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The Comptroller of the Currency is advising national banks to stress test their mortgage portfolios because house appreciation could take a nose dive if the economy continues to slow over the next two quarters.
Deputy Comptroller Nancy Wentzler told reporters that house prices dropped 8% during the last recession in 1991. That pattern quickly develops shortly after there is a sharp drop in gross domestic product.
If history is a guide, it can happen again and "it can happen rather abruptly," she said.
So far, the U.S. economy has experienced a slide in GDP but there has not been a corresponding slide in housing prices. "It is an area we need to watch," she said, because it appears the economic slowdown will be more protracted than expected.
She said banks could experience a twofold increase in noncurrent ...