Monday, January 14, 2008

Downey Financial Restates Non-Performing Assets

From an 8-K filed today by Downey Financial.

"As required for all loans classified as troubled debt restructurings, loans modified as part of our borrower retention program must now be placed on non-accrual status but interest income will be recognized when paid. If borrowers perform pursuant to the modified loan terms for six months, the loans will be placed back on accrual status and, while still reported as troubled debt restructurings, they will no longer be classified as non-performing assets because the borrower has demonstrated an ability to perform..."
More detail at Calculated Risk.

For me, the most interesting thing is not the effect of this restatement, but simply the continued, sharp increase in plain-vanilla non-performing assets (NPAs) from November to December.

Of course, I had a pretty good indication of that last week, thanks to my tri-county survey.

Here's a restated chart showing NPAs before and after the change.

Here's the kicker: "As yet, we have not determined the impact this reporting change may have on previously reported financial statements, if any, but we expect to complete this analysis soon.”

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