Stress Tests: Mortgages May Cause $100 Billion Loss

Washington-In a hypothetical situation in which the economy is worse than expected over the next two years, the 19 bank holding companies that participated in federal "stress tests" would find first-lien mortgages to be responsible for about one-sixth of the losses they would cumulatively have to absorb.

This category of losses, estimated to represent $102.3 billion of a total $599.2 billion in losses under the "more adverse" scenario for the BHCs, was the largest in the Supervisory Capital Assessment Program report.

The next largest category was second/junior-lien mortgages, which was estimated in the scenario to potentially account for $83.2 billion of losses.

Commercial real estate loans were the fourth largest category in terms of potential losses, behind commercial and industrial loans.

Potential losses tied to these categories (CRE and CI) were respectively estimated at $53 billion and $60.1 billion in the SCAP report.

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