Echavarren’s Irea brokered the refinancing of a 200 million-euro loan two years ago for a developer. After two more rounds of refinancing, there is about 180 million euros left on the loan and it’s classified as performing, he said, without identifying the company.
“The probability that this loan will be paid when it comes due is zero,” Echavarren said. “There are dozens of similar cases.”
An American bank? Nope. A Spanish one.
The problem is that it’s not just Spain. Anyone remember Kanjorski’s hearing in early 2009 that marked the bottom of the stock market almost to the day?
None of the other things Bernanke or anyone else had done stopped the bleeding. This did.
Why? Because it made it possible to pretend that trash was “money good” and that’s exactly what everyone did.
But is that an actual “recovery”? No.
It’s a lie. A scam. A fraud. A legal one, but a fraud nonetheless.
The Bank of Spain allows loans that are refinanced before turning delinquent and interest-only loans to be considered“normal” or “performing” on banks’ books, according to Manso.
Isn’t that “clever”? Take a loan you know won’t get paid and roll it before it goes delinquent. Keep doing this. That way you can claim the loan is “performing” even when there is a zero chance that loan will be paid as agreed.
It’s kinda like a HELOC here that’s behind an underwater first and the first isn’t being paid. Foreclosure is inevitable and when it happens then HELOC is worth zero. Pure logic says that such a loan should be marked at the recovery value (zero) since statistically once a first goes 90+ the odds of it curing are effectively zero (the borrower would need to make four payments, all at once, to bring it current.)
This is why banks are “allowing” people to live in houses for two, three, even four years without making a single payment. The odds of you getting away with this go up a lot if the mortgage is either private-label and held on the bank’s books or you have a HELOC and the first is underwater. In either case pretending that you’re paying means the bank doesn’t have to recognize the loss, which in turn means that they claim to have “performing assets” when in fact they are not.
The same game is being played in Spain and throughout the rest of the EU — and here.
It won’t work because it can’t.
And when, not if, it comes apart the economic impact is going to be far worse than it was in 2008, because the measures that could be taken to “help” have already been expended.