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S&Ls hit hard by loan troubles

Problems in home mortgages help drive troubled assets up 50%.

August 22, 2007|From the Associated Press

washington -- Mortgage troubles slammed the savings and loan industry last quarter, according to a report released Tuesday.

Troubled assets -- loans that are 90 or more days past due -- jumped to $14.2 billion last quarter, up 50% from $9.5 billion in the same quarter last year, the Office of Thrift Supervision said.

That's the highest level of troubled loans since 1993, with most of the problems in home mortgages, agency officials said, emphasizing that thrifts should be able to weather the downturn.

The level of delinquencies is still about one-third as high as in 1989 through 1991, when the commercial real estate market faced a severe downturn.

Troubled assets rose to 0.95% of total assets in the quarter for the 836 federally regulated thrifts, up from 0.62% in the second quarter of 2006 and 0.8% in the first quarter of this year. Also, the number of institutions that the agency designates as "problem thrifts," based on a low ranking for financial stability, rose to 10 at the end of June from four last year.

About 4% of thrifts' total assets are in sub-prime loans, agency officials said. Still, officials said thrifts had adequate financial cushions and would emerge from the housing downturn.

"We have well-managed institutions, and management understands [that] business cycles change," said Scott Polakoff, the agency's chief operating officer.

Mortgage delinquencies and home foreclosures have skyrocketed this year, causing layoffs at banks and mortgage lenders, such as Countrywide Financial Corp. and Capital One Financial Corp.

Delinquencies rose to 1.26% of single-family mortgages in the second quarter from 0.8% in the year-earlier quarter.

Housing market turmoil is contributing to a broader drop in the availability of credit, as banks pull back from riskier loans. Leading savings and loans include Washington Mutual Inc., based in Seattle, and Sovereign Bancorp Inc., based in Philadelphia.

The thrifts reported net income of $3.84 billion in the second quarter, down nearly 9% from $4.21 billion in the year-earlier quarter.

Total single-family mortgage originations rose nearly 17% to $173.3 billion, driven by an increase in borrowers refinancing adjustable-rate loans to fixed-rate loans.

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