<<And yet you "quoted" it as "being hidden off their books" - which is a far different concept.>>
"Far different" my ass. The balance sheets are a summary of the books. Hidden off the balance sheet couldn't happen unless something was also hidden off the books. Furthermore, most people include the financial statements (including the balance sheet) when referring to "the books" of a company.
<<Assets on a balance sheet are listed using their value at acquisition (for home loans this would be the appraised value at the time of the initial purchase for the current loan). It doesn't become a loss until they sell it at a loss.>>
That is pure rubbish. A bank lists its
loans as assets - - accounts receivable. The value of the security given (commonly a home) is
never listed as an asset.
<<While common wisdom says that these assets will probably lose money if they're sold there is no guarantee that they will, so as long as they stay on the bank's balance sheet their value is the value at appraisal. Standard book keeping for long term assets. Short term assets depreciate in value at a fixed rate, unless they're scrapped or sold before they're fully depreciated.>>
You are confused. The homes don't become bank assets until the loans go into default and the homes are foreclosed. Until foreclosure, title to the home remains in the borrower. I would guess that good accounting practice, as regulated by state and local laws, would determine how a bank would carry a defaulted loan on its books - - the possibilities are, it could be completely written off as a bad debt, it could be carried at full face value, or it could be written down either to an arbitrarily set percentage or to a realistic estimate of likely recovery. Only a bank accountant could tell you what practice any particular bank (depending in part on the governing state legislation) would follow in recording the value of the loan asset in such circumstances.
When the property is foreclosed, the loan may remain an asset if the mortgage contained a free-standing personal covenant to repay that would survive foreclosure, or if guaranteed by third parties. The foreclosed home would have to be carried as an asset on the books of the bank, subject to liabilities such as the obligation to pay the borrower any surplus over his debt realized after sale of the foreclosed property.
<<<And again, the balance sheet is only a part of a corporation's "books". The others are generally the income statement (sometimes called a "profit and loss statement"), the retained earnings statement, and the cash flows statement.>>
Correct, plus the various ledgers and journals known as books of original entry. However, the "toxic assets" which the original article referred to would in fact be expected to appear on the balance sheet.
