``The most disturbing data point in today's Citi release: the surge in non-conforming loans: something which is not supposed to happen in a "recovery." Here is how Citi explains the highlighted area blow which has seen the NCL surge in Q3: '3Q'12 included approximately $635MM of charge-offs related to OCC guidance with respect to the treatment of mortgage loans where the borrower has gone through Chapter 7 bankruptcy, of which $186MM was attributable to residential first mortgages and $449MM to home  equity loans. Substantially all of these charge-offs were offset by a reserve release of approximately $600MM."''

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