patrick.net

deanrite says

We were f**ked as soon as Hank Paulson put on his scarey mask and took his little shop of horror show before congress.

Brilliant!

Vain says

Will they still exist after taking all the losses?

Already taking the losses to earnings. Anything above 90 days late is expensed to earnings.

MarkInSF says

There are people that work as executives at banks that are working in their own best interest And that means keeping the stock valuation of the companies they work for as high as possible long enough to cash out their incentive stock grants. If it all crashes and burns after that, fine. Their interests are not in alignment with the “bank”.

And then before the quarter end or year end earnings announcement is made.. the big bad big 4 auditor come in and makes the Banks CFO/CEO take a write down as the auditor deems fit. And if some VP sales executive doesnt like it, because his bonus just got hit... tought! No principle agent problem there. Auditors are independent from company management, and have no direct financial interest.

thomas.wong1986 says

Auditors are independent from company management, and have no direct financial interest

You mean like Anderson was with Enron?

tatupu70 says

thomas.wong1986 says
Auditors are independent from company management, and have no direct financial interest
You mean like Anderson was with Enron?

Yes! Anderson is a good example what happens when the rules get broken,
they get wacked swiftly and hard. But that too was regional. Would you say Anderson's practice
in SF, San Jose or other Metros covering other clients, was equally shady ?

what should stupid banks do?

thomas.wong1986 says

tatupu70 says

thomas.wong1986 says
Auditors are independent from company management, and have no direct financial interest
You mean like Anderson was with Enron?

Yes! Anderson is a good example what happens when the rules get broken,
they get wacked swiftly and hard. But that too was regional. Would you say Anderson’s practice
in SF, San Jose or other Metros covering other clients, was equally shady ?

I'd say it was pretty likely. Is there something in the water in TX that cause auditors to disregard ethics and the law?

This was clearly the corporate culture--the decisions about how to audit Enron had to come from the very top of the company. So, yes, I'd wouldn't be surprised to hear similar stories about Anderson clients anywhere. And I don't mean to single out Anderson--they were just the only ones to get caught. I expect the other big boys were doing the same things.

I would be interesting to see if all the shadow inventory being held had to clear in 40 days.

@Vain
>The banks rather face the pirate to buy more time for someone to come save them.
LOL

APOCALYPSEFUCK says

Banks should foreclose on everything now, within the next 72 hours that is more than a month in arrears. They should hold RTC-style auctions. Then go back to a sane mortgage scheme. Down payment is 25% minimum. Interest is prime+. Fraud on a note by any party is a capital offense. Firing squad. Close range. Gatlin guns. Any underwriting irregularities at all a hard-time to life offense, 10-20 years minimum.
Then valuations will return to something close to normal.

APOCALYPSEFUCK says

Then valuations will return to something close to normal.

Ditto!

Tom --

If lenders foreclose now they have to instantly show a loss on the books. That's not good for shareholders or executive bonuses. Lenders do better with modifications, especially if there is no principal reduction.

Peter G. Miller
OurBroker.com

OurBroker says

Tom –
If lenders foreclose now they have to instantly show a loss on the books

Like any other enterprise, once it goes 90 days past due, the loan is written down/off the books. When a home goes through foreclosure has no bearing on hit on the PL.
Its already happened!

thomas.wong1986 says

OurBroker says

Tom –
If lenders foreclose now they have to instantly show a loss on the books

Like any other enterprise, once it goes 90 days past due, the loan is written down/off the books. When a home goes through foreclosure has no bearing on hit on the PL.
Its already happened!

I don't think that is correct. I haven't ever seen a rule in GAAP saying you must write off any receivables that are more than 90 days old.

And further, the bank wouldn't write the value of the loan to zero, but rather to the value of the house. So, they could just value the house at book value until it's sold.

vain says

Will they still exist after taking all the losses? They are certain the government will come bail them out once again at that point. It’s like walking the plank. Do you jump into the ocean with sharks? Or do you get sliced with the pirate’s sword, and fall into the ocean anyways? The banks rather face the pirate to buy more time for someone to come save them.

Agreed. Banks are between a rock and a hard place. Currently, they have a lot of inventory and with the current FASB standards. They claim the value of the house is the same as the mortgage or initial appraisal. This is what they have on their books, so of course they look in good shape for now.

If they foreclose and sell, they have to admit the write-down. And if they do this on a massive scale, they are FUBAR. Banks are waiting for some miracle turn-around in the housing market or another bail-out from the government. That is why the government and the Fed is doing everything possible to keep housing prices up. If you think they are trying to help out homeowners who are losing value in their houses, you just aren't seeing the truth.

tatupu70 says

I don’t think that is correct. I haven’t ever seen a rule in GAAP saying you must write off any receivables that are more than 90 days old.
And further, the bank wouldn’t write the value of the loan to zero, but rather to the value of the house. So, they could just value the house at book value until it’s sold.

Every enterprise/company/partnership, large or small, makes a reserve hit for credit sales in each month quarter and year, reducing their overall outstanding, even before the loans or credit sale goes bad. The reserve is taken and hits the profit and loss each month, based on percentage of credit sales or total outstanding AR/Loans. After 90 days, after all possible action is taken, sell the late receivable or write it off.

OK! If its not 90 days then what is it ? 180 360.. 720 days...

Google already took $79M and 65M to earnings on bad credit sales.

here is googles 10Q and reserve for bad debt at 2.4% and 1.8% of total AR

http://investor.google.com/documents/20100930_google_10Q.html

Accounts receivable,
net of allowance of
$79 and $65
2009 3,178
2010 3,616

Value of House ? Whose value... who came up with that number..or a visable number cooraberative and verified in the marketplace like a stock price in an open stock exchange. Can you independently verify that number ?

Wrong again !

"Smart banks" - A term that exists only in theory. I now expect banks to always do the stupidest thing they can possibly do, because that is their track record.

This is with the possible exception of a few smaller banks and credit unions that never got into subprime lending in the first place and actually DO make intelligent business decisions.

thomas.wong1986 says

tatupu70 says

I don’t think that is correct. I haven’t ever seen a rule in GAAP saying you must write off any receivables that are more than 90 days old.
And further, the bank wouldn’t write the value of the loan to zero, but rather to the value of the house. So, they could just value the house at book value until it’s sold.

Every enterprise/company/partnership, large or small, makes a reserve hit for credit sales in each month quarter and year, reducing their overall outstanding, even before the loans or credit sale goes bad. The reserve is taken and hits the profit and loss each month, based on percentage of credit sales or total outstanding AR/Loans. After 90 days, after all possible action is taken, sell the late receivable or write it off.
OK! If its not 90 days then what is it ? 180 360.. 720 days…
Google already took $79M and 65M to earnings on bad credit sales.
here is googles 10Q and reserve for bad debt at 2.4% and 1.8% of total AR
http://investor.google.com/documents/20100930_google_10Q.html
Accounts receivable,
net of allowance of
$79 and $65
2009 3,178
2010 3,616
Value of House ? Whose value… who came up with that number..or a visable number cooraberative and verified in the marketplace like a stock price in an open stock exchange. Can you independently verify that number ?
Wrong again !

Thomas--

Of course companies have reserves against bad debt. My point was that your 90 day rule doesn't exist. And they can value the house at their discretion--so they, not surprisingly, choose the book value of the loan. But, yes, banks have been setting aside reserves against all the bad loans for a couple of years now.

The point is that you made it seem like the banks have already written off all of their bad loan losses--at that is almost certainly NOT the case.

So, no offense, but you were wrong on multiple counts.

Can anyone name one law that was changed after Enron! I can't think of one.

Katy Perry says

Can anyone name one law that was changed after Enron! I can’t think of one.

I watched the Smartest guys in the room the other night.
And what I took from that, at the price of convicting Ken Lay and his merry band of thieves,
Their conviction made the kinds of fraud and deceit they were guilty of Legal for everyone else.
Their testimony was used as SOP in the banking industry from day one after the trial.

Ken Lay died on the Cross so the Sub prime fiasco could happen.

Nomograph says

Thomas Wong is wrong about most things. He once even tried to convince people he is German.

Now thats even more funnier... and your not a person but some measuring equipment... nice!

tatupu70 says

Of course companies have reserves against bad debt. My point was that your 90 day rule doesn’t exist.

And the reserve is offset against the PL on balances past 90s days.
So it already is in sense 'written off' the books and has hit the earnings.

To crow about banks holding back on foreclosures, cause they dont want to take a hit to earnings is bogus.

If its not 90s days, than how many 180 240, 365 ?

thomas.wong1986 says

And the reserve is offset against the PL on balances past 90s days.
So it already is in sense ‘written off’ the books and has hit the earnings.
To crow about banks holding back on foreclosures, cause they dont want to take a hit to earnings is bogus.
If its not 90s days, than how many 180 240, 365 ?

Thomas--

Reserves are offset against possible bad debts. Each company has the freedom to decide which debts it considers "bad". The days past due is part of that determination, no doubt, but there is no hard and fast rule that states after so many days, you must reserve x amount against it.

Further, I don't think you understand that a bad mortgage loan differs somewhat from a bad debt. A bad debt has a definite value. Someone owes x amount of money. A bad mortgage is backed with an asset. The value of that asset is not known precisely so the bank has some freedom to set the valuation. Therefore, even when the bank accepts that the loan is bad, it can still set the valuation to the purchase price of the last loan--no matter how fictitious it might be...

Tenouncetrout says

Ken Lay died on the Cross so the Sub prime fiasco could happen.

$500M was Enrons errors and fraud... Fannie Mae who had regulators screaming bloody murder at Congress with FM officiers making millions in bonus walked away without a scratch.

But all you heard was Enron. Chicken feed compared to the $90 BILLION in hidden losses and fraud not to mention Tax Payers keeping the entites afloat today.

tatupu70 says

Reserves are offset against possible bad debts. Each company has the freedom to decide which debts it considers “bad”. The days past due is part of that determination, no doubt, but there is no hard and fast rule that states after so many days, you must reserve x amount against it

OH yes there is!

thomas.wong1986 says

tatupu70 says

Reserves are offset against possible bad debts. Each company has the freedom to decide which debts it considers “bad”. The days past due is part of that determination, no doubt, but there is no hard and fast rule that states after so many days, you must reserve x amount against it

OH yes there is!

Please share then.

tatupu70 says

Please share then.

Go to the Banks 10K and look it up... learn something instead of being a Real Estate shill.

So the house that my friends still "Own" because the bank hasn't forclosed in over two years of no payment is.

recorded as a loss each year by the bank?

or

It just pretends the house never existed? I may not have this even remotly correct but wouldn't this be better if you're cooking the books anyways,...just make it disappear,..right? what debt ?? anyone?

I may have this ass backwards?

thomas.wong1986 says

tatupu70 says

Please share then.

Go to the Banks 10K and look it up… learn something instead of being a Real Estate shill.

Thomas--

If there were a rule detailing exactly what % of bad loans or bad debts must be reserved against or how many days old they must be before reserving, it wouldn't be found in a company's 10-K. It would be in GAAP.

I would think you would know that...

@Katy Perry

>So the house that my friends still “Own” because the bank hasn’t forclosed in over two years of no payment is.

Someone correct me if I am wrong, but I think the banks hold the asset listed as nonperforming, but valued on the books at bubble prices, Not "mark to market".

MarkInSF says

You don’t get it. There is no such thing as a “bank”.
There are people that work as executives at banks that are working in their own best interest And that means keeping the stock valuation of the companies they work for as high as possible long enough to cash out their incentive stock grants. If it all crashes and burns after that, fine. Their interests are not in alignment with the “bank”.
This conflict has been recorded over, and over, and over, and over, and over, and over in history, and amazingly people still don’t get it. Even Mr. Greenspan was dumbstruck but finally got it.

I think this is a very profound point, and a very difficult one to deal with. Almost any incentive-driven compensation system can be gamed in some ways, but executive compensation really needs to include a long-term component, with clawbacks and such - but I don't know of any way to actually do this.

All the rules have changed in the last couple of months. Lending banks are now being held accountable for the trap they set, borrowing money they didn't themselves have, while using loose and illegal practices in the process. The massive lawsuit against Wells Fargo / Wachovia, Indymac / OneWest bank, Citibank, Bank of America, JP Morgan Chase, GMAC..............can actually, not only put a stop to your foreclosure, but also pause your house payments with no loss to you............
https://sites.google.com/site/sueyourlendernow/home

robertoaribas says

In banking, the traditional logic was always, “the first loss is the best loss” ie move ahead, and dispose of non performing assets as best as possible.
today, banks seemed to have reversed this, and may pay some huge prices for it.

1. unpaid taxes add up.

2. non paying owners are unlikely to invest in the home; New roof? screw it let it leak…, dripping sink on the second floor? its not that bad, pool motor out? let it turn green as a duck pond… after all it will be the bank’s problem eventually.

3. theft from abandoned homes. You’d be shocked how many lender owned homes end up missing dishwashers, microwaves, and especially air conditioners.

4. an owner who has left, may rent the home to any kind of crack head renters, since they know they aren’t going to have to deal with it later anyways, the bank will.

Thats our neighborhood.