Mortgages, Construction Loans Trim Bank Earnings

Defaults on single-family mortgages and construction loans continued to accelerate in the third quarter as banks and thrifts added $50 billion to loan loss reserves for the second consecutive quarter, according to the Federal Deposit Insurance Corp. FDIC chairman Sheila Bair said institutions are "aggressively growing reserves. But overall reserve growth continues to lag behind the growth of troubled loans." The serious delinquency rate (90-days or more past due) on single-family mortgages rose to 3.9% in the third quarter, up from 3.3% in the second quarter. Charge-offs in single-family loans totaled $3.9 billion, down from $4.6 billion in second quarter. The decline may be attributable to J.P. Morgan Chase's acquisition of Washington Mutual. Commercial banks originated $228.8 billion in single-family mortgages during third quarter, down 19% from the second quarter. After closing 22 banks this year, FDIC officials said the deposit insurance fund has declined to a 0.76% reserve level and the FDIC board will meet in December to consider a hike in insurance premiums. The FDIC's problem bank list has jumped to 171 institutions with $115.6 billion in assets, up from 117 institutions in second quarter.