Bad Mortgage Ripple Effects

Here's another data point on the question of how exposed banks are to real estate losses. Barry Ritholtz points us to the list of biggest creditors to the now-bankrupt mortgage company New Century (NC):

Real Estate Wednesday continues with this short list, pulled from New Century's bankrupcy filing (Why do I have to go across the pond to find stuff like this?)

"Goldman Sachs has emerged as the single biggest creditor of New Century, the American sub-prime mortgage lender, which filed for Chapter 11 bankruptcy last night, after writing $60 billion (£30.4 billion) of American home loans.

The list that Barry kindly provides us includes lots of banks (and their mortgage finance arms). They will lose some (much?) of the money they loaned to NC, so this gives us a concrete example of banks losing money due to bad mortgages.

I'm not sure how loans to a finance company like NC would appear on the books of a bank, but I suspect that they would not have been explicitly classified as a real estate loan for Federal Reserve reporting purposes (which is where I took my data from). If my supposition is correct, then this type of loss to banks is in addition to the direct losses that they will face as some of the mortgages they own themselves go bad. My conclusion is that my estimate of banks' exposure to real estate losses was therefore on the low side - perhaps by quite a bit.