How much is collateral backing loans sold by banks worth now?

The ratio of the loans banks have to recover from clients and the value of the collateral they hold for these loans is at a comfortable level, of less than 80% says NBR. As a paradox, the ratio has remained constant over the last few years, although home prices have fallen by as much as 50% in some cases.

The data revealed by the NBR are based on the reports of the ten most important banks in terms of lending in Romania during a quarterly survey. The loan-to-value ratio is calculated only for mortgage-backed loans.

“We have no accurate indicator of the real estate market, considering there are thousands of properties pledged as collateral for non-performing loans now. This collateral will have to turned into cash, that is sold,” says Matei Păun, managing partner of BAC Investment advisory firm.

NBR did not reveal the value of the mortgage-backed loans. Banks sold about 19 billion euros worth of such loans in 2007 and 2008 alone, according to ZF’s calculations based on the annual variation of the stock of loans to individuals and companies. The loans considered in the case of individuals were the regular mortgage loans and half of the stock of consumer loans, which, according to NBR are home equity loans. In case of companies 80% of the loans are mortgage-backed.

The low number of transactions on the real estate market makes it hard to establish the “right” value of the real estate collateral.