Banks Get New Rules on Property (allow underwater loans to be marked as performing)

WSJ ^ | 10/31/09 | LINGLING WEI

[TigerLikesRooster]

Banks Get New Rules on Property

By LINGLING WEI

Federal bank regulators issued guidelines allowing banks to keep loans on their books as "performing" even if the value of the underlying properties have fallen below the loan amount.

The volume of troubled commercial real-estate loans is skyrocketing. Regulators said that the rules were designed to encourage banks to restructure problem commercial mortgages with borrowers rather than foreclose on them. But the move has prompted criticism that regulators are simply prolonging the financial crisis by not forcing borrowers and lenders to confront, rather than delay, inevitable problems.

[org.whodat]

A difference with out a difference, a performing loan is one that people are paying on as agreed.

Just about all mortgage loans, made in the last ten years are under water, if the down payment was less than 30%.

This is just more accounting voodoo, in not writing down the assets of the bank.

[DuncanWaring]

Karl Denninger on the topic:

http://market-ticker.org/archives/1562-You-Cant-Possibly-Be-Serious-CRE.html

[Oatka]

Many pertinent points there, but I like this one [underline mine]:

One of the definitions of "prudent lending" is not to lend beyond the current value of a given asset, with any such "excess amount" requiring a dollar-for-dollar reserve of the bank's own capital.

[ex-Texan]

This is MASSIVE FRAUD on Americans committed by Zero's appointees and infamous banking czars. Just wait until the bankrupt FDIC starts collecting premiums in advance. At least 900 more banks will go BK. 'Nuff said by me on FR.

[stephenjohnbanker]

Are you surprised? They have been doing this all along ;-)

[DuncanWaring]

Just wait until the bankrupt FDIC starts collecting premiums in advance.

Didn't they say a few months ago they were going to try to do that?