SEC Evaluating Bank Restructured Loans

By on | Home & Mortgage Refinance Information.

SEC Evaluating Bank Restructured Loans

Officials at the Securities and Exchange Commission are looking into a large number of regional and community banks that have been restructuring commercial real estate loans to make them appear healthier than they really are.

These banks are working to improve (at least the appearances of) their portfolios as they continue to recover from the recession and financial crisis that almost toppled the banking industry. The industry’s plight was caused by over-valued home prices and irresponsible home loan mortgages. This perfect storm caused a housing market catastrophe that has put millions of Americans out of their homes.

By law banks are allowed to tweak loans to help struggling borrowers. While the practices being implemented are within the law the SEC is looking into instances where banks have been altering loans to give clients more time to repay their loans.

One of the practices under question, “troubled debt restructuring” allows the bank to break the loan up into smaller loans or change the terms of the loan altogether. Unfortunately, the SEC believes that banks have been exploiting these loopholes to refinance or restructure loans to their benefit instead of the consumer’s.

Furthermore, the SEC is scrutinizing how banks are identifying and filing these restructured loans.

Over two-thirds of mortgage loans held by banks are currently upside down, meaning the homeowner owes more than their home is worth. This amounts to over $156 billion that banks are still accountable for.

Currently about less than 8% of home loans held by banks are delinquent, down 50% from last ear. The Federal Reserve believes this number indicates that the housing market is slowly starting to recover.

Since the floor fell out on mortgage prices news has gone from bad to worse in the industry. At the end of last year big banks like Bank of America and JP Morgan were under scrutiny for improperly filing foreclosure paperwork. This time around smaller banks are going under the microscope.