Banks Are Still Keen On Mortgage Investments

Banks and thrifts increased their investments in mortgage loans and securities in the second quarter, while construction lending remained brisk, according to the Federal Deposit Insurance Corp.

FDIC-insured institutions increased their holdings of one-to-four family loans by $54.3 billion (including $38 billion in adjustable-rate mortgages) to $2.16 trillion during the second quarter. Mortgage-backed securities holdings rose by $29.8 billion to $969.8 billion.

These depositories increased their home loans and MBS portfolios by a 10.5% and 6.2%, respectively, in the second quarter. But construction and development lending grew at a 32% annual rate. In fact, construction lending has grown at a 30% annual rate over the past eight quarters, despite regulatory concerns about high concentrations of construction and commercial real estate loans at community banks.

The FDIC Quarterly Banking Profile report shows that banks and thrifts made $31.7 billion in C&D loans during the second quarter and they held $513.9 billion in C&D loans as of June 30 - up from $389.1 billion in the second quarter of 2005.

Despite the rapid growth, non-current C&D loans ticked up from 0.38% to 0.43% over the past two quarters. Banks and thrifts currently hold $2.2 billion in construction loans that are 90 days past due. Approximately $1.8 billion of those loans are classified as non-accrual. "It is something to keep an eye on," said FDIC economist Ross Waldrop. But "nothing dramatic," he added.

Banks and thrifts also added $21.3 billion in commercial real estate loans to their balance sheets in the second quarter and they held $859.4 billion in CRE loans and $192.3 billion in multifamily loans as of June 30. The House Financial Services Committee is slated to hold a hearing on the regulator's CRE lending guidance on Sept. 14.

Meanwhile, the next FDIC Quarterly Banking Profile report will include data on one-to-four family loan originations and sales for the first time. The third-quarter report also will include data on retail and wholesale originations. (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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