The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Bonds & Fixed Income Investments

URL:  https://boards.fool.com/oh-this-is-going-to-dig-up-memories-from-the-29183854.aspx

Subject:  Re: OT: (again): For Dr. T Date:  3/20/2011  4:13 PM
Author:  DrTarr Number:  32509 of 37007

Oh, this is going to dig up memories.

From the bank side - Preforeclosure, there are accounting rules based on what the loan is rated. If the loan is rated "doubtful" or "loss" {two grades where full repayment is not expected} the bank stops accruing interest for regulatory purposes {cant count the interest as income cause it likely won't be realized income so the rules stop to make sure the "future is clear"}, however, interest can still "accrue" sorta behind the scenes so that if the borrower catches up he doesn't get a free ride.

Once it goes into foreclosure - clearly a bank can't count on accrued interest as income so again on the books it does not accrue. The bank wants to get its money and the loan had accrued some interest before the loan went into default (when the borrower was 30-60-90 days delinquent) so that is put in there. Again, the borrower has the right to redeem up to foreclosure and so to prevent a free ride a bank will still accrue the interest that would be required to catch up, it is just not recognized on the books as interest income during foreclosure.

d(Interest Income)/dT
Copyright 1996-2021 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us