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Lehman may mark down $61 billion worth of mortgage assets

by Morgan on August 19, 2008

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Bloomberg is reporting that Lehman Brothers may take up to $4 billion in losses as a result of marking down $61 billion worth of mortgage-related assets. The losses would be announced in their 3rd quarter earnings. Lehman was the biggest underwriter of mortgage assets prior to the meltdown. They continue to be on the watch list as analysts wonder aloud if they can limit their exposure fast enough before suffering the fate of Bear Stearns.

I think we’re due to lose one more big I-Bank – and Lehman is as good a better as any.

From Bloomberg:

Lehman Brothers Holdings Inc. may write down about $4 billion in credit-related investments and other assets when it reports fiscal third-quarter earnings, JPMorgan Chase & Co. analysts said.

“The credit environment continues to be difficult,” New York-based analysts led by Kenneth Worthington wrote in a report yesterday. “It will be another difficult quarter for Lehman.”

Lehman may mark down some of its $61 billion of mortgage and other asset-backed securities after benchmark residential and commercial mortgage-related indexes declined by as much as 20 percent, the analysts wrote. The company may have already been selling some commercial mortgage assets, they added.

Lehman, the largest underwriter of mortgage bonds before the subprime market collapsed, has slumped 77 percent in New York trading as it struggles to pare its debt holdings. The bank has reported writedowns and credit losses of $8.2 billion in the past 12 months, according to data compiled by Bloomberg.

Last 3 posts by Morgan

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  • I am doubling down on that bet and putting the rest of my chips on (not an I-bank, but big all the same) Washington Mutual too.
  • Doug
    Wachovia is going down also.
  • wachovia and wamu are definitely going down... as are many other banks
    - but wall street i-banks i only see lehman in the cross hairs...
  • Fielding Mellish
    Lehman (dba Aurora Loan Svcs) was doing the absolute goofiest, riskiest most-prone-to-fraud loans there were in 2005-2006: 100CLTV NO Ratios, etc... We can never tell from the outside how much of that risk was successfully pawned off on other investors and/or MI companies, but a 20% write-down on that kind of freaky Alt-A product seems woefully inadequate. I know of an own-occ 80LTV SISA on a California condo closed in 2004. Purchase price of $275k. Lehman now has a "BPO" (broker price opinion) on the unit for $109,000. Lehman is now claiming fraud on the basis of borrower's bogus stated income. Their correspondent is being billed - after accrued interest, legal fees, etc... - $180,000. That's an 80% loss on a loan where the borrower put 20% down. Other situations are even worse: if they bought in 2006, if they put zero down, etc...

    A 25% drop in property value can be a 50-60% loss on a 100% loan. I suspect Lehman is worse off than this recent write-down would suggest.
  • My partners and I are eagerly anticipating the coming months..... we're raising $20MM to purchase defaulted first mortgages in Mass and New Hampshire and we hope we are able to negotiate big enough discounts to warrant us getting involved. Should be interesting to see how this next period pans out!

    Yours in the starting blocks,

    Richard Dale-Mesaros :)

    Chief Deal Weaver
    www.BlackWidowNetwork.com
  • Don
    Well, those Boston loans should be interesting. The way mortgages in MA and the rest of New England is really screwy. The last mortgage banker I worked for had a lot of problems with our Boston office. There were lots of problems because they where notorious for funding high cost loans back there and it was really a pain to sell those loans.
  • there are going to be all sorts of worms that come out from under this
    rock. you can't put the genie back in the bottle, as they say..
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