Editor's Note: TheStreet.com earlier this month announced the purchase of certain assets of Weiss Group to form "TheStreet.com Ratings." Here is the first article from Melissa Gannon, director of insurance and bank ratings. Let us know what you think of the article by clicking here.
First comes boom, then comes bust, then comes bankers' headaches. Yes, the downturn in the housing market is translating into a rise in the number of nonperforming mortgages in the nation's banks and thrifts. Following steady increases throughout 2005, nonperforming residential mortgage loans leveled off a bit in the first quarter, at $21 billion, but are still up a whopping 50% over the same period in 2005. With the exception of New England and the Middle Atlantic states, banks in all regions of the country experienced double-digit increases in nonperforming residential mortgages. The Pacific region and the West South Central region, which includes those states affected by Hurricane Katrina, experienced the largest increases. Publicly traded banks with the largest year-over-year increase in nonperforming mortgages naturally include some of the largest banks in the country. Problems at Wells Fargo Bank (WFC Quote) started sooner than at other institutions, with trouble beginning to appear back in 2003. The problems leveled off in early 2006. Most of the rest of the industry's players experienced the beginning of their downturns last year, including JPMorgan Chase and Citigroup (C Quote). Is the industry in trouble? Not by a long shot. Total nonperforming loans have continued to decline from their peak in 2002 of $69 billion, and stood at $49 billion at the end of the first quarter of 2006. At the same time, the industry's profits have grown every year since 2001; in the first quarter, the industry earned $37 billion, an 8.7% increase over the $34 billion profit reported in the first quarter of 2005. The unknowns, of course, are the movement of interest rates and the extent of the downturn in the housing market. If interest rates resume their rise and home sales continue their decline, then we can expect to see an increase in troubled mortgages. Which banks are most likely to be affected by a further deterioration in the housing market? Those whose loan portfolios are largely made up of mortgages. Banks and thrifts with large mortgage holdings that overwhelm their equity capital and loan-loss reserves include:| High Exposure |
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| Bank | Mortgages ($Bil) | Mortgages as % of Total Loans | Mortgages as % of Capital and Loan-Loss Reserves | Holding Company | ||
| World Savings Bank(Oakland, CA) | $112.5 | 93.5% | 1,210.4% | Golden West Financial (GDW) | ||
| Citicorp Trust Bank (Wilmington, DE) | 33.6 | 89.9 | 1,153.2 | Citigroup (C) | ||
| Downey S&LA (Newport Beach, CA) | 16.0 | 97.2 | 1,101.5 | Downey Financial (DSL) | ||
| Countrywide Bank (Alexandria, VA) | 59.5 | 83.5 | 1,056.4 | Countrywide Financial Corp (CFC) | ||
| Flagstar Bank (Troy, MI) | 10.3 | 84.0 | 1,037.2 | Flagstar Bancorp (FBC) | ||
| Source: TSC Ratings | ||||||
| Banks With Largest Rise in Nonperforming Mortgages | |||||||
| Nonperforming Residential Mortgages ($Mil) | Nonperforming Mortgages ($Mil) | ||||||
| Name | Holding Company | 3rd Qtr 2006 | 3rd Qtr 2005 | 3rd Qtr 2006 | 3rd Qtr 2005 | $ Change | % Change |
| Washington Mutual Bank | Washington Mutual (WM) | 2,753 | 1,456 | 2,813 | 1,602 | 1,211 | 75.6 |
| JPMorgan Chase | J.P. Morgan Chase (JPM) | 1,668 | 663 | 1,899 | 978 | 921 | 94.2 |
| Wells Fargo | Wells Fargo & Co. (WFC) | 3,117 | 2,202 | 3,317 | 2,486 | 831 | 33.4 |
| Citibank | Citigroup (C) | 844 | 243 | 860 | 244 | 616 | 252.4 |
| US Bank | U.S. Bancorp (USB) | 773 | 154 | 920 | 339 | 581 | 171.2 |
| Source: TSC Ratings | |||||||
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