Bad Loans Rise Fast at Banks & Thrifts

Banks and thrifts posted $19.3 billion in earnings for the first quarter, down 46% from a year ago, as rising levels of troubled real estate loans forced the depositories to set aside $18.5 billion for expected loan losses, the largest loan-loss reserve increase in 20 years.

Despite the set-aside, the Federal Deposit Insurance Corp. said non-current loans (89 days or more past due) are increasing faster than reserves.

"This is a worrisome trend," FDIC chairman Sheila Bair said. "It's the kind of thing that gives regulators heartburn."

FDIC-insured institutions charged off $19.6 billion in the first quarter, up from $16.4 billion in the previous quarter.

Meanwhile, non-current loans rose by $26 billion in the first quarter to $136 billion and nearly 90% of the increase involved real estate loans, mostly residential mortgages and construction and development loans. Nearly 5% of C&D loans are 89 days or more past due, while 2.5% of first residential mortgages and 1.5% of home-equity lines of credit are non-current. "FDIC examiners will be vigilantly monitoring developments in credit quality and loan-loss reserve levels throughout 2008," Ms. Bair told the Senate Banking Committee last week.

Despite a weak housing market, one-to-four family loan originations by commercial banks and savings banks rose 14% in the first quarter, while federally chartered thrifts experienced a decline in loan production. Single-family loan originations by banks totaled $288 billion in the first quarter, up from $253.1 billion in the fourth quarter.

OTS-regulated thrifts originated $115.2 billion in one-to-four family mortgages in the first quarter, down 20% from the fourth quarter and down 23% from the first quarter of 2007. The Office of Thrift Supervision reported that refinancings comprised 50% of thrift originations and adjustable-rate mortgages made up 10% of loan volume. The 831 federally chartered thrifts posted a $617 million loss for the first quarter, after setting aside $7.6 billion in loss-loan reserves. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/