I've asked this before...

Discussion in 'Trading' started by jonbig04, Jun 19, 2008.

  1. But didn't get much of a response.

    I understand financial companies are writing down the losses incurred by defaulting loans. However do they have to write down loans that are no longer secured by anything?

    Think of all the HELOCS and second mortgages ,there are A LOT to say the least. Those are typically secured by the last 20%-30% of a homes value. If home prices have dropped nationwide on average 20% or 30% these loans are no longer secured by anything. Of course the borrowers arent defaulting on them, but still they can't be worth what they used to be seeing as they arent covered by any equity right? Am I way of base here? If not it seems like the write downs are far from over.
  2. i am not the person to ask but you might want to try this blog


    an insane amount of info

    he also has pretty straight forward explanations and commentary on youtube.
  3. Arnie


    Banks Find New Ways
    To Ease Pain of Bad Loans
    June 19, 2008; Page C1

    In January, Astoria Financial Corp. told investors that its pile of nonperforming loans had grown to about $106 million as of the end of last year. Three months later, the thrift holding company said the number was just $68 million.

    How did Astoria do it? By changing its internal policy on when mortgages are classified on its books as troubled. The Lake Success, N.Y., company now counts home loans as nonperforming when the borrower misses at least three payments, instead of two.

    Astoria says the change was made partly to make its disclosures on shaky mortgages more consistent with those of other lenders. An Astoria spokesman didn't respond to requests for comment. But the shift shows one of the ways lenders increasingly are trying to make their real-estate misery look not quite so bad.

    From lengthening the time it takes to write off troubled mortgages, to parking lousy loans in subsidiaries that don't count toward regulatory capital levels, the creative maneuvers are perfectly legal.

    Yet they could deepen suspicion about financial stocks, already suffering from dismal investor sentiment as loan delinquencies balloon and capital levels shrivel with no end in sight.

    "Spending all the time gaming the system rather than addressing the problems doesn't reflect well on the institutions," said David Fanger, chief credit officer in the financial-institutions group at Moody's Investors Service, a unit of Moody's Corp. "What this really is about is buying yourself time. ... At the end of the day, the losses are likely to not be that different."

    Still, as long as the environment continues to worsen for big and small U.S. banks, more of them are likely to explore such now-you-see-it, now-you-don't strategies to prop up profits and keep antsy regulators off their backs, bankers and lawyers say.

    At Wells Fargo & Co., the fourth-largest U.S. bank by stock-market value, investors and analysts are jittery about its $83.6 billion portfolio of home-equity loans, which is showing signs of stress as real-estate values tumble throughout much of the country.

    Until recently, the San Francisco bank had written off home-equity loans -- essentially taking a charge to earnings in anticipation of borrowers' defaulting -- once borrowers fell 120 days behind on payments. But on April 1, the bank started waiting for up to 180 days.

    'Out of Character'

    Some analysts note that the shift will postpone a potentially bruising wave of losses, thereby boosting Wells Fargo's second-quarter results when they are reported next month. "It is kind of out of character for Wells," says Joe Morford, a banking analyst at RBC Capital Markets. "They tend to use more conservative standards."

    Wells Fargo spokeswoman Julia Tunis says the change was meant to help borrowers. "The extra time helps avoid having loans charged off when better solutions might be available for our customers," she says. In a securities filing, Wells Fargo said that the 180-day charge-off standard is "consistent with" federal regulatory guidelines.

    BankAtlantic Bancorp Inc., which is based in Fort Lauderdale, Fla., earlier this year transferred about $100 million of troubled commercial-real-estate loans into a new subsidiary.

    That essentially erased the loans from BankAtlantic's retail-banking unit. Since that unit is federally regulated, BankAtlantic eventually might have faced regulatory action if it didn't substantially beef up the unit's capital and reserve levels to cover the bad loans.

    Because the BankAtlantic subsidiary that holds the bad loans isn't regulated, it doesn't face the same capital requirements. But the new structure won't insulate the parent company's profits -- or shareholders -- from losses if borrowers default on the loans, analysts said.

    Alan Levan, BankAtlantic's chief executive, declined to comment on how much the loan transfer bolstered the regulated unit's capital levels. "The reason for doing it is to separate some of these problem loans out of the bank so that they can get special focus in an isolated subsidiary," he said.

    Other lenders have been considering the use of similar "bad-bank" structures as a way to cleanse their balance sheets of shaky loans. In April, Peter Raskind, chairman and CEO of National City Corp., said the Cleveland bank "could imagine...several different variations of good-bank/bad-bank kinds of structures" to help shed problem assets.

    Two banks that investors love to hate, Wachovia Corp. and Washington Mutual Inc., troubled some analysts by using data from the Office of Federal Housing Enterprise Oversight when they announced first-quarter results. Other lenders rely on a data source that is more pessimistic about the housing market.

    Charter Switch

    Another eyebrow raiser: switching bank charters so that a lender is scrutinized by a different regulator.

    Last week, Colonial BancGroup Inc., Montgomery, Ala., announced that it changed its Colonial Bank unit from a nationally chartered bank to a state-chartered bank, effective immediately.

    That means the regional bank no longer will be regulated by the Office of the Comptroller of the Currency, which has become increasingly critical of banks such as Colonial with heavy concentrations of loans to finance real-estate construction projects.

    Instead, Colonial's primary regulators now are the Alabama Banking Department, also based in Montgomery, and the Federal Deposit Insurance Corp. The change probably "is meant to distance [Colonial] from what is perceived as the more aggressive and onerous of the bank regulators," said Kevin Fitzsimmons, a bank analyst at Sandler O'Neill & Partners.

    Colonial spokeswoman Merrie Tolbert denies that. Being a state-chartered bank "gives us more flexibility" and will save the company more than $1 million a year in regulatory fees, she said.

    Trabo Reed, Alabama's deputy superintendent of banking, said his examiners won't give Colonial a free pass. "There's not going to be a significant amount of difference" between the OCC and state regulators, he says.

    Write to David Enrich at david.enrich@wsj.com
  4. The credit carnage has only just begun!!
  5. hmmm why is no one disputing me?????
  6. do you want them to? i can't disagree.

  7. This is ET. Where's the flame??