Charge-off Rate for US Banks to Peak in Mid 2009
The charge-off rate for major US banks is likely to continue to rise for the rest of this year before leveling off and peaking in 2009, according to a new report from financial services consulting firm Aite Group. Charge-offs represent the value of loans removed from the books and charged against loss reserves.
The residential real estate loan charge-off rate is expected to peak at over 2%, while commercial real estate loans should top out at around 1.5%.
Commercial loan charge-offs will most likely see their biggest increases in late 2008 and early 2009, and will continue to rise throughout 2009, Aite says in a report on Managing Delinquencies and Losses in Difficult Times. The forecast is primarily driven by the indirect auto finance industry, which has shown recent struggles with its most recent asset-backed securities (ABS) pools originated in 2006 and 2007.
For auto loans, charge-offs typically peak and flatten out three years after origination. As such, late 2008 and early 2009 will continue to be difficult times for auto finance providers and servicers.
Aite’s report provides a detailed picture of how banks and lenders have arrived at their current predicament, and discusses steps they are taking to manage the current challenges many are facing with rising delinquencies and losses. The report gives insight into expected technology changes and investments, and considers the regulatory implications of the recent housing bill.
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