Another bank failure was reported today. Again the FDIC was prepared with a buyer and acted swiftly to be ready to reopen on Monday.
The bank that failed this time is Columbian Bank and Trust Company out of Topeka, Kansas. The failed bank's assets will be taken over by Citizens Bank and Trust . This is the 9th bank to fail this year, and the 2nd bank to fail in Kansas.
Losses in residential real estate lending were cited as the cause for the bank's failure to maintain adequate capital reserves.
This new bank failure takes place as the Federal Reserve is holding its annual economist meeting in Jackson Hole, WY.
Inflation, the mortgage markets, Fannie Mae and Freddie Mac troubles are all being discussed. In July inflation figures reached 5.6%, the highest in 17 years. Because of this, the decisions to lower the federal funds rates to 2.0% are being questioned.
One bit of good news is the recent decline in oil prices, but the bad news here is that the price still remains high.
NPR interviewed New York University economist Nouriel Roubini, who was one of the economists who, a couple years ago, warned of the likelihood of a coming mortgage crisis. He asserted that the US economy is in a recession and he pointed to the strong potential for it to extend to an global recession. He puts the blame square on the lack of regulation that allowed overly risky mortgages to be made.
These issues bring a picture of a tough market ahead, one that will be even tougher than it is at present.
High inventory.
Tightening credit standards.
Loss of high loan to value loan programs.
Growing foreclosures.
Upward pressures on interest rates from inflation.
Losses at FNMA and FreddieMac causing increased adversed market charges to closed loans, effective Nov 2008.
Decrease in numbers of qualified buyers, from loss of programs and economic problems.
These, and more issues including increased federal regulation, will make the restoration of stability in the housing market difficult.
All these issues combine with the facts of the recent purchase boom brought about by the dramatic increase in the numbers of home buyers who became newly qualified to purchase. They were newly qualified because of loan programs with less stringent credit and income standards, low downpayment requirements, and various low payment options. These programs are no longer available, and these formerly qualified home buyers can no longer purchase.
The recent boom years impact in at least two ways. First, recent home purchasers are not normally ready to purchase so soon. Second, the boom was fueled by an increase in qualified buyers who in many cases are no longer qualified.
We have probably returned to the 1990's levels of eligible home owners. The pending loss of seller funded down payment assistance will be the final impacting change. And I think the impact of its loss will be significant.
As an industry we need to focus on getting more people qualified to purchase at these higher credit standards. For the self employed, make sure your accountant understands the credit impact of all those deductions, legitimate though they may be. Those tax savings may keep you from purchasing a home.
My message to those who want to purchase a home: Take the steps to become qualified - credit and savings.
We can then hope that the Federal Reserve can keep enough liquidity in the system to lend even to qualified buyers.
Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.
FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, Renovation, FHA Renovation
rsmith@aamonline.com