IMF Sees 85% of Credit Market Losses from Mortgages

Latest from the IMF:
We estimate total losses from broad credit market deterioration of $945 billion globally, $565 billion of which is due to losses on residential mortgage debt, $240 billion on commercial real estate debt, $120 billion on corporate debt, and $20 billion on consumer credit debt.

Here is what the half-wit gnomes said:

As residential mortgages traditionally have one of the lowest rates of credit losses, mortgage lenders already hold less capital relative to their asset size than most other lenders under Basel I (mortgages carry a 50% risk weight, against 100% for unsecured personal and corporate loans).

Basel II further recognises the safety of residential mortgages by reducing their weight under the standardised approach from 50% to 35% for loans with a loan-to-value ratio [LTV] of up to 80%. Loans to highly rated corporate borrowers (i.e., relatively safe companies) will see an even larger reduction in risk weighting but loans to many other corporates will continue to be weighted 100%. For banks using the retail IRB approach, the risk weight attached to mortgages will depend on the lender’s historical loss experience, which will drive the internal risk model. But it is expected that their risk weights on mortgages will be below 35%, perhaps substantially so.On average, it is thought that mortgage lenders could be the largest beneficiaries of Basel II, seeing capital requirements falling relative to other lenders.

About 85% of the losses projected by the IMF come from mortgages.