Frozen Sooner
2/25/2009, 12:40 PM
There seems to be a lot of disgust about the fact that capital markets are still locked up a bit even after banks have received TARP funds.
Part of the explanation is that both FDIC and NCUA made an accounting rule change in the fourth quarter with the end of the first quarter being the drop dead date for compliance.
The rule change has to do with reserve requirements and the definition of an "impaired loan." Previously, an impaired RE loan was a loan delinquent by 60 days. Institutions were required to reserve at 140% for all impaired loans.
Now, any RE loan that is a DAY delinquent is considered impaired with the same reserve requirements. As you might imagine, this is sucking up a lot of capital for large RE lenders and makes institutions a bit wary about further RE lending-particularly for lenders (like us) whose contracts stipulate a 6 day grace period.
Anyhow, hadn't seen this reported anywhere. Figured I'd throw it out there so people know a little more about what's going on inside the industry.
Part of the explanation is that both FDIC and NCUA made an accounting rule change in the fourth quarter with the end of the first quarter being the drop dead date for compliance.
The rule change has to do with reserve requirements and the definition of an "impaired loan." Previously, an impaired RE loan was a loan delinquent by 60 days. Institutions were required to reserve at 140% for all impaired loans.
Now, any RE loan that is a DAY delinquent is considered impaired with the same reserve requirements. As you might imagine, this is sucking up a lot of capital for large RE lenders and makes institutions a bit wary about further RE lending-particularly for lenders (like us) whose contracts stipulate a 6 day grace period.
Anyhow, hadn't seen this reported anywhere. Figured I'd throw it out there so people know a little more about what's going on inside the industry.