Bank’s Bad Math - Home Price Indexing Responsible

... the San Francisco MSA down 24.8% year-over-year. It consists of 5 counties and 4.4 million people. Within the SF MSA you have Tiburon down 5% and Antioch down 70%.

The banks will use the 24.8% for the San Francisco MSA, or even less by using the monthly figure or statewide or Western Region figures, for their modeling and loss estimates for CA loans and securities. This is very bad because there are no subprime loans in Tiburon, they are all in Antioch. Real Estate is local. More importantly, many loan program types such as subprime are very localized.

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Instead of doing away with mark-to-market they should be mandating that all banks and raters use a universal modeling system in which Home Price Indexing was done on a zip code basis. This way everybody’s securities and loans are priced using the same valuation methods and metrics. You would have instant transparency and can actually build a bustling market for these assets. I can tell you there are buyers for these assets right now, but at market value. The reason the banks say there is no market is because they refuse to sell them at market value.