In Florida, Foreclosures are Fueling Bank Failures – 13 So Far This Year
A very interesting article was written that highlights one of the many reasons (that I have discussed) that banks don’t want to foreclose on houses. Simply put, foreclosures can ultimately shut a bank down. Something not mentioned in the article is that banks will tend to negotiate more on high end homes as compared to lower end (i.e. mortgaged) homes. Why you may ask? Two reasons:
1. Affordability – Banks know that if they take a $100,000 house back into their swelling inventory, 80% of the population can afford this house. So, the likelihood of the lender selling this house quickly is high. On the other hand, a much smaller percentage (lets say 3%) of the population can afford homes of $1,000,000 or more. So, if they take these homes back they run the risk of sitting on them for an extended period of time. When they sit on these houses, the value of the property (in today’s market) goes down, they continue to pay for upkeep (maintenance, taxes, insurance etc.) and they expose themselves to potential liability (slip and falls in the house, vandalism etc.)
2. Insolvency – The reason banks are being shut down is because they become insolvent which means their performing assets are outweighed by their liabilities. These liabilities include houses that they take back in foreclosure. If a bank is owed $1,000,000 on a house that they foreclose on, the banks bottom line is affected, in the negative, by $1,000,000. A bank can take back ten (10) $100,000 homes and have the same NEGATIVE affect on their bottom line as One (1) $1,000,000 home. Do you get the picture?
As banks fail, we as tax payers also suffer. When the FDIC recently took over the failed Republic Federal Bank, it cost the FDIC (Us!) $122.6M. Multiply this by the other 132 bank failures that have occurred this year (the most since 1992) and you begin to sense the enormity of the problem. Short sales can be a solution to this problem. Call me and ask me how!
In Florida, Foreclosures are Fueling Bank Failures – 13 So Far This Year
by Staff
Miami’s daily newspaper called it a “Friday ritual” for Florida, another bank collapse, in a state that usually is in the top three for foreclosure filings or “underwater” mortgages.
And the two trends – bank shutdowns and foreclosures – are closely intertwined, regulators and analysts agree. Yesterday, the Federal Deposit Insurance Corp. said it sold Miami-based Republic Federal Bank’s branches, deposits and most of its assets to 1st United Bank of Boca Raton, just two counties to the north in South Florida. The failure is the 13th this year in Florida and is expected to cost the FDIC’s insurance fund $122.6 million.
“It (Republic Federal) failed because it experienced significant losses in its residential mortgage and commercial real estate portfolio,” FDIC Spokesman Greg Hernandez told The Miami Herald. “You couple that with a weak real estate market and it’s a formula for failure.”
So many bank failures have emerged in Florida, and neighboring Georgia, that the FDIC said it would open a “temporary satellite office” with about 500 workers in Jacksonville, Fla., located near Georgia’s border, to facilitate the closings of banks in both states.
This week, RealtyTrac, an online marketplace for foreclosures, reported that Florida posted the nation’s second highest state foreclosure rate in November, with one in every 165 properties receiving a foreclosure filing during the month. Florida took the No. 2 spot from California, which registered the nation’s third highest foreclosure rate — one in every 180 housing units falling into foreclosure.
A recent separate study of homeowners in negative equity nationwide showed that “underwater mortgages” are heavily concentrated in five states: Nevada (65 percent); Arizona (48 percent); Florida (45 percent); Michigan (37 percent); and California (35 percent). The Florida bank failure was one of three announced by the FDIC. All three cost the agency’s cash-strapped deposit-insurance fund a total of about $252 million.
Also on Friday, federal regulators seized Valley Capital Bank of Mesa, Ariz., and sold the one-branch bank’s deposits and assets to Enterprise Bank & Trust of Clayton, Mo.
Kansas regulators shut down SolutionsBank of Overland Park, marking the third bank to fail in Kansas this year. The FDIC sold the bank’s deposits, branches and assets to Arvest Bank of Fayetteville, Ark.
The 133 failures so far this year mark the largest number of bank collapses since 1992, when 181 lenders were shut down. Regulators and analysts expect the number of bank failures to remain high through next year.