New Loans, MSRs Get FDIC Scrutiny
In 2004, HELOC borrowings grew at a 41.8% annual rate, raising regulatory concerns and warnings that lenders should tighten underwriting and risk-management practices. The regulators also noted a decline in the value of mortgage servicing rights.
By the first quarter of 2005, HELOC lending slowed to a 34.9% annual growth rate and now the second report shows that it has declined to a 28.4% annual growth rate.
The FDIC also reported that commercial banks are holding more adjustable-rate mortgages in portfolio, although bank call report data do not indicate if these adjustables are hybrids, interest-only or other exotic loan products.
"Over the last four quarters almost two-thirds (65.4%) of the increase in residential loans at commercial banks has come from ARMs," the FDIC said.
At the end of the second quarter, banks held $1.16 trillion in single-family loans in portfolio, and 36.6% of these first liens, or $425 billion, are ARMs.
Meanwhile, commercial banks reported earnings of $28 billion in the second quarter, up 5.1% for the same quarter last year. The FDIC cited lower earnings at a few large banks for the slowdown in earnings along with other factors.
Thrift institutions, on the other hand, posted record profits in the second quarter as single-family originations jumped 20% from the prior quarter to $169.4 billion.
The Office of Thrift Supervision reported that ARMs accounted for 42% of loan production at thrifts, down from 50% in the first quarter. Refinancings declined to 30% of loan production from 37% in the prior quarter.
OTS said its examiners are closely monitoring newer types of loans, such as interest-only ARMs, as well as HELOCs. But troubled loans at thrifts are at a record low.
Meanwhile, thrifts reported record earnings for the third consecutive quarter. Earnings totaled $4.03 billion, up 1% from the first quarter and 20% from the second quarter of 2004.
Thrift profits were pinched by a $112.6 million decline in the value of mortgage servicing assets.
"Servicing fees at banks and thrifts were $2.2 billion (43.9%) lower than in the first quarter," FDIC said.
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