FDIC Chief: Prepare for Higher Rates

Mortgage lenders ought to be thinking about is going to happen when interest rates start to rise above their historical lows, according to Federal Deposit Insurance Corp. chairman Donald Powell.Mortgage indebtedness increased by $1.4 trillion or 27% in the past two years and homeowners tapped $390 billion in equity from their homes last year, the FDIC chairman told an Independent Community Bankers Association meeting. Meanwhile, income growth has been slow and personal bankruptcies hit a record high in 2003. What happens when interest rates really go up, he asked? "What will be the impact on borrowers' ability to service debt or continue their historic consumption levels?" The FDIC chairman also cautioned that the performance of commercial real estate loans have benefited from low rates, despite weak fundamentals. "Low interest rates have bailed out many projects that would have sunk if the environment had been different."