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5 Banks Most Vulnerable to New Housing Meltdown

NEW YORK ( TheStreet) -- Housing prices keep tumbling, and that means more trouble for banks.

The latest grim housing data comes from the S&P/Case Shiller home price indices, which set a new low since the recession began. According to the index, home prices have fallen by 5.1% in the past year and are back to mid-2002 levels.

A separate report from Standard & Poor's released May 24 estimates total cumulative loan losses to the U.S. banking sector could increase by $70 billion to $80 billion if the housing market were to experience what the report calls a "double dip," which it defines as a 15% drop in housing prices between now and December of next year, along with a rise in mortgage rates to 6.5% and a drop in residential construction.

That $70 billion to $80 billion estimate does not include losses to banks' mortgage backed securities portfolios, which comprise roughly 11% of total assets for the largest U.S. banks, according to S&P.

Banks' exposure to the residential housing market has increased dramatically over the past three decades, S&P data show. In 1984, residential real estate loans made up just over 15% of bank loans. That percentage peaked at 42% in 2005 and has come down only slightly since then--to 37% at the end of 2010.

Banks are vulnerable to housing price declines because they may be forced to mark down loans to reflect the lower home prices.

We looked at the largest 15 bank holding companies to see which ones had the largest one to four family loans as a percentage of total assets, and here were the five names with the most exposure. The numbers come from the Federal Reserve via SNL Financial.

Interestingly, Bank of America (BAC - Get Report) does not make the list. Analysts argue the bank has far and away the largest exposure to "putbacks" of mortgage backed securities (MBS), an area where exposure will clearly be worse if housing deteriorates further. Putbacks, or repurchases, are where banks are forced to buy back loans they put into MBS because they were fraudulent or otherwise didn't meet the criteria originally promised to bond investors.

Speaking at an investor conference Wednesday, Bank of America CEO Brian Moynihan told analysts the bank will not need to raise additional capital. Nonetheless, Bank of America shares tumbled more than 4% Wednesday in a broad market selloff driven by continued weak economic data.

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