Thrifts Withstand Higher Home Loan Delinquencies

Thrift institutions originated $173.3 billion in single-family loans in the second quarter and posted strong profits despite an increase in troubled assets.

The second-quarter single-family originations were up 17% compared to a year ago and it turned out to be the best quarter in terms of thrift loan production in nearly two years.

However, non-current loans and foreclosures are rising and hit 0.95% of total assets as of June 30, the highest level since 1997, according to the Office of Thrift Supervision.

Single-family loans 90 days or more past due have risen to 1.16%, up from 0.76% at the start of the year. Subprime loans make up only 4% of thrift mortgage assets.

During the same six-month period, serious delinquencies on construction and land loans have jumped from 0.91% to 1.61%.

OTS officials expected delinquencies to increase but they noted that thrifts are increasing their reserves faster than charge-offs are rising.

Meanwhile, refinancings comprised 48% of thrift origination as adjustable-rate mortgage holders continue to move into fixed-rate loans. ARMs comprised only 10% of thrift loan production in the second quarter.

Thrifts generally like to sell fixed-rate loans and OTS officials noted there is a "chance" they might have problems selling loans due to current problems in the credit markets.

However, OTS senior deputy director Scott Polakoff noted that thrift institutions are well capitalized and they originate high-quality mortgages.

"Our institutions are well positioned to weather this stressed economic time and come out very successful," Mr. Polakoff told reporters last week.

The 836 OTS-supervised thrifts with total assets of $1.5 trillion reported $3.84 billion in earnings for the second quarter, down from 8.6% in the same period a year ago.

Return on assets was 1.02% and return on equity was 9.57%.

The OTS report also shows that thrifts increased their holdings of mortgage-backed securities by 24.4% over the past four quarters and they held $195.2 billion in MBS as of June 30.

About 45% of the MBS are private-label securities. But OTS officials stressed that thrifts are only allowed to invest in investment-grade MBS with a rating of BBB or higher.

If the rating agencies downgrade a private-label MBS below BBB, however, thrifts are required to classify the asset as "doubtful" and mark that MBS down to market value.

In other news, OTS has promoted Darrel Dochow to be the new director of the Western regional office, which oversees several of the largest and most complex thrift institutions. Mr. Dochow is currently the deputy regional director. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com/