Deficiency Balance
Categories: Ethics/Morals, Regulations
As many people painfully still remember from 2008, many homeowners found that their homes’ values had dropped below the amount of their mortgages, making them “upside down,” and in a host of cases, subject to default. (Like...if they stopped paying their mortgage, they lost the home and all the equity they'd invested in it.)
When these homes were foreclosed and sold, it left a deficiency balance, meaning that the collateral for the original loan was insufficient to cover the loan principal. In some cases, the deficiency balance was written off by the banks. In other cases, the lender may press for recovery of that deficiency balance, resorting to legal means, which also affects the borrower’s credit score.
The deficiency balance principle is what 28% APR credit cards and loan sharks use as their bread and butter business model.
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Finance: What is Adverse Audit Opinion?27 Views
Finance a la shmoop. What is an adverse audit opinion and you know deficiency
letter. Okay people this is not good you thought you had good grades but when [Report card is thrown onto the desk]
you got your report card your teachers had opinions adverse to yours... [Report card has bad grades in it]
They sent your parents a deficiency letter you know the one with all those [Mom looks shocked]
D's on it well when it's a company's audit that has similarly gone awry it's [Boss looks angry and employee looks shocked]
the nice way to say it well then it means they didn't count the beans
properly when they gave their financial reports to their investors or whoever
the auditors were serving usually this implies that companies overstated how [Employee counting coffee beans]
profitable they really were or how well they were really doing so tens of
thousands of investors if you know the company was public when this all [Big line of people waiting to invest]
happened paid twenty seven dollars and 32 cents a share when with the real
numbers the stock probably should have been trading more at like you know
fourteen dollars and 27 cents a share big difference well basically an auditor
is saying that yours are not bread-and-butter misstatements no oops [Bean report with the numbers crossed out]
it's more of a dude there were material ie important
mistakes and they were pervasive like everywhere math, science, english, history
your failure it's no mystery that's how auditors talk really
all right well then there are massive losses to massive numbers of people who hire [Protesters on a street]
massive numbers of lawyers who sue you.. massively.. in the world of finance an
adverse audit opinion is a bit like running over everyone's favorite dog [Car goes over a bump]
several times only you're the one who is likely dead meat [Guy reverses and runs the dog over again and the owner comes to fight]