jtmortgagebanker

The Banking Time Bomb Test

Large banks like BAC and WFC are refinancing billions of dollars of mortgages as fast as they can process and fund them. Large percentages of these loans are being sold to FHA. The impact to the banks' bottom lines is not just the fee income but getting loans off their books and offloading the risk to FHA (or FNMA or FHLMC). Undoubtedly, banks had set asided loan loss reserves for a large number of loans being refinanced. What impact does that have on the bottom line? I suspect the freed-up reserves are counted as profit. It would be interesting to know the difference in risk to the bank between selling a loan to FHA and securitizing a loan with many others and selling the paper ...