As banks yanked loans last week, sparking the collapses of Bear Stearns, new federal data showed that the state had just three more commercial banks reporting a loss in the fourth quarter, of 128 statewide.
Nationally, banks reported their lowest fourth-quarter combined profit since 1991, according to the Federal Deposit Insurance Corp., with earnings down 84 percent from the fourth quarter of 2006.
Banks set aside a record $31 billion against potential loan losses, FDIC reported, as net charge-offs for commercial and industrial borrowers doubled and overdue loans increased by a third, the largest rise since 1983.
For the first time in recorded history, banks incurred a loss on trades during a financial quarter.
Amid the steady thud of repercussions from the financial markets, there were a few relatively bright spots. Banks notched record deposit growth in the quarter, and net interest income increased 12 percent from the fourth quarter of 2006.
And the magnitude of the industry losses was concentrated in a relatively small number of large institutions. And while the number of “problem institutions” increased from 50 in 2006 to 76 in 2007, that was still well off the 2002 total of 136 problem institutions.
The question that remains to be seen is whether the first-quarter numbers will eclipse that mark. For the first time this decade, more than 1 percent of all loans by New York”™s commercial banks were classified as overdue, double the rate of a year ago.
Of the 30 commercial banks in New York with less than $100 million in assets, nearly half reported a loss in the fourth quarter, despite a drop in non-current loans to 0.62 percent of all loans outstanding in December.
Smaller commercial banks often build their loan portfolio through lending on multifamily dwellings, which as investment opportunities spurred a significant amount of subprime mortgage borrowing in Queens and Kings counties. According to the New York State Department of Banking, 40 percent of all foreclosure filings in the state last year were for homes in those two counties.
Westchester County had more than 2,110 foreclosure filings last year, while Rockland County had 825 foreclosures and Putnam County more than 450. Together, the three counties accounted for 10 percent of the statewide total, according to Jane Azia, director of non-depository institutions and consumer protection at the state Department of Banking.
Last month, Azia testified to the U.S. House of Representatives on initial results from a study of how banks are attempting to “work out” troubled, adjustable-rate mortgages (ARM).
The study found that in New York, one third of the subprime mortgages scheduled to reset to higher rates in 2008 and 2009 are already delinquent by at least 30 days. Seven in 10 borrowers classified as “seriously delinquent” were not on track for any program that might help them avoid foreclosure.
Azia cautioned the problem could be worse, as the state study did not include data from J.P. Morgan Chase and Wells Fargo, which declined to provide information on the advice of the federal Office of the Comptroller of the Currency.
“Payment resets on hybrid ARMs have not yet been a driving force in foreclosures,” Azia warned. “A significant percentage of subprime adjustable rate loans are delinquent before they experience payment shock, reflecting weak underwriting or origination fraud. This portends increasing foreclosures if ”˜servicers”™ do not find ways to fix loans before payments increase further.”
It remains to be seen whether steep interest rate cuts by the Federal Reserve will rekindle refinancing opportunities for home owners. Azia indicated the state Department of Banking had found little activity to date on that front.
