Big Banks Say Mortgage Crisis Is Over

The latest financial results from the banking industry point to a resolution of the mortgage crisis that nearly resulted in the nationalization of the country’s biggest banks three years ago.

In a dramatic turnaround the country’s largest banks have repaid government loans, often with large profits to the government.  Billions of dollars in new capital raised via stock offerings have strengthened capital ratios and repaired damaged balance sheets.  The largest banks, flush with cash, are requesting that the Federal Reserve allow the resumption of dividend payments due to their robust capital ratios and improved earnings forecasts.

The latest 9/30/2010 quarterly financial figures on the banking industry, as reported by the FDIC, suggest that the biggest banks are on the road to recovery.

  • Net income for all FDIC insured financial institutions totaled $14.5 billion, up from $2 billion a year ago.  The biggest banks (with over $1 billion in assets) accounted for $9.5 billion (65%) of total profits.  Some analysts estimate that profits for the banking industry in 2011 could total $70 billion.
  • Two out of every three institutions reported higher net income.
  • Provisions for loan losses fell by 44.5% to $34.9 billion.
  • Net charge-offs dropped for the second quarter in a row to $42.9 billion.  Charge-offs for one-to-four family residential mortgage loans dropped by 31.6%.
  • Noncurrent loans (90 days past due or in nonaccrual status) dropped for the second consecutive quarter by $8.3 billion. Noncurrent one-to-four family residential mortgages fell $1.7 billion.
  • Provisions for loan losses declined by $9.6 billion.  Although 60% of institutions increased reserves during the quarter, 9 out of the 10 biggest banks reduced their reserves.
  • Lending on one-to-four family residential mortgages increased for the first time in six quarters, up $5.3 billion.
  • Total residential mortgage loans of FDIC insured institutions (including both first mortgages and home equity lines) total $2.5 trillion, accounting for 35% of banks total net loans and leases of $7.1 trillion.  First mortgages total $1.88 trillion and home equity loans total $646 billion.

FDIC Quarterly Banking Profile

Despite the banking industry’s recovery from the depths of the financial crisis, the delinquency rates on residential mortgages are eye popping.

The amount of residential mortgage loans that are noncurrent (90 days past due or in nonaccrual status) is 9.68% and for home equity loans 1.82%.  The amount of 1-4 family residential mortgage loans 30-89 days past due is 2.85% and for home equity loans 1.23%.  The total delinquency rate on first mortgages is 12.53% and 3.05% for home equity lines.   Total loans in delinquency or default total approximately $256 billion.

In addition, banks currently own $14.8 billion of foreclosed 1-4 family residential dwellings (total real estate owned amounts to $53.2 billion).   Are the banks adequately reserved for current and future defaults on residential real estate?   Regulators and the banks both say yes.

For a counterpoint on the apparent banking industry recovery consider:

The Compelling Case For A New Wave of Mortgage Defaults and Bank Failures

Court Ruling Against Bank Foreclosures Could Spiral Into Full Blown Financial Crisis

The 22% gain in the KBW Bank Index since last November indicates that investors and Wall Street think the banking industry turnaround is for real.  2011 should be another interesting year for the financial sector.

KBW Bank Index - Courtesy Yahoo Finance


  1. usedkarguy says

    The banks’ crisis is over now they have amassed huge piles of cash at the expense of the American taxpayer. With the Fed pumping trillions to the banks at 0-0.25% interest and the banks getting above market rates from distressed borrowers (retail and wholesale alike), they are in a great position. That position is supported by the Obama Administration holding the Justice Department at bay to protect the big 5. We know there is no restoration of equity without extinguishment of debt. The banks have successfully robbed the homeowners, pension funds, the bond insurers, and sovereign governments. Should the taxpayers continue to let the government-supported banksters continue the crime? I think NOT!
    Homeowners, fight your foreclosure. All you prime people with underwater mortgages: stop paying. If you lost your house to a fraudulent foreclosure, do your research and get your house back. Until the citizens rise up against the bank oligopoly, there will be no restoration of the economy.

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