BankUnited Negative Amortization Analysis

Here are some quick notes I took regarding negative amortization at BankUnited (BKUNA) during the past couple quarters.

I don't have as much anecdotal experience with BKUNA as I do with Downey (DSL). Please comment if you have anything to add.

Disclosure: Author is short BankUnited (BKUNA).

Comments

[User 143535]

It looks like they will have to increase their loan loss reserve substantially in their fiscal first quarter without factoring in the negative amortization loans. When you factor in the negative amortization in a market that I suspect has declined 10% thusfar, you will have to increase that core reserve with a supplemental amount of the negative amortization. I assume these loans were issued mainly to speculative buyers and not primary residence borrowers therefore the tendency for these loans to deteriorate is more likely. So, look for an increase in reserves of somewhere between $400 - 500 million over the next 3-4 quarters.