Residential mortgage loans grew by 9.6% ($214 billion) at the nation’s banks during the 12 months ending September 30, 2022. In addition, the quality of these single family mortgage loans improved significantly over the year.
The non-current rate for 1-4 family residential loans stood at 1.39% at the end of the third quarter—down 13 basis points from June 30th. That all sounds like good news, but much has changed since September 30th.
According to Freddie Mac, after bottoming out at 2.65% in January 2021, by the end of October 2022, the 30-year fixed rate mortgage average in the US was 7.08%. That being the case, the New York Times reported:
“Between soaring prices and rising rates, the typical home buyer in October paid 77 percent more on their loan, per month, than they would have last year, according to Realtor.com. With a national median asking price of $425,000 and a 10 percent down payment, that works out to an additional $1,117 every month.” - NYT 11/4/22
It’s no wonder bankers are expecting slower loan growth this year. In fact, last week, Realtor.com released its December statistics, showing that the slowdown has already begun. According to their metrics, new listings are down 21% from a year earlier and it’s taking longer to sell as well.
The median number of days on the market increased by 11 since December 2021. It now takes over 2 months (67 days), on average, to sell a home. Sellers reducing their asking price rose 6.5%, to 13.6%.
Due to these slowing sales, the number of homes currently on the market increased almost 75%, nationwide, from December 2021. The hardest hit region, the West, is nearing pre-pandemic levels with a 110.2% increase.
Bucking the national “time on market” trend were the Milwaukee and New Orleans metro regions, which saw a 16 day and 5 day decline, respectively, in active days on the market. (Keep those in mind.)
On page 7 we have a list of 53 banks that reported at September 30, 2022, that residential mortgage loans accounted for over half of their entire loan portfolio. They also reported that over 2% of those residential real estate loans are 90 days or more delinquent. Roughly half of these banks cut back on making residential real estate loans in the past 12 months.
Two that increased their residential mortgage loan portfolios during the first nine months of 2022 were:
Established in 1958, Bank of Louisiana had a relatively uneventful first three decades. In 1988, however, it acquired three local institutions, which proved to be a bit more than it could swallow in one bite. It took some time, but by the mid-1990s, Bank of Louisiana was back on sure-footing, where it enjoyed several years. In fact, it was recommended (5-Stars or 4-Stars) for 2½ of those years (10 quarters).
But alas, in 2015, Bank of Louisiana joined Bauer’s Troubled and Problematic Report as a 2-Star bank and it has never left. In fact, Bank of Louisiana was one of the banks featured in a 2019 article entitled Troubled Banks: The Long Goodbye (JRN 36:05).
In 2021, the FDIC issued an enforcement action against Bank of Louisiana that required a minimum leverage capital ratio of 8% and minimum tier 1 and total risk-based ratios of 10% and 12%, respectively. Some quarters it meets those requirements, often it does not.
What’s worse, repossessed assets represent 7.8% of net worth, total nonperforming assets represent 40.5% and it has only enough reserves to cover 65% of delinquent loans.
As for the other, Columbia S&LA has been in operation since 1924 and is considered to have a Commercial Lending Specialization. That’s misleading though, as almost 63% of its loans are for residential real estate.
Over the years, Columbia S&L has been the subject of several enforcement actions. In fact, one that is still in effect prescribes minimum capital ratios of: leverage 9% and total risk-based 12%. While the minimum risk-based capital ratio has been achieved and maintained, the leverage requirement remains elusive. At September 30, 2022, Columbia S&L had a leverage CR of just 7.74%.
Columbia S&L’s repossessed assets represent 11.5% of net worth, total nonperforming assets represent 39.5% and it has only enough reserves to cover 21.5% of delinquent loans. And yes, Columbia S&L was also included in The Long Goodbye (JRN 36:05).
It first dipped to 2-Stars in 2008, clawed its way back up to 3-Stars for a short time but was back down to 2-Stars in 2011. It has been a permanent fixture on Bauer’s Troubled and Problematic Report ever since.
This year will be a challenging one for both of these banks, as well as many of the others you see on page 7.