FDIC reports another bank closing, but it's actually part of the good news

The FDIC announced last week the takeover of a Fort Myers, Florida bank.  It was the third takeover of a Florida bank this year.  But that's good news.

U.S. bank failures have been declining since they peaked in 2010 in the wake of the financial crisis and the Great Recession.

 In 2007, only three banks went under. That number jumped to 25 in 2008, after the financial meltdown, and ballooned to 140 in 2009.

 In 2010, regulators seized 157 banks, the most in any year since the savings and loan crisis two decades ago. The FDIC has said 2010 likely was the high-water mark for bank failures from the recession. They declined to a total of 92 in 2011.

 Last year, bank failures slowed to 51 — still more than normal. In a strong economy, an average of only four or five banks close annually.

 The sharply reduced pace of bank closings shows sustained improvement.

I know, I know, closing a bank shows improvement?  Yes, it does in this case because the FDIC fund that is used to back-up depositors in these cases is in the black and the fund balance is expected to increase greatly over the next few years.

Want to learn more, read the full article.

For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us. We can help. Located in Fairfield, NJ, we are the title insurance agent that does it all for you.

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FDIC sells bank, new owner puts squeeze on borrowers

The FDIC closes a bank, offers that bank for sale, finds a buyer and agrees to cover some of the losses that the buyer incurs. That's how it works when your bank goes under.

But, what happens after you become a loan customer of the new bank? Is it all peaches and cream? Not necessarily so.

  

According to a report on CharlotteObserver.com, banks often put roadblocks in front of their borrowers and either hound them to pay off  their loans or face foreclosure.  One borrower wouldn't roll over and took the bank to court.  It WON!

Read the full story here.

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FDIC goes after IndyMac bankers

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The LA Times ran the story this week about the FDIC seeking damages against three officers of the now-defunct IndyMac Bank.

"When the Federal Deposit Insurance Corp. seized Pasadena housing lender IndyMac Bank four years ago, the scene resembled the grim bank failures of the 1930s.

"Panicked depositors, seeking to reclaim their money, lined up outside branches of the big savings and loan, whose collapse under the weight of soured mortgage and construction loans helped usher in the financial crisis and biggest economic downturn since the Great Depression.

"As those memories fade, the government's effort to reclaim losses stemming from the financial debacle grinds on, with one IndyMac case winding up this week before a federal jury in Los Angeles.

"The civil lawsuit seeks damages from three former IndyMac executives, accusing them of negligence in approving 23 loans that developers and home builders never repaid, costing the bank almost $170 million.

"The executives approved ill-advised loans because they earned bonuses for beefing up lending to developers and builders, said Patrick J. Richard, a lawyer representing the FDIC."

And what do the defendants say?

"This case," defense attorney Damian J. Martinez said in his opening statement Wednesday, "is about the government evaluating these loans with 20/20 hindsight after the greatest recession we've had since the Depression in the 1930s."

It's a story worth noting because the FDIC, read here "us taxpayers," will never recoup the kind of money it has cost to rescue IndyMac.  But the folks on trial should be thankful they don't live in China, crooked executives get a bullet in the head.

Read the full LA Times story here.

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FDIC closes 5 banks. Total for year is now 39

Five more banks closed by FDIC.

Regulators have shut down a total of five banks in Florida, Georgia and Michigan, lifting the number of U.S. bank failures this year to 39. That follows 157 bank closures in 2010 in a limping economy and mounting soured loans.


The Federal Deposit Insurance Corp. on Friday seized the banks: First National Bank of Central Florida, based in Winter Park, Fla., with $352 million in assets; Cortez Community Bank of Brooksville, Fla., with $70.9 million in assets; First Choice Community Bank of Dallas, Ga., with $308.5 million in assets; Park Avenue Bank, based in Valdosta, Ga., with $953.3 million in assets; and Community Central Bank in Mount Clemens, Mich., with $476.3 million in assets. Sphere: Related Content

FDIC bank closures - and they're off!

The FDIC hit the ground running this year by closing three more banks, bringing the total this year to 14.

The failed banks, so-called community banks, are located in Georgia and Illinois, but have a message that resonates across the country.

Community banks get their money locally, and lend locally.  When they venture into commercial loans, which tend to be larger, they enter dangerous ground because a problem with a commercial loan translates into a large hit on the bank's books.
Read the full report from the New York Times, Regulators close three banks

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Final count of 2010 bank failures at 157

From Deposits.com

This year ended with 157 bank closures which was 17 more than failed last year. The number of bank failures grew considerably when the financial crisis began in 2008. The number of failures went from 3 in 2007 to 25 in 2008. It's hard for me to remember the days before 2008 when bank failures were rare.

Depositors with large savings have a little less to worry about in terms of bank failures. The FDIC $250K coverage limit became permanent when the Dodd-Frank Wall Street Reform and Consumer Protection Act became law in July. This same coverage limit also applies to NCUA-insured credit unions.

So, how does this translate to the average homeowner? 

The main issue for depositors when banks fail is the loss of the high interest rate on their existing CDs. By law the acquiring banks are allowed to lower the interest rates on existing CDs. Many of the acquiring banks did make use of this allowance. The depositors are free to close the CDs without a penalty, but in today's interest rate environment, it's impossible to replace those CDs with new ones with the same high rates.

To see a list of failed banks and the full report, go to Review of the 2010 Bank Failures and Their Effects on Depositors

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When was the last time you got a bargain?

When did you last enter into a transaction where you a) got a steep discount on the price and b) the seller provided 100% financing? Well, read this story about the FDIC sales of two mortgage portfolios.

Real Money: The FDIC Sells Four Loan Portfolios Totaling $1.22 Bil.

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FDIC closes three banks – total to date is 146

Reuters reports that FDIC regulators closed three banks in the United States on Friday, November 12, 2010. This brings the number of closures in 2010 to 146.

“The Federal Deposit Insurance Corp has said it expects bank closures to peak this year after 140 closures in 2009. The bulk of this year's closures have been smaller institutions, each with less than a billion dollars in assets.”

“FDIC Chairman Sheila Bair said recently that while the number of failures will exceed last year's tally, the total assets of this year's failures will likely be lower.”

The weak link in the American banking world appears to be community banks as “their recovery has lagged behind that of larger institutions and the broader economy.” These banks are susceptible to the problems in the commercial real estate market because they have “higher concentrations” in these loans than bigger banks.

Read the full Reuters report.

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FDIC floats rules on when they’ll close financial firms

A story by Deborah Solomon in the Wall Street Journal covers an FDIC proposal that will let financial creditors take the hit when a financial firm must be closed “but left wiggle room for the U.S. to make payments to certain types of creditors.”

“The proposal is the first step in the government's effort to clarify how it will seize and dismantle large financial firms that run into trouble. The Federal Deposit Insurance Corp. was given authority to liquidate firms as part of the U.S. effort to prevent another collapse like that of Lehman Brothers, whose demise rippled through the financial sector.”

The FDIC is taking the action at the same time that regulators in other countries are addressing the so-called “too big to fail” firms and banks.

What’s the FDIC considering? As a first step

"it planned to prohibit additional payments to shareholders and long-term debtholders in the event of a firm's demise. The FDIC said it could make additional payments to certain short-term creditors in situations where it maintains "essential operations" or to "minimize losses and maximize recoveries."

The proposed rule has been put out for comment. We’ll keep you posted.

By the way, three more banks recently failed.

Here’s the WSJ story.

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The FDIC strikes back

The FDIC has announced it will be filing lawsuits alleging negligence by bank officers at several closed banks, the Washington Post reports. It’s about time.

“The Federal Deposit Insurance Corp. has authorized lawsuits against more than 50 executives at failed banks across the country in an attempt to recover more than $1 billion of the agency's losses during the credit crisis.

“More than 50 bank officers and directors were negligent, committed fraud or otherwise breached their duties and are, therefore, legally liable, the FDIC concluded after lengthy investigations into the first wave of bank failures.”

The FDIC has paid our over $75 billion since 2008 in connection with bank failures. Previous recovery efforts in the late 1980s were successful.

"These investigations are now beginning to produce results, and we anticipate that many more will be authorized," FDIC Chairman Sheila C. Bair said in a statement Friday evening. "As a matter of policy, the FDIC believes strongly in accountability for directors and officers whose personal misconduct led to a bank's failure."

Only one lawsuit has been filed so far against officers of IndyMac Bank.

I hope we see more.

Read the full story.

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From Market Watch - Two more banks fail; U.S. tally at 127

The FDIC recently closed two banks.  The total for the year has reached 127.  It's never clear from FDIC reports why a particular bank is closed, but the number of closed banks continues to increase suggesting that things are still not well in the finance marketplace.

Read the full report: Two more banks fail; U.S. tally at 127 - MarketWatch

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Thinking of a savings account? FDIC and NCUA insurance important

There's one thing that we should remember when it comes to opening a savings account or any type of bank account - deposit insurance.

Here's an informative article from E-Wisdom.com that you should find helpful.

"Consumers may consider a number of options when picking a new savings account, including its yield and fees, especially as new federal regulations cause banks to look for different ways to make up losses.

"A recent report from U.S. News and World Report Money's Jim Wang noted there are a number of factors consumers may consider when looking at a new savings account.

"The first thing they should check is if the banking institution is insured by the Federal Deposit Insurance Corp. Credit unions should have backing from the National Credit Union Administration.

"FDIC and NCUA insurance protect up to $250,000 per depositor and if a financial institution doesn't have that protection, pass on it," Wang wrote. "There's no reason why you should put your savings in a bank that isn't insured."

"Interest rates are another factor, and banks may offer a promotional period that lasts a set amount of time. Wang said consumers should make sure the "post-teaser" level is comparable to other offers.

"Potential fees also present a concern and these charges may be connected to how much money is in an account. Some savings accounts, for example, require that a specified minimum balance be maintained to avoid a monthly fee."

Go to the website- FDIC and NCUA insurance important when considering savings accounts

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Is the FDIC letting the foxes get a second chance at the hen house?

From the Associated Press:

“The Federal Deposit Insurance Corp. took over ShoreBank, with $2.16 billion in assets and $1.54 billion in deposits. Urban Partnership Bank, the newly chartered financial institution, agreed to assume ShoreBank's deposits and nearly all its assets.”

ShoreBank was shut down by the FDIC on Friday.  It was long expected.  According to the Associated Press, the bank

“has been known for its social activism but racked by financial troubles in recent months. A consortium funded by several of the biggest U.S. financial firms is buying its assets and pledging to operate the new bank by the same principles.”

So, what’s so strange about this turn of events? 

In an unusual move, the FDIC allowed some of ShoreBank's executives to continue running the restructured bank. Executives who joined ShoreBank recently, as the bank struggled to raise capital, will manage Urban Partnership Bank. These managers "did not contribute to the bank's problems," the FDIC said.

Well, we’ll see if the FDIC is right about that or if this is just another case of insiders getting a second chance at the gold.

Read the full story here.

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FDIC takes down 5 more banks - Forbes.com

Forbes.com is reporting that the nation has seen 108 banks closed this year by the FDIC.  Five more were closed at the end of July.

  As a result, The July failures drained the FDIC Deposit Insurance fund by $1.3 billion bringing the year-to-date total to $18.9 billion, well above the $15.33 billion prepaid assessments for all of 2010.

When will the takeovers cease or, at least, slow down?

Bank failures during “The Great Credit Crunch” began slowly as the FDIC only closed 25 banks during all of 2008. In 2009 the FDIC picked up the pace with 140 bank failures with a peak of 50 in the third quarter of 2009. So far in 2010 the FDIC closed 41 banks in the first quarter, another 45 in the second quarter, and so far 22 for the third quarter with two months to go.

The common denominator for weakness at the failed banks seems to be a high percent of non-residential and non-farm mortgage loans.  Construction and commercial loans did them in.

Yet, bank failures provide some good investing opportunities according to Richard Suttmeier, the Chief Market Strategist for ValuEngine.com.

Read the full report.

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FDIC's Bair weighs in on financial regulation

Sheila C. Bair, chairman of the FDIC, has an Op-ed in the New York Times supporting President Obama's call for a new regulatory network for banks and other financial providers.

"THE Obama administration has proposed sweeping changes to our financial regulatory system. I am an active supporter of the key pillars of reform, including the creation of a consumer financial protection agency and the administration’s plan to consolidate the supervision of federally chartered financial institutions in a new national bank supervisor. This consolidation would improve the efficiency of federally chartered institutions while not undercutting our dual system of state and federally chartered banks."

Bair then outlines the advantages of the Obama plan over other plans that have called for a single regulatory agency.

What concerns me is that Bair has been wrong before, most notably about the mortgage modification debacle. And when she says, "this is not about protecting turf. This is about protecting consumers and the safety of our financial system," my first urge is to run for the hills.

Read the full article, The Case Against a Super-Regulator.

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Defaults after mortgage modification worse than expected?

The Wall Street Journal addresses mortgage modifications and earlier predictions about high redefault rates. In fact, according to WSJ, "some redefault rates may reach 75%."

A central tenet of Washington economic policy for the past three years has been that the key to ending the recession is stopping mortgage foreclosures, whatever the cost. Well, another new study shows that mortgage-servicing companies are having a terrible time of it, not least because the mortgages are continuing to sour at a rate nearly as fast as they can be modified.

Yesterday's Journal reports that Fitch Ratings looked at mortgages bundled into securities between 2005 and 2007 and managed by some 30 mortgage companies. Fitch found that a conservative projection was that between 65% and 75% of modified subprime loans will fall delinquent by 60 days or more within 12 months of having been modified to keep the borrowers in their homes. This is an even worse result than previous reports by federal regulators. Even loans whose principal was reduced by as much as 20% were still redefaulting in a range of 30% to 40% after 12 months.

The reasons for the high redefault rate aren't surprising. Many of the borrowers never could afford these homes in the first place, yet the political pressure has been strong to modify loans even for these borrowers. As home prices continue to fall in some markets, borrowers remain underwater and many of them simply walk away from the home and thus redefault.

This study has to come as a blow to the Federal Deposit Insurance Corporation, which has invested a great deal of political capital in the modification thesis. It also means that to the extent that public money has guaranteed any of these loan modifications, the taxpayer will be an even bigger loser. Banks don't like to foreclose on borrowers, so the best public policy was always voluntary renegotiation. As for the housing market, the quickest way to begin a recovery is to more quickly let prices find a bottom. On the evidence so far, the mortgage modification fervor has been a giant political exercise with little impact on housing prices.

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Call Them Irresponsible - Rewarding those who put the 'liar' in liar loans

The Wall Street Journal's editors weigh in on the president's mortgage foreclosure prevention program: Call Them Irresponsible - Rewarding those who put the 'liar' in liar loans.

President Obama continues to insist that only "responsible families" will benefit from his foreclosure prevention program. Addressing Congress last week, Mr. Obama said his plan "won't help speculators or that neighbor down the street who bought a house he could never hope to afford." Sorry, Mr. President. It's becoming increasingly obvious that your plan is going to help tens of thousands of borrowers who put the "liar" into liar loans.

Why won't it work as planned? "In Congressional testimony last week, [Federal Reserve Chair]Mr. Bernanke compared many troubled borrowers to people who accidentally start fires by smoking in bed." FDIC Chairman Sheila Bair "told public radio that it would be "simply impractical" to review old mortgage applications and try to distinguish between honest and dishonest borrowers. All of this moved the Associated Press to report that the President's "assurance Tuesday night that only the deserving will get help rang hollow."

Mortgage fraud is not at an end according to the Mortgage Asset Research Institute and the Treasury's Financial Crimes Enforcement Network.

There is a moral hazard in rewarding bad decisions. But it's worse than that: The White House plan contains penalties for everyone else. The mortgage "cramdown," allowing bankruptcy judges to reduce the amount owed, can only make investors less willing to lend to future homebuyers.

Even Fannie Mae has warned "investors that its focus on foreclosure prevention "is likely to contribute to a further deterioration" in results. Since the Obama plan shovels another $100 billion each to Fan and Fred[die Mac] -- for a total commitment so far of $400 billion -- Fannie is talking to you."

What do you think? We'd like to know.

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Mortgage Modifications a Bust?

We have previously written about the failure of mortgage modification programs in the current economic crisis. See our post of December 10, 2008, Foreclosure Follies: A rebuttal to the FDIC modification plan. In our post we pointed out that the FDIC's prediction of a 15% or so failure rate when loans are modified was too low. Now, the Comptroller of the Currency is weighing in with a 50% figure. See, Second time no charm for homeowners appearing through the Washington Post wire service.

To answer the question why so many modified loans are failing is not easy. Could it be

• Loss of job?
• The type of modification, e.g. is the rate lowered or is the arrearage merely spread out?
• A feeling of helplessness when the home is worth less than the mortgage?

Some are concerned that a focus on re-default rates could discourage loan modifications. "That data just makes me wonder what kind of modifications those national banks and thrifts are doing. Were they sustainable?" said Mark Pearce, North Carolina's deputy commissioner of banks and a member of the State
Foreclosure Prevention Working Group.

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Foreclosure Follies: A rebuttal to the FDIC modification plan.

The Wall Street Journal continues its theme on the inherent weakness of the FDIC's proposed mortgage bailout plan. We commented on the FDIC's Sheila Bair's Mortgage Miracle on December 3, 2008. The FDIC responded to the WSJ in a letter to the editor "Our Foreclosure Plan" on December 7, 2008.

According to today's editorial,

The FDIC wants to pay loan servicers to restructure delinquent loans and then have taxpayers share the losses if the loans fail again after six months. The FDIC did not appreciate that we reported private data showing that more than 50% of modified loans go delinquent again. The agency suggested that 15% might be a better estimate.

That estimate just got a lot harder to defend. Comptroller John Dugan released the default numbers on loans modified in the first two quarters of 2008, based on data from institutions servicing more than 60% of all first mortgages. "What makes these quarterly reports unique is that they are not merely surveys, but instead consist of validated, loan level data," said Mr. Dugan. "We believe the reports include the most accurate and reliable data on mortgage performance that is available today."

The Journal's approach was somewhat ratified by a report issued by the Comptroller of the Currency, John Dugan, that showed high default rates following modification. "The results, I confess, were somewhat surprising, and not in a good way."

The editorial continues,

"Of mortgages modified in the early part of this year, more than 35% had gone at least 60 days delinquent again after just six months, and a full 53% were 30 days delinquent or more. By eight months, this default rate had climbed to 58%. Second quarter modifications are on track to be nearly as ugly, with more than 50% of borrowers at least 30 days delinquent at the six-month mark. Come to think of it, these stinkers are going south so quickly that perhaps the FDIC's plan actually will protect taxpayers -- there won't be much left to insure after these toxic loans blow up in the first six months after modification."

Perhaps New Jersey Governor Jon Corzine should take a closer look at these numbers and accept the strong possibility that his efforts to stop foreclosures will create more havoc in the real estate market by not allowing "toxic loans" to blow up and clear the mortgage out of the market place and allow the property to get into the real estate market sooner than later.


Stephen M. Flatow

Vested Title Inc., 648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306.
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NJ Governor Urges Mortgage Foreclosure "Timeout"

Timeouts are not confined to sports. According to Bloomberg News Service and other outlets,

"New Jersey Gov. Jon S. Corzine urged a “timeout” on foreclosures, saying keeping people in their homes is an important step in efforts to correct a “deeply troubled” market.

A three- to six-month freeze on foreclosures is needed as the “economic dominoes are picking up speed,” Corzine said today at a housing conference hosted by the Treasury Department’s Office of Thrift Supervision in Washington. Mortgage foreclosures rose to a record high in the third quarter as one in 10 U.S. homeowners fell behind on mortgage payments or were in foreclosure, the Mortgage Bankers Association reported last week."

According to the Star-Ledger, "Corzine's remarks followed news from banking regulators, stating that more than half of all homeowners who had their loans modified to make the payments more affordable in the first half of the year are already in default again."

In what direction will borrower assistance travel? Corzine would like to see the resurrection of an entity such as the Home Owners' Loan Corp. that was created in 1933 to help borrowers refinance troubled home loans during the Great Depression.

Even the FDIC admits a high rate of default after terms of modification are agreed upon. The solution will not be simple and it will be painful for lenders, especially if they are blocked from foreclosing.

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