Banks Sitting on Huge Amounts of Toxic Mortgage Assets

When banks don’t follow through on home foreclosure proceedings they retain a non performing loan on their books. Yet under new accounting rules they can show the value of the questionable asset at a mark to model evaluation. How crazy is that? To permit banks to carry toxic assets at near full original value while they dream that value will somehow be restored is a recipe for total disaster.

In the video a couple, at the request of Bank of America, moved out of their house as it was facing foreclosure. They thought that BOA had foreclosed on their house over a year ago. But BOA decided that the value of the house had fallen so far they did not follow through with a foreclosure. So the couple still has title to a house that is vacant, has back taxes due, and is falling apart.

What a nightmare for the couple and the bank. The bank is sitting on a non performing mortgage secured by a nearly worthless property and the couple may have liabilities as owners of a house that they thought had been foreclosed.

This situation is not unique. All across America banks are sitting on thousands, perhaps millions, of worthless, or nearly worthless mortgages that they are still carrying at near full value on their books.

The mark to model from mark to market accounting rules were changed last year by congress who yielded to the pressure placed upon them by their masters, the banks. There is some movement now by the shamed accounting profession to reinstate the mark to market evaluations. If enacted, this would reveal the toxic asset structure of many of the banks “assets”.

Until the too big to fail banks are allowed to fail and a rebirth of banking with more capable operators occurs there will be no real recovery in the American economy. How long can the big banks get away with this scam? Probably not for much longer. It looks like the accounting profession finally realizes that unless they reverse their mark to model ruling their credibility will decline into the dismal range of the rating agencies.

Perhaps the accounting “professionals” now realize that the Enron principals went to prison for cooking the books. Hopefully, the same fate will fall upon the banking big shots as the extent of the mispricing of assets and the providing of fraudulent information to investors is revealed as the securities fraud that it is.