Delinquent real-estate loans up by 36% in a year

By John Poirier
Reuters
Wednesday, August 22, 2007

http://www.reuters.com/article/gc06/idUSWBT00744320070822

WASHINGTON -- The Federal Deposit Insurance Corporation, which insures bank deposits, said on Wednesday it is keeping a close eye on the unpaid real estate loans that are piling up at U.S. banks and thrifts.

"We remain vigilant," FDIC Chairman Sheila Bair said at a news conference on U.S. banks' second-quarter rise in noncurrent real estate loans. "We are closely monitoring the situation in the markets as well as individual institutions."

In a sign of distress that borrowers are facing, U.S. banks' non-current real estate loans rose for the fifth consecutive quarter to $66.9 billion at the end of the second quarter, the FDIC said. That was up 36 percent from one year ago and up 10.6 percent from the end of the first quarter, according to the FDIC.

Non-current loans are those for which payments are overdue by at least 90 days.

Rising U.S. home foreclosures and problems in the subprime mortgage market have spilled into broader financial markets in recent weeks.

Bair said the "tremendous golden age of banking" for U.S. financial institutions had ended, at least temporarily.

"Everybody is being challenged in this current environment," she said.

Many economists are concerned about the credit logjam's potential drag on the economy and a cut in interest rates would help calm jittery financial markets.

The Federal Reserve cut its discount rate for emergency loans by 50 basis points on Friday and acknowledged it is ready to cut the funds rate if needed.

On Wednesday, a Reuters poll of more than 100 U.S. and European economists showed that most are convinced the Federal Reserve will cut interest rates at its September 18 meeting because of the global credit squeeze.

Bair declined to comment on the recent events surrounding Countrywide Financial Corp. (CFC.N: Quote, Profile, Research), the largest U.S. mortgage lender. The company recently cut 500 jobs to help cope with the credit crunch and at least two Wall Street analysts said the company could end up in bankruptcy if market conditions worsen.

Industrywide, noncurrent home mortgage loans totaled $27.5 billion at the end of the second quarter. That was up 47 percent from one year ago and up 12.6 percent from the end of the first quarter, the FDIC said.

The FDIC said the number of "problem institutions" grew to 61 in the second quarter from 53 in the previous quarter, including an institution with assets of $10 billion. It did not identify those institutions.

U.S. banks saw second-quarter earnings fall 3.4 percent to $36.7 billion from $38 billion in the year-ago period, but marked the fourth-highest quarter.

Bair said banks are generally well-capitalized and diversified to work through the market adjustments but still face challenges ahead.

"Under the circumstances, the industry's second-quarter earnings performance was very solid," she said.

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