Why aren't banks taking massive write downs?

http://seekingalpha.com/article/187605-the-second-mortgage-underwriting-failure?source=hp_wc
http://ftalphaville.ft.com/blog/2010/02/05/143036/the-second-lien-sticking-point/

The overwhelming majority of these subordinate mortgages are on the balance sheets of depository institutions. Of the $1.053 trillion in 2nd mortgages, $767 billion are on the balance sheets of commercial banks, another $99 billion are on the balance sheets of savings institutions, and $97 billion rest within credit unions. The rest of the 2nd liens are either in securitizations ($32.5 billion) or on the books of finance companies ($69 billion). A disproportionate amount of these 2nds are the on the books of the 4 largest banks.

I was reading this article this morning about commercial RE loss threatening the system:
http://www.marketwatch.com/story/commercial-loan-losses-could-threaten-system-cop-2010-02-11?
It says that:
" banks that have financed only the strongest projects and operated prudently....should not be forced to recognize all potential losses immediately.
Having this group be forced to recognize potential losses immediately could create a "self-fulfilling prophecy," the report said, as selling commercial real estate at fire-sale prices could depress values of even relatively strong properties.
Real-estate prices would be driven below actual long-term values, pushing the commercial real-estate sector into what has been termed a negative bubble -- not only forcing more banks in a particular region into perhaps unnecessary insolvency, but having ripple effects across the broader markets for commercial real estate,"

A NEGATIVE BUBBLE!!!! That'd be sweet!!!

Is that why the US government won't put a ban on derivatives? So banks can manipulate their debt the same way Greece did why its debt?

they are trying to carry trade their way out of the mess...thats why...recap over time.

2006 --- mark 100, bid 95
2007 --- mark 100, bid 90
2008 --- mark 90, bid 50
2009 --- mark 85, bid 60
2010 --- mark 75, bid 65

soon the difference will be negligible..of course its a bit more complex than this, just illustrating a point. Carry trade their way until it really doesnt matter anymore

Hah!
It's hysterical that investors in CMO deals are being forced to bear write downs due to HAMP loan modifications while the banks appear to have taken no hit on the second liens which should be written down first in a normal world.

Urban digs did you, Did you catch the news about Fannie and Freddie buying out 120 day delinquent loans from pools? Because of FAS 166/167 they're no longer required to value these worthless loans at market.

http://www.housingwire.com/2010/02/10/viewpoint-the-gse-buyouts-are-here/

I read a different article, 71bln total right? I didnt read that article yet, will do this morning. Seems like a pure business thing, costs less to buy them and hold them with acct rule changes than it would to pay out guaranteed payments to security holders via claims...

Noah, but are they really marking down? I mean, the markdown that you're presenting as current 75 down from 100 3 years ago, considering the size of the toxic pool, would already be a big hit. Also, I guess 75 is an average because every component of a tranche is difficult to discern, but the truth is that successful overvalued projects could be marked down to 75 but many really troubled ones come to mind that wouldn't approach 60 of what was once considered their market value. Right?

Stuyvesant town worth $1.8billion. From $5.3b, howz that working out as a carry trade? When secured tranche is below water it's mathly impossibly to have any value on the unsecured tranches.

Riversider how do you reconcile your (rightly) point of view all our fin instituions are sitting on gobs of bad debt, and yet you believe trumps should trade at $1400psf, with a view? Like your love of rush limbaugh, your view point and the fact you hang out with liberal minded nycers does not compute to me. WTF?

Does anyone foresee the banks auctioning any of these properties anytime soon?

Back in the days, they would have, now they just package the debt in derivatives and sell it out to someone else.
That's why the whole banking system needs to be reformed. Banks don't care if you can pay your mortgage or not because they are selling your debt to someone else so they can come out clean hands!

The bad loan buy-back is very convenient, It coincides with the Fed's ending of support of the mortgage market. How convenient that a huge pool of money will be unleashed available for MBS purchase at the same time the Fed is scaling back. What do you think Urban Digs?

Oh riversider, so naive. 1) The banks have loan-loss reserves which are likely far more conservative than in the recent past, so any such decline in asset values are likely covered by simple reserves 2) they may have used derivatives (gasp!) to hedge their exposure - short the ABX, bought CDS on an index that matches a particular loan portfolio, etc. 3) some banks wrote down TOO much in 2008-1H2009, and might actually have to write UP to get to break even.