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kinkbound -> RE: Man Dares Bank To Foreclose Unless They Reverse Bad Fees, Wins (12/16/2010 10:31:01 AM)
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quote:
ORIGINAL: mnottertail
A bank that trades heavily in mortgage-backed securities is in trouble if the market for those assets dries up — and it has, and they are — but regular loans are different. So long as a bank intends to sit on them and collect the interest rather than sell them to another company, the government lets that bank use its own secret financial formula to determine the loan values. In short, banks have carte blanche to claim their assets are worth far more than they really are....
Given this long leash, banking executives have naturally inflated the book value of their mortgages. And even as more and more of their customers fail to make payments, bankers have proved reluctant to admit their hubris and take a hit on the balance sheet. Why is that? Well, the government says banks have to keep enough assets on hand to cover their behinds if things go south. So if a bank that has foolishly overextended itself admits it was overvaluing its loan assets all along, it will fall short of this critical regulatory requirement. And when that happens, under the "prompt corrective action" laws enacted after the savings and loan crisis of the 1980s, federal regulators are obliged to invoke the N-word: nationalization.
excerpted from a quick article, cuz I didn't want to type the shit out.
Have a nasty cold, feeling dopey, and having a harder time connecting the dots here today. Let's see if I understand this correctly:
So then as long as the bank is carrying their own paper and not selling their mortgages into the secondary market, they are free to overinflate assets on which they then based their reserves and newly created loans upon.
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