X-Post: Why have bank takeovers halted?

chisueOctober 8, 2010

Also posted on "Household Finances".

If so many mortgage payments are late or absent, why aren't the banks that hold those mortages insolvent and being taken over by the Feds? Did ALL that paper get shuffled off to Buffalo, er, Wall Street?

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terriks

A bank in my area was just taken over in the last couple of months.

    Bookmark   October 8, 2010 at 4:50PM
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Gina_W

It's all being shoved off to the future - we are going to be seeing the institutions "too big to fail" failing in the next couple of years, as this sh!t-storm continues.

News is just now coming out regarding why and how the foreclosure saga is unfolding and scenarios as to how it will continue to unfold. All told, looks like we are not even a quarter through all the foreclosures coming down.

None of it is pretty, and there's a lot of sand-bagging at the highest levels to try to keep a damper on everything, but I think the result will just be another economic volcanic explosion, rather than the slow poisonous gas leak we've had the past couple of years.

And we have not yet had the inevitable collapse of the student loan system - that bubble has yet to pop.

Meanwhile I am not playing anything long-term. Buy low, sell high and watch your butt.

    Bookmark   October 8, 2010 at 5:53PM
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metaxa

Yes, Dow is over 11,000 and BofA just announced that they are suspending all forclosures...meanwhile...

Something is not right but I sure don't know what it is.

Quick story: back in the 1980's Canada was in a world of hurt too, the western provinces more so because of any number of things. My sister having exhausted her savings, my father's patience and money and having hit financial bottom went to he bank to tell them she was walking from the home and mortgage.

They told her to stay, make payments as she could. They simply were so far behind and now "owned" so much real estate that they gave up. Banks aren't in the business of owning real estate, they are in the business of loaning money. Took a decade to sort that recession out up here and we have highly regulated banks. Your unregulated (comparatively) industry will take how long?

There is so much zombie debt out there, no one knows who owns it, who should collect it, how to collect it...meanwhile some are getting collection calls from multiple collectors all of whom represent different lenders. When the lenders don't know where their debt is...

This has a ways to go I fear.

    Bookmark   October 9, 2010 at 12:39AM
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marys1000

I found this article from 2009. Having not heard about this before now, I guess people in the industry saw what was happening...

http://www.daytondailynews.com/news/dayton-news/drop-in-foreclosures-called-very-scary-352689.html

    Bookmark   October 9, 2010 at 9:21AM
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brickeyee

"BofA just announced that they are suspending all forclosures"

The banks have gotten caught playing fast and lose with the ownership of the notes that are the mortgages.

The Deutsche Bank fiasco of a few years ago should have been a warning to them.

The bank could not prove it actually owned notes it was foreclosing on.

They had set up a shell company to purchase the notes and issue bonds.
They allowed the shell company to fold.

Without a clear chain of ownership for the note it is going to slow all the foreclosures down.

They then tried to foreclose on some of the notes, but could not easily prove they owned the notes held by the now closed shell company.

    Bookmark   October 9, 2010 at 11:32AM
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logic

The banks/financial institutions get to use a fun accounting practice that us mere mortals can't use...and that is called "off balance sheet (OBS)" accounting, aka asset or debt financing that does not appear on their balance sheet. There are various forms in which off-balance sheet debt/assets are held...but the fun part is, although they have to disclose it in the quarterly's it is not viewed as traditional debt.

As I understand it, an analogy would be that as a mere mortal, if you have mortgage debt, that is counted toward your overall credit worthiness in terms of lending, as mortgage debt is one of the things considered in determining how much more debt ..if any..you can actually afford. Even though it represents an asset ..aka your house....it won't be ignored in terms of your ability to borrow more money

Not so if you could engage in off balance sheet accounting.

In addition, banks have a large incentive to foreclose as opposed to working out a deal on any house that is covered under PMI (and those numbers are HUGE)...as that insurance pays off the loan when the buyer defaults. In addition, banks make money on all sorts of fees levied at those who are foreclosed upon.

The system is rigged...six ways to Sunday...with a major double standard regarding bank operating procedures compared to everyone else.

This is why they (the finance sector) had a massive campaign to convince everyone that it was the sub-prime mortgage folks and their lies on their applications who tanked the economy...even though they comprised less than 10% of all mortgages at the time of meltdown. It defied all logic, but the old adage held true...repeat something often enough, and people will believe it to be true, regardless of the underlying facts that prove otherwise.

Now, since that urban legend has been shown to be the BS party line that it was, the chickens are coming home to roost...exposing the real down and dirty underpinnings of the economic meltdown.

The paperwork issue is merely the tip of the iceberg.

    Bookmark   October 9, 2010 at 12:18PM
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logic

Just saw this article in the news today...

Accounting rules will disclose off-balance sheet activity

Banks forced to disclose greater detail when removing items from balance sheets.

New accounting rules will make it harder for banks to hide items off their balance sheet and shed light on last-minute transactions taken just before sensitive reporting periods.

The rules, released by the International Accounting Standards Board (IASB) today, will force banks to disclose greater detail when they remove items from their balance sheets.
Advertisement

Investors have been calling for new rules since the crisis, when banks seemingly removed items from their balance sheet, but retained a continuing involvement sometimes via a call option or other financial contract.

Under the new rules, banks will have to tell the market if a disproportionate amount of transactions take place close to sensitive reporting periods. The disclosures go someway to addressing so-called âÂÂbalance-sheet window dressing,â highlighted in March by a US report into the collapse of banking giant Lehman Brothers.

In the report, court appointed examiner Anton Valukas accused Lehman executives of deliberately shifting assets off their balance sheets, through the use of repurchase transactions, known within the company as âÂÂRepo 105sâÂÂ. The accounting treatment, however, would be difficult under international accounting rules, used in the UK.

IASB chairman Sir David Tweedie said the new rules would help investors better understand off-balance sheet risks.

âÂÂAnd to alert them to the possibility of so-called âÂÂwindow dressingâ transactions occurring at the end of a reporting period,â he said.

Further reading:

Read more: http://www.accountancyage.com/accountancyage/news/2271139/banking-rules-tackle-balance#ixzz11sbgjGaj
Accountancy Age - Finance, business and accountancy news, features and resources. Claim your free subscription today.

Here is a link that might be useful: Accounting rules will disclose off-balance sheet activity

    Bookmark   October 9, 2010 at 12:28PM
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krycek1984

Unfortunately, for the rule to be enforced in the US, it would have to be also implemented by the FASB...which I don't personally see happening. It should, but I doubt it any time soon. Off-balance sheet financial vehicles have been going on for a while now and they are a travesty to shareholders and society alike.

There is a TON of zombie debt and the government and various agencies have chosen to overlook it at the time being and allow the banks to treat it differently as they normally would...it's just a mess. Anyone who bought a house in the last year or two that thinks their houses value will go up any time soon was in la-la land.

    Bookmark   October 9, 2010 at 1:27PM
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brickeyee

"In addition, banks have a large incentive to foreclose as opposed to working out a deal on any house that is covered under PMI (and those numbers are HUGE)...as that insurance pays off the loan when the buyer defaults."

PMI does NOT cover the entire mortgage.

It covers no more than 20% of the mortgage (the difference between the debt and 80% of the property value).

Of you paid $100,000, put 10,000 down. the PMI only covers $10,000 of the $90,0000 note.

If you put down 20% or more there is no PMI sice there is nothing to insure.

    Bookmark   October 9, 2010 at 1:37PM
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logic

I stand corrected as I should have been more specific.
The PMI is generally a better scenario for the lender, as the PMI will cover the loss resulting from foreclosure...but not from modification.

Not all are covered by PMI..but more than enough for lenders to take the foreclosure route and limit their losses wherever possible.

    Bookmark   October 9, 2010 at 6:20PM
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patser

logic, On average, what percent of banks carry straight mortgages off balance sheet?

    Bookmark   October 10, 2010 at 9:26PM
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patser

krycek, Have you ever worked as an accountant or are you still an accounting student?

You obviously aren't familiar with some of the FASB changes that have already occurred in the last year and which are ongoing.

    Bookmark   October 10, 2010 at 9:42PM
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krycek1984

Patser, I'm an accounting student and I learned the majority of the FASB stuff last year, so obviously I may have missed some of the newer guidelines and notices.

We had a detailed discussion in one of my accounting courses about off-balance sheet debt and assets and our professor agreed that while proposals were in place, and some changes were in the works, nothing ground-breaking was going to happen. Did that change?

    Bookmark   October 10, 2010 at 10:50PM
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logic

patser, "straight mortgages"? Probably few if any.

Your point?

    Bookmark   October 11, 2010 at 11:58PM
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patser

logic, Your previous posts equate/imply that mortgages are held off balance sheet. And you've just indicated that's not the case.

So what's your point about off balance sheet activity as it applies to the original questions.

    Bookmark   October 12, 2010 at 5:59AM
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logic

Perhaps you should have asked your actual question first.

That said, you inferred.

I haven't indicated that it is not the case...nor have I indicated that it is the case.

The issue is apprently far more complex than you have been led to..or wish to... believe.

Perform some research, and let us know what you find.

    Bookmark   October 12, 2010 at 12:16PM
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patser

First hand, very direct knowledge serves me just fine. Thanks for your suggestion, though.

    Bookmark   October 12, 2010 at 1:35PM
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brickeyee

Some banks have simply declined to pursue foreclosures.

A performing loan is an asset to the bank, and can be counted in their reserves.

A non=performing loan is no longer an asset, and additional reserves may be needed when the note is removed from being performing.

By simply dragging their feet the bank can avoid having to raise additional capital to meet reserve requirements.

This is what has caused a number of FDIC bank seizures already.
Not enough reserve capital after write downs of non-performing loans.

    Bookmark   October 12, 2010 at 1:40PM
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logic

Patser: "First hand, very direct knowledge serves me just fine.'

Can't argue that..as it all depends on what you consider to be "fine".

You are welcome, though.

    Bookmark   October 12, 2010 at 2:02PM
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jane__ny

Banks failing? Just heard they are paying a total of $144million in bonuses this year to their employees.

They handed out garbage mortgages, got bailed out by the government, people are out of their homes and the banks are sitting on a pile of cash.

They pay nothing in interest to their customers. Stopped all dividends to their shareholders and are rewarding their employees with $144 Million??

Who are the losers in this scenario?

Lets not forget, the Republicans want to save the Bush tax cuts for the wealthy.

Poor, failing banks!

Jane

    Bookmark   October 13, 2010 at 1:47AM
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logic

Hi Jane..it's 144 BILLION.

That said....take a look at the link below:

Here is a link that might be useful: Inside Job

    Bookmark   October 13, 2010 at 11:25PM
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