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Banks have already lost on bad loans

By Cathy Moran

A Credit Slips post on HR 1106, the mortgage modification bill, . lamented that “people just don’t get that this law doesn’t create losses, it forces banks to acknowledge already existing losses, which is an important prerequisite to getting us out of this financial crisis.”

Since the collateral for these loans at risk has already dropped in value, and foreclosure brings in perhaps 50% of that value, once the expenses are paid, I begin to wonder whether the banks’ opposition is really that they would have to adjust their balance sheets in negative ways if the loan was modified.

I don’t have enough tax or banking knowledge to know, but the opposition to a bill that is limited to existing loans and puts cash flow and performing loans on their books, you have to think that there is some, unstated reason why they are so frantic at the thought of modified loans.

Or are they just control freaks?  Having run this economy into the ground, they think they still have credibility to say, leave it to us to fix?

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About Cathy Moran

I'm a veteran bankruptcy lawyer and consumer advocate in California's Silicon Valley. I write, teach, and speak in the hopes of expanding understanding of how bankruptcy can make life better in a family's future.

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Soapbox is a companion site to Bankruptcy in Brief, where I try to be largely explanatory and even handed (Note I said “try”).

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