It’s called Mark to Fantasy. Because of our Government currently giving the Banks free reign to mark assets on their books at any value they chose – and not following proper GAAP/FASB accounting standards of marking assets to real market value – the Banks can keep these over valued assets on their books for as long as they want and value the asset at what their original assessed value was at the time of the loan.

If Banks needed to Mark to Market in the real world, our Banks would be under collateralized and insolvent. BofA and others would simply have most of their Mark to Fantasy book value assets wiped out.

The minute they sell the home, they have to book the actual value and show huge losses on their books. Since it looks like the Government is being successful in re-inflating the housing bubble, why would they sell today when they potentially can get a better value in a year or two?

Even if they know the house will decline in value due to neglect, if they can use the higher valued Mark to Fantasy book value to continue to borrow from the Fed and make 20-30% in other operations, while watching their real asset of the house decline by say 10% a year – they are still way ahead of the game by not having to book the 50% loss of the loan to asset value at the time of selling the property.

Don’t expect to see these foreclosures on the market any time soon, with the current Mark to Fantasy rule working so well for them cash flow wise, they have no incentive to sell the property at all. Only when the Government forces Banks to return to true GAAP accounting will we see these properties be cleaned out.