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Mortgage Lending Suffers at Insured Banks

piggybank-cashThanks in large measure to more secure lending, U.S. banks in Q3 had their best quarter since 2009, FDIC reported this week. But though more solid loan products accounted for most of the quarter's growth, mortgage lending fell by nearly half a percent.

FDIC-insured institutions earned $38.7 billion in the third quarter of 2014, a 7.3 percent increase from a year ago, according to FDIC's latest Quarterly Banking Profile. At the same time, the number of banks in trouble dropped for the 14th straight quarter.

According to FDIC, total loan and lease balances rose by nearly $51 billion to $8.2 trillion overall. This upswing was led mainly by nearly $20 billion in new industrial and auto loans.

Mortgage loans, still hampered by regulations designed to prevent a recession relapse, dropped by nearly $7 billion.

"It's painfully clear that new regulatory requirements have restrained mortgage lending and have made it particularly difficult for first-time homebuyers," said James Chessen, chief economist at the American Bankers Association (ABA). Chessen called the regulations a "complex and liability-laden maze of compliance" that has made mortgages tough to write and even tougher to get by those with weak or less-established credit.

While earnings were solid in Q3, FDIC Chair Martin Gruenberg acknowledged that profit margins remain under pressure in the current realm of low-interest rates. Institutions, Gruenberg said, have responded by extending asset maturities, which raises concerns about interest-rate risk.

On the upside, losses and problem loans, according to ABA, are back to pre-recession levels as banks continue to improve their portfolios.

"The level of non-performing loans is down more than 58 percent since its peak in the first quarter of 2010," Chessen said. "We may have reached the bottom of the credit cycle as the process of purging bad loans nears the finish line."

Smaller community banks in particular posted strong growth. Thanks largely to more localized business loans that are seeing more new companies through the early days, community banks earned nearly $5 billion in Q3 and accounted for 45 percent of the quarter's small business loans, FDIC reported.

Whether this stability in lending will lead to eased restrictions in mortgage originations is, of course, another story. Neither FDIC nor ABA would speculate on when—or if—some of the red tape may be cut, but both agencies seem confident that the growth in other loan products and more diligent asset management will help keep the banking industry on a more sustainable footing as 2015 sets in.

About Author: Scott_Morgan

Scott Morgan is a multi-award-winning journalist and editor based out of Texas. During his 11 years as a newspaper journalist, he wrote more than 4,000 published pieces. He's been recognized for his work since 2001, and his creative writing continues to win acclaim from readers and fellow writers alike. He is also a creative writing teacher and the author of several books, from short fiction to written works about writing.

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