This may seem a bit obscure HP'ers, and we've discussed this before, but follow me, because this one little tidbit will in the end cause financial havoc like you've never seen before.So you're familiar by now with the "option-ARM" toxic loan, where sheeple homedebtors don't even have to pay the monthly interest due on their home loan.
Let's say your interest-only loan requires a $2000 per month payment just to stay even. And you pay $500. That $1500 is then added to the balance of what you owe (and yes, you pay interest on that too), and this goes on and on and on.
Well, how does the bank's CFO treat that $1500 shortfall? As a liability right? As bad debt, right?
Wrong.
Wrong.
THEY TREAT IT AS PROFIT AND TAKE IT TO THEIR BOTTOM LINE IMMEDIATELY, thus inflating the bank's paper profits, inflating it's stock price and inflating it's CEO and CFO's massive pay.
I kid you not. This is the way it's going down. The fact that auditors, accountants and GAAP allow this simply boggles the mind.
And yes, it will crash the bank eventually, who booked bogus profits on money that will never, ever be paid back.
Welcome to America, circa 2007.
Here's the story of California's FirstFed Financial, which as god as my witness will one day soon fail. Anyone who has money at FirstFed Financial, I'd recommend you keep it below the FDIC $100,000 mark, because any more than that you'll lose for sure after it goes belly-up.
FirstFed potentially faces darker days than peers who play in the same niche. For one thing, all of FirstFed's mortgages are for homes in California, where prices have cratered and foreclosures have skyrocketed. Also, 80% of its loans have little or no documentation to prove the borrower's income or assets, according to a recent company presentation. The bank uses credit scores to screen for elite borrowers.
But skeptics are starting to question the quality of FirstFed's earnings. The bulk of FirstFed's income is derived from noncash earnings, largely from the deferred principal on its option ARMs. That so-called negative amortization constituted $223.9 million, or 68.4%, of the bank's income before taxes in 2006, compared with 1.3% in 2004.
But skeptics are starting to question the quality of FirstFed's earnings. The bulk of FirstFed's income is derived from noncash earnings, largely from the deferred principal on its option ARMs. That so-called negative amortization constituted $223.9 million, or 68.4%, of the bank's income before taxes in 2006, compared with 1.3% in 2004.
In essence, FirstFed is booking profits on money it hasn't collected. The fear is that the bank will never collect, given the high delinquency and foreclosure rates in California. Says Frederick Cannon, managing director at Keefe, Bruyette & Woods Inc.: "The bearish view is that all the earnings are coming from money they didn't get yet."
54 comments:
Seems like a variant of Mark to Market accounting practiced by Enron. We put a value today on what may be the value of an asset in the future and book a profit. Did not work for Enron and not a good long term strategy for others either.
Isn't it so typical of this world that we live in that the perks ALWAYS go to the most unproductive segment, the FAT AT THE TOP!
It kinda ticks me off that the I.R.S. won't let ME bunch up chunks of the interest that I will 'eventually' pay on my home purchase, and take it off my form schedule A, NOW! Effectively eliminating any income tax owed for the first years of my home loan, while I'm still young, don't earn that much, and Oh yea, Sears has those HDTV's on sale this week.
This is like knowing about Enron's books before the blow-up
I am not sure if it gets booked as profits Keith or it just gets added to the loan portfolio. But either way its fooling everyone. This is one that wont take long for the auditrs to catch. Thats the silver lining?
Thanks for expanding on this Keith Here is an Businessweek excerpt from an article in Sep 06 on the subject. I think Banks in Hot markets are starting to get less comfortable with this "product" (ticking time bomb)as the housing market slide drags on further with no end in sight:
Camouflaged Losses
Risks or not, the accounting treatment is boosting reported profits sharply. At Santa Monica (Calif.)-based FirstFed Financial Corp. (FED ), "deferred interest" -- what an outsider might call phantom income -- made up 67% of second-quarter pretax profits. FirstFed did not respond to requests for comment. At Oakland (Calif.)-based Golden West Financial Corp. (GDW ), which has been selling option ARMs for two decades, deferred interest made up about 59.6% of the bank's earnings in the first half of 2006. "It's not the loan that's the problem," says Herbert M. Sandler, CEO of World Savings Bank, parent of Golden West. "The problem is with the quality of the underwriting."
In the middle of one of the hottest U.S. markets, Coral Gables (Fla.)-based BankUnited Financial Corp. (BKUNA ) posted a $14.8 million loss for the quarter ended June, 2005. Yet it reported record profits of $23.8 million for the quarter ended in June of this year -- $20.9 million of which was earned in deferred interest. Some 92% of its new loans were option ARMs. Humberto L. Lopez, chief financial officer, insists the bank underwrites carefully. "The option ARMs have gotten a bit of a raised eyebrow because we generate and book noncash earnings. But...it's our money, and we do feel comfortable we'll get it back."
Even the loans that blow up can be hidden with fancy bookkeeping. David Hendler of New York-based CreditSights, a bond research shop, predicts that banks in coming quarters will increasingly move weak loans into so-called held-for-sale accounts. There the loans will sit, sequestered from the rest of the portfolio, until they're sold to collection agencies or to investors. In the latter case, a transaction on an ailing loan registers on the books as a trading loss, gets mixed up with other trading activities and -- presto! -- it vanishes from shareholders' sight. "There are a lot of ways to camouflage the actual experience," says Hendler.
There's no way to camouflage what Harold, a former computer technician who asked BusinessWeek not to publish his last name, is about to face. He's disabled and has one source of income: the $1,600 per month he receives in Social Security disability payments. In September, 2005, Harold refinanced out of a fixed-rate mortgage and into an option ARM for his $150,000 home in Chicago. The minimum monthly payment for the first year is $899, which he can afford. The interest-only payment is $1,329, which he can't. The fully amortized payment is $1,454, which his lender, Washington Mutual (WM ), gets to count on its books. WaMu, no fly-by-night operation, said it couldn't comment on Harold's case, citing confidentiality issues. A spokesman says the bank "accounts for its option ARM product in accordance with generally accepted accounting principles." WaMu has about $12 billion in loans negatively amortizing right now, up from $2.5 billion in 2005, estimates CreditSights' Hendler. In a written statement, WaMu said "borrowers who request an adjustable loan with payment options should understand those options and potential adjustments throughout the life of the loan. We make detailed disclosures to customers that are designed to develop a more informed consumer of mortgage products and ensure that our customers are comfortable with the loan products they select."
The auditors will not have a problem with this I hope.
Keith,
First, a minor point: The correct term in the graph should be "principal", not "principle". "Principles are those moral guidelines that the REIC does not posses.
Next, you are abosultely correct in your statement that the banks ARE booking the growing "neg-am" as income. I call this "profiting your way into bankruptcy."
And it is now coming back to haunt them. Think about it. Bankers, who are supposed to be the most hard-nosed, realistic financial people on earth, behaving in this way. I can assure you that when a business goes to a bank to borrow, the business income statement and balance sheet get careful scrutiny. Little things like accounts receivable (which is the category the deadbeat neg-am loans get put into) gets extra-special attention by the bank to make sure that the money owed is accurate and timely.
Yet, we are to believe in their OWN books, the bankers can't tell a deadbeat from a valid account receivable?
Riiiiigggghhhtttt...
wow! deferred income... where can I get me some? i'd like to pay my bills using it.
Can't wait for the annual shareholder meeting; the financials are assured to be printed on a tear-out page with dotted lines. The CFO or CEO (whichever is still around) will lead all the shareholders present in some origami to make a neat hat!
I'm gonna buy 10,000 shares of First Fed! You'll see, the Fed will cut rates to bailout banks like this and fire up the economy. Then the crazy loan market will fire back up again and the hedge funs will run stocks like First Fed back up and I will be sittin' pretty!!!!!!!!!!!!
this is exactly why a most prudent person, after seeing huge profits in the income statement of a company, would then turn the page and check out the statement of cash flows.
income statements are sooooo 1980's. the statement of cash flows is where it's at.
Here is a link for the top 25 sub-prime lenders.
http://ml-implode.com/
Get out of the way, and watch them implode.
Just to clarify - the borrower is not deferring interest payments. No loan allows forgoing interest payments. The loans in question allow deferral of principle. The defered principle is added to the total principle, thus increasing the total loan size (original face). Thus the term, negative amortization. Instead of amortizing to $0, the loan balance increases up to a set cap. At that point, the borrower must pay principle and interest on a fixed schedule. That is the point at which defaults should begin and it all hits the fan.
It is interesting to note how many comparisons are being made with Enron, both with lenders and homebuilders.
The ending is likely to be the same. So who is going to be the first to do the perp walk in front of the cameras? Any guesses?
Bank Relief Act of 2009
get acquainted w/ that.
Why shouldn't they book profits they didn't earn, they loaned money they didn't have in the first place. Repeat after me, it's not real money, it's not real money...
Keith -
I wonder whether this phantom profit that the banks record from the option liar loans becomes part of the capital base from which these fractional reserve entities are permitted to loan out even more fiat money to more liars.
Talk about a house of cards. The wolf is huffing and puffing and soon these little piggies will find their homes blown away.
Paul Tolnai
Keith, this is standard "Accrual-basis accounting" where financial events are recorded when they are accrued and not when money changes hands.
Just about all companies do it this way. Its like how your cell phone company records it as profit when they get you to sign a contract for 2-years of service even if you have not yet paid them one dime.
Its a little counter-intuitive, but it is an acceptable form of accounting.
As long as the company operates transparently it should not matter to investors what method of accounting the bank uses. However, a prudent investor would understand that when the bank days they made record profit it really just means they pissed away a record level of high-risk capital.
-Thinker
There are LEGITIMATE reasons for this, in LEGITIMATE situations. According to GAAP, money you are owed is an assett....but...you cannot count any debts owed to you that you "know" are bad.
They can still argue legitmately that these loans are good, if in fact they are "current". What is "current"? 60/90/120 days past due? You may be able to get away with 60 days but any loans 90 /120 days out are definite problems. I don't know the parameters they go by to determine bad vs good. maybe 120 days out is OK.
At any rate loans that are not "current" should be catagorized differantly. But again, what is current. I bet they are pushing the envelope on what they condider current.
It is definitly not a long term strategy but these arguments will be used by the Bank until they become painfully obvious.
The fat at the top knows how to work this. Subsequently, they cover their own asses.
To many banks are in this same situation. There is an "S&L" like crises looming. The taxpayer will eventually take the hit.
Maybe the $100K limit is "flexible" after all....
Coast protects depositors
Allowing Jumbo CD holders to re-title them maximizes coverage from the FDIC.
By STEPHEN FRATER
BRADENTON -- Coast Bank is allowing customers to "re-title" or reconfigure large-denomination certificates of deposit with no penalty.
The Federal Deposit Insurance Corp. normally insures $100,000 of each depositor's account at an insured bank.
The large certificates of deposit -- time deposits of $100,000 or more and often called "Jumbo" CDs -- constitute about 25 percent of the troubled bank's total deposits.
It is an unusual step and one taken to maximize the availability of FDIC coverage for the deposits, said Jim Schutz, a bank analyst with Sterne, Agee and Leach, a Birmingham, Ala., financial services company that monitors Bradenton-based Coast Bank.
Re-titling is very rare. Schutz has only seen the move "a couple of times in my very, very long career."
We must be missing something here.
This goes along the lines of "Ya we sell at a loss, but we make up for it in volume"
Denial
"In other words, housing has not bottomed out and a soft landing is absolutely impossible at this point. Anyone who says otherwise is knee-deep in denial."
http://efinancedirectory.com/articles/Housing_Bubble_Denial.html
So...is this news like anything new?
From wikipedia- Mark to Market:
"The practice of mark to market as an accounting device first developed among traders on futures exchanges in the 19th century. It wasn't until the 1980s that the practice spread to big banks and corporations far from the traditional exchange trading pits, and beginning in the 1990s, mark-to-market accounting began to give rise to scandals"
Yep-- we all know how this will end. Should we be surprised?
Thank you so much Keith, as I bought some puts to open on FED, I got the 6/16 65's at $4.20 and the rest is history. Lend, fed, and a host of others are reaping what they deserve. keep up the good work.
Lender stocks are way down again today. Is Wall Street finally sobering up?
It actually makes perfect sense.
Companies have liabilities of amounts they OWE and assets of amounts they are OWED.
The difference in the accounts is INCOME.
If someone owes you more money, then that is REVENUE. What else can it be? BAd debt? Why would you assume they won't pay?
Besides the bank is paying INTEREST on the balances. IE interest to MBS holders. IT accrues these amounts as EXPENSES. So of course the revenue has to balance with the expenses. If it didn't the bank would appear to be losing money.
It really isn't scandalous.
The only possible "scandal" is that is should possibly be accruing a bad debt expense against teh amounts owed which will likely not be paid back. Such amounts are subjective though. No way of knowing beforehand.
There are probably some ex Arthur Anderson employees working over there. Maybe Scott Sullivan is also consulting.
thanks for the heads up. Just bought some puts, we'll see how they do.
I'm a bubble blogger.
Can a single person here explain (within the rules of double-entry accounting) how else that should be recognized.
Should they perhaps book a contra-asset on their balance sheet and expense the entire amount in that year? Would that solve the problem? Many banks would like that because they could push off the tax liability of their earnings. Do you think it's fair that a bank works on a cash basis while the rest of corporate america works on an accrual basis?
Please, can anyone who understands basic GAAP principles of revenue and earnings recognition explain any other way of booking it?
Post it on my site since your answer will likely get lost in the hustle here.
www.socalbubble.blogspot.com
John Doe
P.S. My BS is in Accounting from a top 3 accounting school, so please no BS (no pun intended)
Uh, speaking of FDIC insurance, hasn't it been capped at $100k for 20 years or more? Shouldn't that cap be adjusted with inflation???
This is correct accounting. One key principle to accounting is matching revenues to costs as best possible.
For simplicity lets say the costs for a bank are its cost of funds, which lets say is 5%. It loans out these funds to you at 10% - of which lets say only 1% is cash pay right now and 9% accures.
If you were to use some form of cash accounting, the bank would be losing 4% on its money. Clearly this is a much more flawed way of accounting then to say it is making 5% on its money.
No doubt banks are taking greater risks through riskier lending. This is no secret to the street and comparing it to Enron is naieve.
Joe Said: Should they perhaps book a contra-asset on their balance sheet and expense the entire amount in that year?
That's exactly what they will most likely do. The contra-asset, Allowance for Doubtful Accounts; the expense, Bad Debt Expense.
It's a little more indirect since in my experience ADA isn't usually segregated by debtor the way accounts receivable is, but the effect is the same.
Net income effect in "OMGWTFBBQ booking these as revenue": zero!
i can understand why the unpaid principal should increase loan balances. but why should the negative amort be shown as income? it is just the bank making another loan to the same borrower.
As some have suggested, accrual-basis accounting is the most appropriate accounting system that a bank can use to account for its profits and losses.
If we went on a cash flow basis, we would have to say that the bank LOST $500,000 every time it originates a loan, and this would allow the bank to escape tax liability while in really they have acquired a lucrative contract.
Don't say that we can't do what they do. You don't have to pay INCOME TAX on loan principal when you borrow money.
FED is booking this income even though they know damn well it won't be repaid
that's the issue
meanwhile the shareholder think all is well. all is NOT well.
so what happens if the negative amort starts getting paid off?
would we then see a reduction in interest income?
Keith, what are foreclosures of all homes? 2%? How many home are owned free and clear? About 50%. That means that approximately 4% of the banks revenue recognized wouldn't be repaid due to foreclosures. This problem, like everything else you talk about, isn't as bad as it seems.
You are such a drama queen. I wish you would educate yourself (like on basic accrual accounting vs. cash basis) before you opened your mouth.
Look for loan loss provisions (aka allowance for bad debts) set up to expense any potential loan losses. The federal reserve is supposed to be revuing banks loan loss provisions to insure adequate provisions and disclosures.
Maybe the fed has a vested interest here and they are going easy on the banks knowing full well the risks.
To all the posters that are saying, "Hey this is OK, pemritted by the rules, how else are they going to account for the added principal, etc." you are missing the point:
1-The loan principal was for an amount that was greater that the asset it was used to purchase was worth.
2-The value of the asset is going down.
3-The loan principal is going up.
4-The borrower took this loan because he could not afford payments for P+I+T+I.
5-Once the debt ceiling is hit and the borrower is forced into a larger payment they will default and the bank will foreclose.
6-The asset will not cover the much larger balance of the loan.
7-Everyone will wonder what the heck happened because the bank was reporting all this income, but now the bank is folding and anyone w/ more that 100k in accounts (250k if its a bank IRA) will lose those funds from the bank failure, bank bond holders will get pennies on the dollar and bank shareholders will get nothing.
8-Why? Because the income is illusory, regardless of the accounting rules.
9-Why is it illusory? Because the asset foundation backing the loans was not of equal or greater value than the loan balances, it will be significantly less.
10-Wake-up people & open your eyes. You cannot see the forrest because of the trees. I expect more from HP'ers.
The implode-O-meter keeps going up, but when is it "in the red"? It's already over 20. Just a lark, or could it be made more meaningful? Fun idea to play with.
Yes they're booking the income, but they're also booking the bad debt expense.
If you book revenue of 7 million dollars, bad debt expense of 7 million dollars, and other operating expenses of, say, 3 million dollars, you will have an operating loss of 3 million dollars.
If you see the above situation as a shareholder and are still think all is well, you probrably shouldn't be buying stock!
My point is, you're getting hung up on the revenue, and failing to recognize that it also gets backed out as an expense, and therefore has zero impact on operating income and net income, which is what *really* matters when looking at an income statement.
"Uh, speaking of FDIC insurance, hasn't it been capped at $100k for 20 years or more? Shouldn't that cap be adjusted with inflation"???
I can't ever remember the FDIC cap any less than 100k. Agree, with inflation as high as it is, the max needs to be raised another 100k at least.
I'm keeping my fingers crossed.
This problem, like everything else you talk about, isn't as bad as it seems.
-----------------------------------
Tell that to the bagholders of NEW NFI LEND and the rest of the subprime lenders. They're ony down 60% YTD after the SHTF
All is well. All is well. The Titanic is not sinking
The Bad Debt account would be like marking to market, correct? Maybe there needs to be formulas that are real estate specific applied to the liklihood of repayment that are then required to be captured in the Bad Debt account?
Ultimately, it's mandatory disclosures/footnotes that should be required to provide information that is material to the financial statements and future operations!
The Troll said:"Keith, what are foreclosures of all homes? 2%? How many home are owned free and clear? About 50%. That means that approximately 4% of the banks revenue recognized wouldn't be repaid due to foreclosures. This problem, like everything else you talk about, isn't as bad as it seems".
I'm not Keith, but I'm answering anyway.
Where do you get the 2% figure for forclosure rates? Calif last year did some 70% of mortgages in I/O alone-both new and refinanced loans. I personally know people who had a house paid off and then got another new first mortgages for "remodeling purposes". The 50 percent "free and clear" home is much lower than you think.
Did you not see the map of Panic?
It isn't booked as bad debt, because it isn't a bad debt (yet). Maybe it will be but it would be ridiculous to ASSUME they won't get paid when in the past they have been paid. If they reported the whole thing as bad debt (why would they when the FB is within his rights to not pay the whole amount and is current on his reduced payment?), then they would be reporting losses from the get go.
The bank has to pay interest on the money it borrows but would recognize no revenue on the neg-am loan.
I know it's different this time...the asset is below the loan value. But so what? Suppose the loan (non negative amortization) is 'current' but is also above the value of the house? Should the bank book losses on that too?
As for the "it's only 4% or whatever"....it's bigger than that. You'd have to look at total 'revenue' and then look at how much is non-cash interest. IE increased debt balances.
But the kicker is that IF the loan goes bad, the bank can lose alot more than 'revenue'. If you loan 1M and book 60K per year as 'revenue' as the loan grows to 1.06M...then the loan goes bad and you have to sell the house for 500K. You lose alot more than the 60K you never got.
That's how a small amount of loans can wipe banks out.
If 1M loans in CA go bad for 200K each...that's 200 BILLION dollars. That'll destroy the banking sector. I know they pass alot of that through to MBS holders but they also 'guarantee' principal being repaid etc. Or at least FRE and fannie mae do. It would shut off the spigot to fund mortgages...at least low down payment mortgages. It would be carnage. And that of course would feed more foreclosures etc.etc.
As for the logic of 'it's just an increased loan balance', so it's not revenue. It's both. It's like this.
FB owes 1M. Owes 60K in interest. Bank gives him a loan for 60K. He pays 60K in interest.
So revenue = 60K. New balance = 1.06M. Fair enough.
Now same situation. FB owes 1M. Owes 60K in interest. Bank gives him NO loan. Just increases it's loan balance to 1.06M.
The transactions are the same. Both situations both the bank and the FB have the same amount of cash at the end. In situation #1 the FB gets cash and gives it back. The bank loans cash and gets it back. Net-net, no cash changes hands.
In situation #2, there is no "loan" to pay interst. It's just rolled forward. The cash position is also the same.
So situation #2 also results in 'revenue' of 60K. IT'S THE SAME THING.
The way it has to be.
In the future if the FB starts paying interest, the loan balance won't grow. The revenue will still be interest * outstanding principal.
Now, a DIFFERENT question is "what about if the loan holder won't pay the money back at all!!".
Fair enough.
Suppose you have a HELOC holder. There's a chance EVEN IF HE IS CURRENT that he walks on the loan balance. And the bank has to kiss the whole thing good-bye, as maybe they are a 2nd in priority. So...how is that reflected? The bank has the same risk in a HELOC vs a neg. am loan. They book a small 'bad debt' expense. But it's a pittance if the people en masse don't pay HELOCs.
In reality neg. am loans are probably so new (to the extent they are being used now) that there isn't any 'loss' experience on them. That's why NEW or whatever didn't recognize losses on loans it had to take back. It ASSUMED it could sell the house for more than the loan. Always worked in the past.
We're in unchartered territory.
Maybe these loans CAN'T be paid back. In which case the loss to the bank is alot more than the 'revenue' it is reflecting but won't get.
Time will tell.
The problem isn't really "they're recognizing as revenue a non cash interest payment!!". That's they way they have to do it.
The problem is that they are taking on risks which could sink the banks.
Anyway, I hope everyone reads this. AS it is logical and factual.
Allowance for Doubtful Accounts (and the related Bad Debt Expense) are used for valuation of receivables, but unlike mark to market, they will only expense/write-off/mark down the receivables. They are not used to inflate receivables and income.
Receivables are already required to be disclosed net of the allowance account, and the amount that's sitting in the allowance account is also required to be disclosed for each year presented in the audited financial statements (usually current and prior year).
@ John Doe
Yeah, I agree with you... there is simply no other way to book this transaction than:
debit-Notes Receviable (A)
credit-Interest Income (R)
Accrual based accounting demands this. A footnote in the P/L statement and Balance Sheet may satisfy the banks only liability to its shareholders.
Other companies in other sectors book 100% of their accounts receivable as an asset regardless of the risks of not being paid. The question really is should there be some way to account for this risk factor so that shareholders veiwing a P/L statement or balance sheet can accurately identify the companies value???
"This problem, like everything else you talk about, isn't as bad as it seems."
You're right, it's much, much worse than it seems. Take everything that Keith has said and multiply it times 100 and you'll get a general idea of how bad this is. This is exactly like Enron, just thousands of times bigger.
BBB rated MBS (junky subprime) have literally collapsed and the 2006 Q2 vintage cancer is now starting to spread to other vintages and ratings. As Aaron Krowne has said, it's hard to overstate how not good this is. It's like a Chernobyl event in the banking system and a complete derivatives failure (nuclear holocaust) is coming next. There is a reason that 20 lenders have failed in the last two months alone, and now we're starting to see some bigger names going down in flames (Lend, New, WMC, HSBC, etc.) Next it could be CFC, WAMU, and Wells Fargo.
Folks, this is exactly what a full-fledged banking meltdown looks like initially. Make no mistake about what you are witnessing - this is the beginning of the end of the economy. Of course, you may remain complacent about all of this, but don't say you weren't warned.
Yikes! That's unethical, interest not collected being reported as revenues.
I bet they'll report a second time as revenues when the deffered interest is repaid at refinance or sale.
The real and most serious problems with the negative-amortization loans are the ways in which they are originated and loan officers are paid for originating them. The loan officer recieves a premium from the lender based on the margin which determines the real interest rate on the loan. While this is disclosed to the borrower on paper it is often one of the forms signed as part of the aplication and is not discussed as being relevant to the borrower because it does not have any effect on the monthly payment. A loan officer can often times make two to three times the yield spread (credit from lender to broker) on a neg-am loan than a normal loan and the poor sheeple that these loans are sold to are only told about the extrordianrily low payments. The problem here is that the real interest due is often 2x or more the minimum payment and these poor sheeple will have no chance in the world at making these outrageous payments. At this point these loans will go into default and the lenders will be forced to foreclose on properties which have already declined in price. This will trigger a further decline in price and will put lenders like FED, AHM, IMH and possibly larger neg-am lenders like CFC and WM out of business as 60k of book revenue dissapears and actually turns into a 35k loss on principle, an aditional 20k loss in interest paid to the source of funds and commisions paid to the broker.
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