10 year loans.

But guess when those are coming due for refinancing?

Soon.

Now.

And that’s where the $750 billion in losses comes from.

So with all of that understanding under our belts, now let me back up everything I just told you.

Here is Kirk Elliott, PhD on with Alex Jones explaining exactly what I just told you.

This is fascinating, I think you’re really going to enjoy this and I think it will connect a lot of dots for you:

If you’d prefer something a little more simple and shorter, watch this instead:

YahooNews/Benzinga has more details:

The 2008 financial crisis exposed numerous flaws in America’s financial system, such as the inherent danger of America’s largest banks being overleveraged. Significant dangers remain despite a slate of reforms designed to keep banks on sound financial footing going forward. A recent article in Cryptopolitan magazine revealed that American banks’ potential loss exposure on real estate-related securities skyrocketed to $750 billion in Q3 2024.

This is raising concerns for many reasons. First, the estimated $750 billion is roughly seven times more than banks held in 2008. Second, many unrealized losses are concentrated in portfolios that are crucial to bank profits. The most at-risk portfolios are:

· AFS-Available for sale

· HTM-Held to maturity

One deeply troubling aspect of the potential $750 billion in losses is that so much is tied to residential mortgage-backed securities (RMBS). Banks loaded up on these when interest rates were lower. The easy credit made it easier for banks to acquire larger debt tranches and the underlying assets were also easier to sell. Making such heavy investments in RMBS now threatens to boomerang back on banks and investors in a big way.

Many of those HTM portfolio loans are approaching maturity dates and high interest rates are slowing sales down in the AFS portfolios. That’s why the potential losses are beginning to stack up. Increased financing costs are consuming massive chunks of what used to be profit and Investors are wary of buying RMBS in the current environment.

This decreases the value of bank-held RMBS while increasing the potential losses on the underlying assets. Being upside down on large AFS or HTM portfolios has taken banks down. In 2023, unrealized losses on First Republic Bank’s commercial loan portfolios were a major contributor to the bank’s eventual collapse and takeover by JP Morgan Chase.

Banks may have been able to carry these balances in years past, but one of the major reforms instituted after 2008 is making that much more difficult. U.S. banks must submit to periodic “stress tests” where their liquidity is weighed against outstanding debt and liabilities. If those numbers are out of line, the bank could be forced to close or make major markdowns.

If that wasn’t enough, banks have more potential for major losses in other areas, specifically in treasury and corporate bonds. Cryptopolitan cited Bank of America’s recent admission that it lost $85 billion in its bond portfolio this year. Worse still, Bank of America has taken a $116 billion hit to its HTM portfolio in the last three years. They are not alone.

https://100percentfedup.com/breaking-federal-regulators-are-preparing-massive-us-bank/