1115.org

Calculated Risk points to this shocking WSJ story on construction loans gone wild.

According to the Federal Deposit Insurance Corp., $45.4 billion of the $631.8 billion in construction loans outstanding at the end of the first quarter were delinquent. When banks announce second-quarter results in coming weeks, they are expected to report sharp increases in loans that builders can’t repay.
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Nearly one in three of the banks analyzed — or 2,182 — had construction-loan portfolios that exceeded 100% of their total risk-based capital, a red flag to regulators, although it doesn’t mean the bank is in danger of failing. Risk-based capital is a cushion that banks can dig into to cover losses.

Even more alarming, 73 of those banks had construction-loan delinquency rates of more than 25%. Executives at all of the banks that responded to questions acknowledged the problems but expressed confidence they had the capital to weather the storm.

Those executives need to understand that there can only be one Treasury Secretary at a time. And speaking of my main man Hank Paulson, you’ll remember his most recent prediction from just under two months ago:

U.S. Treasury Secretary Henry Paulson said U.S. financial markets are emerging from the credit crunch that many economists believe has pushed the country to the brink of recession, according to The Wall Street Journal.

“I do believe that the worst is likely to be behind us,” Paulson told the newspaper in an interview.

Good thing he didn’t accept my little wager, or he’d be preparing for a career-limiting tattoo right about now.

But the funniest bit out of the new WSJ story has to be this quote:

Some community banks are bristling under the regulatory pressure. “The federal government is being too reactionary,” says Damian Kassab, chief executive of Michigan-based Warren Bank, which reported that 47% of its construction loans are delinquent (emphasis added). “They want to see it done as quickly as possible. I say ‘can’t we just relax, take a deep breath and work with the borrowers.’”

Ah, yes, the “chill dudes” school of loan servicing. No word on whether Kassab was actually manning a gravity bong while negotiating with the FDIC.

I think now would be a really good time to make sure that any bank deposits you may have are under the FDIC’s $100,000 per institution insurance limit.