Warning on Amboy Direct

[brewer12345]

It has recently come out thet Amboy National Bank (aka Amboy Direct) has a large wad of loans that have gone bad. They are the largest creditor of Simon Dwek, a RE developer that went bust, and I believe they are the largest creditor of the newly-bankrupt Kara Homes. My best judgement is that these loans will produce modest losses, if any. But BK has a way of exposing more problems than anyone knew about, and RE developer bankruptcies have a nasty habit of cascading.

Bottom line: I don't think Amboy is likely to have any solvency issues, but if this stuff bothers you, it might be time to shop around. E-Loan, for example, is now paying more for savings accounts.

 

[audreyh1]

Fascinating! Are there some articles on the web were I can follow this as it unfolds?

Audrey

 

[brewer12345]

http://www.app.com/apps/pbcs.dll/article?AID=/20061015/NEWS/610150396

 

[audreyh1]

Regulators are proposing new guidelines meant to warn banks about overlending. The guidelines would recommend that banks do not lend more than three times their capital for all commercial real estate combined.

That means if the bank has $100 million in capital, it should be careful about making more than $300 million in loans to businesses or developers, or it could face regulatory scrutiny.

In New Jersey, 47 percent of the 95 national- and state-chartered banks are already over the proposed guideline, an Asbury Park Press analysis of federal data showed.

Federal bank regulators say they are not overly worried about bank failures.

So, why does it take so very long to upgrade guidelines? Seems like the cat's already out of the bag.

Audrey

 

[brewer12345]

So, why does it take so very long to upgrade guidelines? Seems like the cat's already out of the bag.

Audrey

I think that the APP's analysis is flawed, since they chucked all commercial RE loans into the bucket, not just development and construction loans. As I understand the regulatory guidance, it applies only to so-called C&D loans, not to standard commercial mortgages. If you look at it in the way I understand it, most banks are well within the new guidance.

So why does it take so long for bank (and insurance) regulators to change regulations? There are a lot of reasons:

- There are many different regulatory bodies, not all of who agree on any changes and each has a different constituency.
- Regulators are reluctant to be overly heavy handed lest they curb credit availability and stunt economic growth.
- Regulators are exposed to political pressure. Look who is in charge now and guess which way they lean.
- The process of making a significant change is lengthy, including comment periods, revisions, addendums, political interference from Congress, etc.

Fortunately, regulated financial institutions are hard to kill, so the regulators can be a bit sluggish because it is hard for a financial institution to do much damage without a few years in which to do it (absent fraud). In cases of fraud, someone is going to jail, and it ain't gonna be Club Fed.

 

[audreyh1]

Yes, I guess it's one thing to have certain guidelines on banks and their loan portfolios and that such guidelines would change slowly over time.

What has really shocked me has been the loan practices for permitting fraudulent declarations of an applicant's income. I just for the life of me don't understand how such a thing can be "allowed". And it seems to be in the spirit of - hey, for just 0.5% higher interest rate, we'll go with "stated income" - i.e. let you lie on your application (or lie for you).

There used to be really strict rules to prevent a loan applicant from getting in over his head (or at least trying to prevent it).

Audrey

 

[brewer12345]

What has really shocked me has been the loan practices for permitting fraudulent declarations of an applicant's income. I just for the life of me don't understand how such a thing can be "allowed". And it seems to be in the spirit of - hey, for just 0.5% higher interest rate, we'll go with "stated income" - i.e. let you lie on your application (or lie for you).

This really came from the banks trying t reach into/serve the underground economy. Off the books folks and illiegal immigrants can't document their incomes with a W-2, yet inmost cases they are solid credits. So the original move into the "liar's loan" was motivated by that, and it usually required solid equity in the property, a credit check, and some eidence of other assets. But you know how things go when there aren't any loan losses in a decade, so lenders got more and more aggressive.

I think we are at the start of the reversal of this process.