Wall Street Journal (06/25/08) P. C1; Wei, Lingling
Regulators are growing more and more concerned about a lending practice that allows developers to delay paying construction-loan interest while at the same time camouflaging problems at the banks that made the loans. When the loans were first made, the banks added up the interest that would be paid and put that amount aside in "interest reserves." Regulators are now worried this practice can be abused as a way to keep recording loans as "performing" even though the underlying development projects are failing. The Federal Deposit Insurance Corp. recently alerted its supervisors to keep a close watch out for banks that have yet to disclose such problem loans.
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