Banks 'in meltdown' over loss reports

11 January 2008

US banks are pleading with rulemakers to change a law under which they are supposed to report all mortgage losses, claiming their systems simply can not sustain the unprecedented amount of home loan restructurings.

Under the Financial Accounting Standard 114 rule, which has been in place since 1993, banks can no longer avoid reporting losses if they expect to recoup the principal eventually, which was the case in the past.

But banks are complaining that they do not have the capacity to report the massive numbers of restructured residential mortgage loans seen since the sub-prime crisis.

They claim it is too difficult and time-consuming to report all the losses they are seeing on smaller residential mortgages and their administrative and computer systems can not cope.

"No one anticipated a day when potentially hundreds of thousands of residential mortgage loans would be modified," Alison Utermohlen, of the US Mortgage Bankers Association told the New York Times.

However, some cynics have claimed that banks simply want to avoid reporting losses in order to make their balance sheets look more impressive to investors.

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