In 2006, the banking industry recorded their sixth-consecutive year of record earning, with 0.7 percent of loans filed as delinquent, and only 50 banks performing in an unsatisfactory manner, said Housing Wire. All in all, things were looking great.
“However, as we soon learned, the apparently strong performance of those years in fact reflected an overheated housing market, which was fueled by lax lending standards and excess leverage throughout the financial system,” Federal Deposit Insurance Corp. Chair, Sheila Bair said to Housing Wire.
Now, she expects the deposit insurance fund to find leverage this June-elevating back to the positive status we saw in 2009.
The number of delinquent loans, previously at 0.7 percent in 2006, turned into a larger sum of 5.5 percent in early 2010, and the 50 banks of concern were now 150; today, this is even worse with 888 banks listed, according to the article.
Another crucial improvement needed, which was also recently voiced by NAR’s chief economist (Lawrence Yun), is the millions of mortgages, approximately 2.25 million, remaining in the foreclosure process.
The DIF estimated losses totaled $84 billion since 2006. At its lowest, the DIF sat at a negative $20.9 billion balance. However, Bair told Congress that because of actions the FDIC took, the regulator never had to draw from the Treasury Department. Instead, assessment rates were increased at the beginning of 2009, raising revenue to $12 billion that year, and up to $14 billion in 2010. In the summer of 2009, the FDIC imposed a special assessment, bringing in another $5.5 billion. Then in December 2009, the FDIC required banks to prepay almost $46 billion in assessments.
At the end of March, the DIF stood at a negative $1 billion balance. The regulator implemented an assessment rate to achieve a reserve ratio of 1.3 percent of insured deposits by Sept. 30, 2020. This was required under the Dodd-Frank Act.
Bair said that the market is slowly recovering; roughly 2.25 million mortgages remain in the foreclosure process, slowed by the inefficiencies of servicers.
As the market continues to mend, Bair pointed out the almost 7,000 community banks are more capitalized than their larger counterparts but suffer from a distinct competitive disadvantage.
“The competitive position of small and mid-sized institutions has been steadily eroded over time by the government subsidy attached to the too-big-to-fail status of the nation’s largest banks,” Bair said. “Every financial company, no matter how large, complex and interconnected, also must be constrained by the discipline of the marketplace and face the credible threat of failure.”