Lenders.....next up-the smaller community bank problems!

Mortgage and Lending with Your IRA guy!

Well, Aurora going down was perhaps the worst kept secret in the industry-followed closely by Bank of America's purchase of Countrywide.

What big time lender is next?  I'd have to guess WAMU (Washington Mutual).  Lender buyouts are starting to increase.....and nothing will surprise me anymore.

We also have to turn our attention now to the smaller community bank sector.  They could have and probably used relaxed underwriting-especially for "small business" such as contractors!-and all of the smaller banks wanted to get into the profitable construction business!  Also, if they went as far as doing 100% LTV 2nd mortgages, they are probably now doing what they can to keep some of those loans on the books.

I can see the fall out from the 2nd mortgages being tough on banks-and right now their problems are sort of flying under the radar because all of the media is focusing on the bigger lenders.  Watch the area community banks-look for continued banking sector consolidations to include some of the smaller area banks.

Example; TCF-has shown to be a good bank, profitable in the past-it makes a lot of fee income on NSF fee's but, they are also deep into home equity loans-this bank is trading at year lows (10 year lows I believe) and should finally be bought out-but the buyer had better review their mortgage make up carefully.  It MAY be a good time to add a little TCF to your stock portfolio as a short term play on a buyout.

The banking sector isn't safe yet-there's still a lot of ARM issues that haven't surfaced (Adj mortgages that people haven't refinanced but are currently making the payments, loans that haven't adjusted yet, etc.), the 2nd mortgage defaults will be the next big issue-and this just may take out some of the area community banks.

Because there is always a positive to every story...here it is!  -it's a great time to look at buying a home-rental markets are up, housing prices are down, and mortgage rates are currently back down to 2004 levels! 

Comments (5)

Brian Schulman
Coldwell Banker Residential Brokerage, Lancaster PA - Lancaster, PA
Lancaster County PA RealEstate Expert 717-951-5552
Good analysis, Michael.  The smaller banks may not be in the limelight now because they have portfolio'd their questionable loans and it hasn't hit the fan yet.  The small lenders who are still independent may yet need to be swallowed by larger banks, and then will be following the large lenders' policies - which right now, are excessively constrictive.
Jan 20, 2008 06:43 AM
Laura Gray
RE/MAX Realty Group - Gaithersburg, MD


 I hate to burst your bubble in regards to WAMU , but they closed most of, if not all their doors in our area last December 2007. (Mid-Atlantic Reagion) If it wasn't for the fact that we are so close to Washington DC , I doubt anyone in our government would be coming up with a plan to bail-out the mortgage/housing industry.

 Laura Gray

Jan 20, 2008 06:47 AM
Michael Schindler
Your IRA guy! - Galesville, WI

Thanks Brian!

I'm worried about some of my area smaller banks-As a mortgage broker, I learned their underwriting guidelines so I knew where I could send 2nd mortgages to -depending on what they needed (credit scores, Loan To Values, Income guidelines).  There wasn't anything wrong with the loans when they were written (I don't have any adjustable loans in my clients portfolios) but, with our market turning here, I know there are a TON of 2nds sitting behind 1st mortgages that are collapsing-or will shortly.

And it doesn't help matters any when some area realtors are talking to the people about short sales-telling them they should just stop making their payments then sell their house as a short sale.  No situation has a cookie cutter answer........but it seems no one takes accountability for their actions anymore.

Its a sad time.





Jan 20, 2008 06:53 AM
Michael Schindler
Your IRA guy! - Galesville, WI


Burst my bubble?  they are still a major bank/lender?  Maybe they moved out of your area but are still in other parts of the country so, you haven't burst my bubble at all???????  There is more to a bank than a physical branch location.

And it's not the governments problem to fix. but, because it's an election year, it's a hot topic-but there really isn't a fair solution.  it, like the stock market, needs a correction so we can all move forward.



Jan 20, 2008 07:03 AM
Larry Bettag
Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 - Saint Charles, IL
Vice-President of National Production
Great analysis...the biggest determining factor will be time!!!!!  Stay tuned huh
Jan 20, 2008 07:27 AM