negative amortization is realizable as bank earnings!

[jk]

from barrons- 8-21-06

The following figures are from Washington Mutual's annual report: At the end of 2003, 1% of WaMu's option ARMS were in negative amortization (payments were not covering interest charges, so the shortfall was added to principal). At the end of 2004, the percentage jumped to 21%. At the end of 2005, the percentage jumped again to 47%. By value of the loans, the percentage was 55%.


Every month, these borrowers' debt increases; most of them probably don't know it. There is no strict disclosure requirement for negative amortization.


This financial system cannot work; houses are not credit cards. But WaMu's situation is the norm, not the exception. The financial rules encourage lenders to play this aggressive game by allowing them to book negative amortization as earnings. In January-March 2005, WaMu booked $25 million of negative amortization as earnings; in the same period for 2006 the number was $203 million.

[Finster]

Re: negative amortization is realizable as bank earnings!

from barrons- 8-21-06 ... negative amortization is realizable as bank earnings!

Just another example of why investors ought place nowhere near the emphasis on earnings that they do. We ought to know by now that much of reported earnings are not true profits. Only those that are paid out in dividends or add to per-share equity need apply.