The incentive to hold off so long on foreclosures theoretically has nothing to do with recognizing losses. Losses must be recognized when there is evidence of impairment. Though possibly sooner, such impairment must be evaluated if a loan is 90 days delinquent. Whether loans have to be individually evaluated depends on the relationship between the size of the loan and the size of the bank. Giant banks may not be required to individually evaluate most home mortgages. Smaller banks probably will. The larger banks can evaluate similar assets as a whole. But whether those loans must be evaluated individually or as a group, they must be re-evaluated at every balance sheet date, and appropriate loan loss reserves must be made. Foreclosure should finalized the loan loss evaluation process, because at foreclosure the impaired asset changes from a loan to REO. The REO must also be evaluated at each balance sheet date, and any additional impairment must be recognized. (It just changes from a loan loss to an REO loss.)