Tag Archives: banks

FDIC Quarterly Banking Profile: The Good, The Bad and the Basics

The FDIC just released its Quarterly Banking Profile (“Report”) for the period ending December 31, 2011.

Although, the Report shows a decline in the number of problem institutions compared to recent periods, the number is still elevated compared to historical levels.   Therefore, this decline does not mean that the current banking crisis has passed.

What is a problem institution?

A “problem” institution is a bank that has been rated by the FDIC as either a “4” or a “5” on the agency’s 1-to-5 scale of ascending order of supervisory concern.

How do the current number of problem institutions compare to historical levels?

The Report shows 813 problem institutions compared to 844 at the end of the third quarter and 884 at the end of 2010.  The quarterly decline amounts to a drop of approximately 3.6%.  The 2011 annual decline represents about an 8% drop.

What were the number of problem institutions in 2007 and 2008?

At the end of 2007, there were 76 problem institutions.  At the end of 2008, there were 252 problem financial institutions.

Do a declining number of problem institutions indicate improvement?

Fewer problem institutions is not an indication of a greater number of improving institutions.  In fact, most of the decline is due to problem banks either failing or merging with other banks. The total number of reporting institutions has declined from 8,305 at the end of 2009 to 7,658 at the end of 2010 and only 7,357 at the end of 2011.  The Report does not include information indicating how much of the decline is due to improvement versus other factors overall as this information either has not or cannot be assessed.

What does a decline in the number of bank failures mean?

There has been a decline in the number of bank failures. So far, for the year 2012, there have been only 11 bank failures compared to 23 at this time last year. However, it is difficult to draw a conclusion based on this number. With over 800 problem institutions and banks continuing to fail, it is clear that we are still in a problem period.

What is the good news?

The Report indicates that the overall outlook for the industry is one of recovery, growing net income, declining loan loss provisions, and declines in noncurrent loan balances.

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Home Affordable Modification Program (“HAMP”) to Be Extended and Expanded

Friday, the administration announced its plans to expand the eligibility for its Home Affordable Modification Program (“HAMP”).

Didn’t Work As Planned

In February 2009, HAMP was introduced as a plan designed to help 4 million mortgage borrowers. However, HAMP has helped fewer than 1 million homeowners.

Banks Encouraged to Reduce Loan Principal

To encourage the implementation of the expanded plan, incentives will be tripled to pay banks that reduce principal on loans.

Lenders will be paid between 18 cents and 63 cents for every dollar the lenders take off the mortgage principal. The prior amounts were between 6 cents and 21 cents for every dollar.

Freddie Mac and Fannie Mae Included

The expanded plan will include incentives for Fannie Mae and Freddie Mac to reduce principal on loans.

Until now, only private lenders and banks were offered incentives to reduce principal on loans.

Calculation of Debt to Income Ratios Will Be More Flexible

HAMP was designed to lower the debt ratio of mortgage borrowers to 31% of their income. Homeowners with mortgage payments below that ratio did not qualify for a loan modification. New guidelines will permit a more flexible calculation of debt to income ratios.

Expanded Umbrella

Previously, only mortgage holders of owner-occupied homes qualified. Now owners of rental properties may also qualify, thereby expanding the number of people this can affect.

Program Extended

The program is extended to December 2013. It was initially set to expire at the end of this year.

The changes in HAMP do not take effect until the end of April 2012.

How does the Federal Housing Finance Agency View the Changes?

The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, issued a statement that said it would consider the changes to HAMP.

However, it noted that an analysis it recently conducted found “that principal forgiveness did not provide benefits that were greater than principal forbearance,” signaling that the housing authority may not support reducing the principal on loans as a way to help homeowners.

Questions For You

What do you think about the Federal Housing Finance Authority Agency Study?

Do you think real estate investors should be subsidized with taxpayer money while rents are rising in this economy?

Do you think it is a good idea to subsidize the real estate investor in an effort to prevent housing vacancies and lower housing values?

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