Banks See Higher Delinquencies
Commercial banks increased their production of single-family loans in the second quarter even though the institutions are experiencing rising delinquencies and charge-offs, according to the Federal Deposit Insurance Corp.
"Everybody is being challenged in this kind of an environment," FDIC chairman Sheila Bair said last month.
However, she stressed that banks are well capitalized and the current problems in the mortgage market may provide an opportunity for banks to increase their share of the mortgage market.
This could have "positive benefits" for consumers, the FDIC chairman told reporters, because banks are regulated and generally adhere to prudent underwriting standards. "In the longer term, this will actually help things."
The FDIC chairman said the earnings performance of federally insured banks and thrifts was "very solid" in the second quarter, despite a difficult interest rate environment and ongoing weakness in residential mortgage lending.
Banks and thrifts posted $36.7 billion in profits in the second quarter, down 3.4% from the second quarter of 2006.
FDIC data also show that single-family loan production by banking institutions jumped by 20% in the second quarter, compared to the previous quarter.
The 657 commercial banks and savings banks that report origination data to FDIC made $345.9 billion in one-to-four family loans in the second quarter, compared to $286.6 billion in the first quarter. But these depository institutions also sold $348.3 billion in first-lien SF loans into the secondary market.
However, the non-interest income from these mortgage banking activities (loan sales, securitization and servicing) fell from $1.52 billion in the first quarter to $1.24 billion in the second quarter, or 18.6%.
The FDIC also reported that 1.33% of $1.94 trillion in single-family loans held by banks and thrifts are non-current (90 days or more past due), up from 0.92% in the second quarter of 2006.
Charge-offs on first-lien SF loans remain low at 0.14%. However, charge-offs on second liens, which could be associated with piggyback loans, hit 0.79% in the second quarter, up from 0.45% in the same period a year ago.
The deterioration in the performance of one-to-four family construction loans is more striking, however. The percentage of non-current construction loans that are 90 days or more past due jumped from 1.27% in the first quarter to 1.69%.
FDIC chief economist Richard Brown said that most economists expect the housing downturn to last into 2008 and beyond.
He noted that a large inventory of undersold homes, declining house prices and tighter credit standards are weighing on the housing market.
Nevertheless, he expects the drag from the housing sector will slow but not stall economic growth.
"With regard to the situation in the credit markets, I think it is too soon to say how much of an impact it could have on economic activity," Mr. Brown said. "It really depends on how long it takes for the markets to sort things out." (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com/