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Monday, August 3, 2009

FDIC Telling Banks to Come Clean on Home Equity Loan Losses

*Will we ever get the bank pullback?
Banks Urged to Consider Higher Home-Equity Reserves
Aug. 3 (Bloomberg) -- U.S. banks may need to boost reserves for potential losses on home-equity loans after the Federal Deposit Insurance Corp. issued guidance in response to a slump in property prices from their peak in 2006.

The regulator, in a letter today to banks and examiners, urged lenders to consider issues such as whether borrowers’ total housing debt exceeds the value of their properties and whether homeowners’ first mortgages have been reworked when determining allowances for losses on the debt.

Senate Banking Committee Chairman Christopher Dodd and House Financial Services Committee Chairman Barney Frank in a letter last month asked regulators to assess whether banks are carrying home-equity lines of credit, or HELOCs, and non- revolving home-equity loans at “potentially inflated values,” hindering efforts to have mortgages modified to stem the soaring foreclosures that have roiled the U.S. economy.

“It was probably triggered by the fact that the FDIC does not like what it is seeing with respect to marks on the HELOC books,” Paul Miller, a bank analyst at FBR Capital Markets in Arlington, Virginia, said in an e-mail today.

A drop in values has left about 22 percent of the nation’s 93 million houses, condos and co-ops with mortgages that exceed the value of the properties as of March 31, Seattle-based real estate data service said in a report May 6. Banks held a record $674 billion of HELOCs and $211 billion of closed- end home-equity debt as of March 31, according to FDIC data. more...

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