US Banks Reporting Phantom Income on $1.4 Trillion Delinquent Mortgages

[BillBoard]

http://blogs.forbes.com/robertlenzner/2011/01/12/us-banks-reporting-phantom-income-on-1-4-trillion-delinquent-mortgages/?boxes=Homepagechannels


The giant US banks have been bailed out again from huge potential writeoffs by loosey-goosey accounting accepted by the accounting profession and the regulators.

They are allowed to accrue interest on non-performing mortgages ” until the actual foreclosure takes place, which on average takes about 16 months.

All the phantom interest that is not actually collected is booked as income until the actual act of foreclosure. As a resullt, many bank financial statements actually look much better than they actually are. At foreclosure all the phantom income comes off gthe books of the banks.

This means that Bank of America, Citigroup, JP Morgan and Wells Fargo, among hundreds of other smaller institutions, can report interest due them, but not paid, on an estimated $1.4 trillion of face value mortgages on the 7 million homes that are in the process of being foreclosed.

Ultimately, these banks face a potential loss of $1 trillion on nonperforming loans, suggests Madeleine Schnapp, director of macro-economic research at Trim-Tabs, an economic consulting firm 24.5% owned by Goldman Sachs.

The potential writeoffs could be even larger should home prices continue to weaken, placing more homes in the nomnperforming category on bank balance sheets.

About 6 million homes are still at risk, according to Schnapp, and at least 10% of them are 25% underwater, meaning their market value is 25% less than the mortgage– but the owners are still paying interest to their banks.


Now you know why they carry all that inventory of REOs.

[JohnQPublic]

"This means that Bank of America, Citigroup, JP Morgan and Wells Fargo, among hundreds of other smaller institutions, can report interest due them, but not paid, on an estimated $1.4 trillion of face value mortgages on the 7 million homes that are in the process of being foreclosed."

At 6%, that's $84 billion/year.

Then when they foreclose, the US gov. pays off AIG to pay off the CDS.

Thisn is a perverse incentive for the investor (note holder) not to negotiate with the homeowner. Why negotiate when you are guaranteed a pay-off? thanks, Bary.

[ShortJohnSilver]

I told this to a friend of mine who used to work for a large publicly traded computer company.

He was non-plussed, indifferent. He said "once you go from cash to accrual accounting, this stuff happens all the time." He recounted how at the end of a quarter, they would pay for shipping both ways, ship a huge order to a customer, then 3 days later (after the quarter ended) the customer would ship it back unopened.

[chad]

check out zero hedge. now jp morgue has been caught telling a judge to not pay his mortgage for 12 months. incredible. banks advising people to willfully default on loans.

[Book]

He recounted how at the end of a quarter, they would pay for shipping both ways, ship a huge order to a customer, then 3 days later (after the quarter ended) the customer would ship it back unopened.



Sales regularly tells Distribution to ship anything and everything before the end of the quarter to make his commission and "Results" look bigger.

:D

[gunDriller]

in 2006, the SEC passed a law stating that, if you do business with the US gov., you are exempt from the requirement to report your financial results using "Generally Accepted Accounting Principles".

Ruppert covered it and was thorough.

in other words, it is now legal to fake your accounting, if you do business with the US gov.

for national security reasons, of course.

as Martin Luther said, "on the Jews and their Lies".