If you’re wondering why the nonperforming loan auction market hasn’t been more robust – especially given the fact that banks and the GSEs are sitting on billions of dollars in defaulted home mortgages – you can blame accounting rules, or so we’re told. Banks have to mark down and reserve against what they hold on balance sheet but there is a difference in how ‘whole loans’ are treated versus MBS. Whole loan treatment is much more benign. And if banks begin renting out their REO units the accounting is even more favorable – or so one NPL investor told us. (Check with your accountants and attorneys.) But we’re also hearing that banking regulators later this year may light a fire under certain institutions, urging them to get off the stick and dispose of their NPLs or post deeper reserves. Right now this is all rumor, but sometimes where there is smoke, most certainly there is fire.
