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For example, while Freddie Mac's portfolio contains many securities backed by so-called subprime and alt-A loans, which are one step up from the riskier mortgages, the company has not written down those loans' values to reflect current market prices.
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In the year ended March 31, the group posted a 284 billion yen ($2.37 billion) net profit by buying loans valued at 1.08 trillion yen $9.02 billionn), Takayuki Okuno, a spokesman for the agency, said.
That registration indicates that its creditor is B.T.A., which made loans valued at seventy-five per cent of the initial investment in the company.
By allowing the banks to keep bad loans valued on their books at unrealistic levels, the government has prolonged the agony of this downturn.
The firm filed for bankruptcy in March after it stopped making interest payments on 26 loans valued at $266 million.
And lenders fear lawsuits from mortgage bondholders if they start writing down loan values.
The analyst said Bank of America's announced purchase price allows for some adjustments to loan values as it is below Countrywide's first-quarter GAAP tangible equity of $11 billion.
Tilton says she has independent third-party loan-pricing firms like Mark-It and LoanX verifying her loan values.
For banks the incentives may be meager but it's better than being ordered by the government to write down loan values.
Banks scored a win yesterday as the Federal Accounting Standards Board backed off on attempts to force them to calculate their loan values using market values.
As the economy loses jobs and housing inventories exceed demand, real estate prices are still declining, and loan values are declining with them.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com