"Toxic Loans Topping 5% May Push 150 Banks to Point of No Return "

Toxic Loans Topping 5% May Push 150 Banks to Point of No Return

Should we care?

More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival.

The number of banks exceeding the threshold more than doubled in the year through June, according to data compiled by Bloomberg, as real estate and credit-card defaults surged. Almost 300 reported 3 percent or more of their loans were nonperforming, a term for commercial and consumer debt that has stopped collecting interest or will no longer be paid in full.

Cash Drain

Nonperforming loans can eat into a company’s earnings and deplete cash, leaving banks below the minimum capital levels required by regulators. Three lenders with nonaccruing ratios of at least 6.2 percent as of March were closed last week. In addition, Chicago-based Corus Bankshares Inc., Austin-based Guaranty Financial Group Inc. and Colonial BancGroup Inc. in Montgomery, Alabama, each with ratios of at least 6.5 percent, said in the past month that they expect to be shut.

Exclusions

Bloomberg’s list was compiled by screening U.S. banks for nonperforming loans of 5 percent or more, and then ranked by assets. The list excluded U.S. territories and lenders that have already failed. Also left out were the 19 lenders that underwent the Treasury’s stress tests in May; they were deemed “too big to fail” and told by regulators that government capital was available to keep them in business.

A non-performing loan is:

A non-performing loan is a loan that is in default or close to being in default. Many loans become non-performing after being in default for 3 months, but this can depend on the contract terms.

“A loan is nonperforming when payments of interest and principal are past due by 90 days or more, or at least 90 days of interest payments have been capitalized, refinanced or delayed by agreement, or payments are less than 90 days overdue, but there are other good reasons to doubt that payments will be made in full” (IMF)

link

It seems to me that predatory lending practices are coming back to haunt banks. While it is the individuals responsibility to not over extend themselves financially, banks should have never given out loans to people who were deemed most likely to never be able to pay them back. This is exactly the market that sub-prime loans targeted. A sub-prime loan is defined as:

A type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. Quite often, subprime borrowers are often turned away from traditional lenders because of their low credit ratings or other factors that suggest that they have a reasonable chance of defaulting on the debt repayment.

link

We the people have already pumped billions of dollars into the coffers of these banks to keep them afloat after their questionable practices left them on think ice. Why should we give any more than we already have?

I think the time has come to let these predators starve in the new economy just like the rest of us. This is after all, their own fault.

We could very easily spend this money on investments in the future of the nation rather than its past. Such investments would eventually benefit we the people rather than the banks and the ultra-wealthy who run them.

reply to post by Animal


I don't know if we should care or not. We can't really do anything about it, now can we?

reply to post by Animal


Some may care, some may not; but their predatory lending practices are certainly coming back to bite them hard!

The company that held our auto loan had told us to call back in about 6 months to "refinance" to a lower payment; so we waited the six months. We had already paid of more than half the loan and felt that having had been on time etc we deserved a lower interest rate. WELL imagine our surprise when the "district manager" told us that they would NEVER say that as they where NOT "licensed" to refinance loans!

I said oh really you record all of your calls, you say this when you answer the call in and you have exactly 24 hours to get it refinanced. Still nothing heard back from them so we called again....still the same answer still denying they told us they could. SOOOO
We called back again and told them to come and get it! It was in mint condition and worth well over 12,000 dollars. They sold it for 5,000 dollars and now want me to pay them the difference....

and people wonder WHY the banking lenders are in so much hot water with their customers! They have been getting away with breaking the law for a few years and NOT ONE agency has listened or stepped up to bat for the people. (or me for that matter wouldn't even listen nor give me an address to file a complaint )
The banks are getting what they deserve....if I was to lie to you over and over sooner or later you wouldn't trust a darn thing I say...someone needs to remind the banks of this; no one trusts them anymore

[edit on 15-8-2009 by xoxo stacie]

I've said it before and I'll say it again, just wait until the credit card companies discover that their customers have been buying the weekly shop to stay above water.

People in the UK are still using their credit cards, I assume it's the same in the US?

With the massive levels of unemployment, hours cut, pay cuts, people have been living off their cards wherever possible and paying the minimum (if that), and I don't think any one company has actually begun to stop this.
They're still looking at their books and rubbing their hands together at all that interest they'll get, and not actually considering that there is a point where this becomes impossible.

Considering that it's possible, via interest and penalties, to rack up a debt many times your income, isn't it plausible that there's actually more debt, every day, than actual money in existence to pay it off? At some point, this imaginary debt surely must be so great that it can never be paid..

reply to post by Animal


www.abovetopsecret.com...

The thread I put out tonight shows 305 banks teetering on the brink of no return. Whether it's based off over leveraging or non-preforming loans it seems the general safety of the financial markets is no where near safe.

In fact, year over year 2008 showed 90 banks near failure, while 2009 shows 305 according to the FDIC. I couldn't find a list of the actual banks on the watch list. Also today the 6th largest bank failure in American history occurred, and there was a blip about it on the news.

edit to fix years

[edit on 8/15/2009 by Rockpuck]

They should just call a worldwide year of jubilee and hit the reset button.


The commercial real estate is starting to hit, and well....it's not gonna make things any better! call a year of jubilee, introduce the amero, and well, we all own what we have free and clear.

otherwise, well, too much of our assets are gonna be going up on the auction block for unpaid taxes and the like, and well, the only ones who have money to scoop down and pick em will be a few rich americans and alot of foreign interests.

and the chinese import their labor when they move a company into another country!