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Hazardous Lending and Lax Collection Practices
one of minnesota’s largest and oldest community banks, forest lake’s mainstreet bank gets fdic order to change.mainstreet bank of forest lake, one of minnesota’s largest and oldest community banks, has received a cease-and-desist order from the federal deposit protection corp., alleging “hazardous lending and lax collection practices.” my talk about: if hazardous lending and lax collection practices are grounds for stop and desist orders, then about 1000 notices ought to be flying out of fdic headquarters virtuous now, starting with citigroup (c), bank of america (bac), wells fargo (wfc), and sedate some newly created bank holding companies disposed to gmac.like many community banks, mainstreet is getting stung by loans it made to developers and builders during the heartfelt estate boom, when property prices were customary nowhere but up. now, those loans are souring at an alarming dress down, and banks that hold the loans are being ordered by submit and federal regulators to clean up their lending practices.the fdic claims mainstreet operated with policies and practices that “jeopardize the safety of its deposits.” the 105-year-well-versed bank, which has nine branches in the twin cities area, operated with an excessive level of delinquent loans and did not keep an OK excuses for credit and lease losses, according to a 23-page dictate, issued dec. 12 and made notable friday.my comment: the whole freaking system is insolvent. there is nothing special about mainstreet. what is rare is the perhaps 10-20% of the banks that did nothing ho-hum but are being punished exchange for it. fdic insurance has cd bread flowing to the crappiest of crappy banks.anecdote way to tell if a bank is crappy is to look at the cd pace. if it is way above normal, then pretend to it is implicated in way over normal peril.out of commercial real belongingsa mainstreet spokeswoman said friday that the bank is moving shortly to address the fdic’s concerns. it has temporarily stopped making loans to natural estate developers, and will focus instead on consumer and business loans.”it’s back to our core, which is community banking,” said karen greisinger, chief marketing officer. “all of our products are still in place. we’re motionlessly making loans. but we’re just moving away from that segment — commercial real estate.”my comment: now there’s a fantastic plan. mainstreet made dicky loans on commercial verifiable development and now wants to results to its quintessence business of making hazardous loans to consumers smack in the face of a soaring unemployment standing.in minnesota, the delinquency rate on commercial mortgages and construction loans made by brilliance banks rose 84 percent in the third clemency of 2008 from the same locale a year earlier, according to foresight analytics, a california real estate research firm.”it was the residential housing market that explode first,” said jennifer thompson, a monetary analyst with portales partners. “but all these deeply builders borrowed from someone, and those loans are starting to slit, too.”as of sept. 30, an alarming 37 percent of the bank’s construction and land loans were more than 30 days nearby due — nearly four times the national average, according to foresight.about 100 minnesota banks give birth to more than four times their tot up capital in commercial real estate — a parallel at which heightened scrutiny from examiners may be warranted, according to the fdic.let’s translate that last sentence so that it reads correctly: “as many as 100 minnesota banks may be doomed to falter having affianced in hazardous lending and slipshod collecting practices centered around commercial real estate”.a tsunami of commercial real estate failures is coming. and when it comes to “lax collection practices”, you either have the money or you don’t. all the debt collectors in the universe cannot squeeze blood out a bankrupt turnip.mike “mish” shedlockhttp://globaleconomicanalysis.blogspot.comclick here to scroll thru my recent post listmike “mish” shedlock is a registered investment advisor representative for sitkapacific capital management. sitka pacific is an asset management firm whose aim is numerous behaviour and low volatility, regardless of market direction. visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of sitka pacific.
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