Posted on 06/06/2010 10:55:29 AM PDT by neverdem
FROM the earliest days of the credit crisis, the nation’s big financial institutions have been less than forthcoming about ballooning loan losses buried inside their books. To some degree this is understandable: denial is a powerful thing, after all, and writing off troubled loans during a period of severe stress is, for bankers, the equivalent of getting a root canal.
As profits rebound at many of these institutions, however, artful dodging becomes more disturbing. And when disguising problems winds up harming the taxpayer — the same folks who rode to the rescue of banks with billions of dollars — the denial is downright exasperating.
Among the more glaring bookkeeping fictions on big banks’ balance sheets today are the values they assign to all of the bounteous second mortgage loans. doled out during the mortgage bonanza. As any realist will attest, many of these loans are worth little, and yet there they sit, at fantasy levels, on banks’ ledgers.
Refusing to face reality on second liens ultimately hurts shareholders. But taxpayers are the ones holding the bag when institutions try to avoid losses by refusing to buy back problem loans they have sold to Fannie Mae and Freddie Mac, the mortgage finance giants that are wards of the state.
Fannie and Freddie helped grease the nation’s housing machinery before and during the boom years, scooping up loans from all corners of the country. The more of these that Fannie and Freddie bought, the easier it was for banks to write new mortgages.
To protect themselves from getting piles of garbage loans shoveled their way when they buy mortgages, Fannie and Freddie require lenders or loan servicers to sign contracts requiring those firms to repurchase loans that don’t meet certain standards relating to borrower incomes, job status or assets. Loans that were...
(Excerpt) Read more at nytimes.com ...
The banks should do that, right after Fannie and Freddie claw back all the bonus money paid to Franklin Raines and all the other Clinton era cronies who profited from fraudulent earnings.
All the ugly little incentive patterns are being uncovered... You're right, neverdem - this is some good reporting.
Umm, what country is this again?
the taxpayer should not be paying the loan industry's gambling debts
the government is not doing its regulatory job of protecting the economy, The US government has become a perpetrator in the embezzlement of America
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