A Disturbing Pattern? (Bank Loans / Helocs)

A Disturbing Pattern? (Bank Loans / Helocs)

Posted by Karl Denninger

In conjunction with what I wrote on this morning, the potential for massive hidden losses in our banks, I keep getting the following sort of anecdotal reports, all in relationship to the banking giants.

“My property foreclosed in <bubble state> and <Big Bank X> had written a $200,000 HELOC, which was drawn down.  The first lender foreclosed and is holding the property in inventory (it is not listed.)

<Big Bank X> reported the account as charged off in my credit report, but has a notation that “debtor has an arrangement to make partial payments.”

I have not even spoken with <Big Bank X>.

Then there’s stuff like this from the forum:

“My home in CA was purchased for $685k in May 2006. Because of 14 months of unemployment, a mortgage payment hasn’t been made in months. Mortgage holder just had the property appraised and the value came in at $319k. After the appraisal was completed, I was told by the mortgage holder not to worry about foreclosure proceedings beginning. I’ve also been told by the mortgage holder that they have “many” internal plans for modifying loans and that they would continue to work with me until we found a suitable “solution” enabling payments to resume.”

That’s the general gist of these emails.  Another said that they were “offered” payments on a massively-delinquent first that were well under 1% on an interest-only basis.  Like under $100/month on a loan that should have even an I/O payment of several times that amount.

The obvious question is whether these “charged off” and “How about you pay us $50/month, which is a tiny fraction of even an I/O payment” loans are being manipulated so that they can be considered performing assets on these bank balance sheets.

And if that is the case, then the obvious next question is how many of these loans are there, and what sort of material misstatement does this all add up to when one looks at these balance sheets as a whole?

If I had received one or two of these sorts of anecdotes over the last year or so I wouldn’t be so alarmed.  But that’s not what’s happened. Instead, I’ve received a bunch of these over the last few months and I suspect I’ll get even more now that I’m “outing” that I’m getting these emails on a regular basis.

Unfortunately I can’t verify any of this since I can’t pull someone’s credit – but why would borrowers send me these sorts of claims if they weren’t true?

If they are true then the obvious question is whether the sort of “Repo 105” deal Lehman was running is just a tiny bit of the balance sheet fraud that is going on in these big banks?

Folks, this sort of thing makes no sense.  Reporting payments that aren’t being made to credit bureaus in the “comments” field (while showing “charged off”) has no probative value for the bank – unless it’s to please an auditor or government official who is questioning whether that loan is in some way “performing” and/or has some sort of recovery value, thereby supporting an intentionally-false mark!

Folks, this whole cesspool stinks like dead fish, and the disclosure of what Lehman was up to makes clear that the banks believe they can pretty much do whatever they want when it comes to balance sheets and get away with it – provided they can find someone will will give them an opinion that its legal (even if the “someone” isn’t in the US!)