NEW YORK — Banks that bet heavily on mortgage backed securities have been taking writedowns on losses in the subprime market and the damage is hurting the bottom line. So far the total estimate is put at $20 billion.
Recently, Merrill Lynch announced a $5.5 billion writedown. Then, combined losses from Citigroup and Deutsche Bank were placed at $9.8 billion. In September, Bear Sterns, Lehman Brothers, Goldman Sachs and Morgan Stanley posted a combined hit of $4.3 billion.
The bleeding isn't over yet it seems, with JP Morgan Chase set to announce its quarterly results later this month. Securities that were backed by subprime mortgages before the housing bubble burst are now bust as borrowers have defaulted on the loans, unable to make the payments.
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Experts predict that while taking the losses in writedowns is necessary to bolster confidence, the housing sector isn't going to come back for some time yet. That may have to wait until the final waves of resetting ARMs passes (and defaults and foreclosures go even higher) causing a rise in homes available for resale (and depressed prices) works through the system.
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