According to a FDIC report, 478 banks have failed since 2007. In 2012 there were 51 USA bank failures (actual count was 50). 45 of those banks had less than $500MM in assets and 50% of them were located in three states, i.e. GA, FL and IL. 42 of the failed banks had 5 branches or less. In just 4 months of 2013, 10 banks have failed. The economy and real estate meltdown continue to take the blame while lending mediocrity solders on. The other most common and obvious reason attributed to bank failure is severe undercapitalization. True, but that is the last straw! Several months and possibly years before failing, a bank will have gone through lengthy and painful processes dealing with delinquent or bad loans - endless credit meetings, examinations audits, numerous reports, collections, write-offs etc. But what are the underlying causes of capital depletion? Capital depletion is caused by a number of events. Top on the list is poor underwriting and credit administration which lead to bad loans. Bad loans don't pay interest as scheduled. Consequently, interest income decreases as allowances for loan loss increase. Other reasons are credit concentration; aggressive organic growth; loss on investment securities; undue reliance on volatile liability; out-of-territory lending; risky participation, fraud; liquidity failure and sustained losses among others. Let me examine these reasons briefly and hopefully some of you will make genuine attempts to avoid capital erosion of your bank's capital:
Wednesday, May 8, 2013
In today's market, it is certainly not uncommon to hear about homes being foreclosed or short-saled. It is an unfortunate situation but in some cases, homeowners can avoid that nightmare by refinancing their home. It is not an easy process or a quick-fix, but there is definite potential. Many folks just aren't sure if refinancing is the best decision for their family's home. Refinancing a mortgage, whether equitable or not, is one of the most important things that some of us will have to do at least once in our lives. It is a demanding task that requires a lot of thinking and presence of mind. Full appraisal for the exterior matters and interior matters is very much essential while refinancing a loan. It is essential for determining the value of any kind of property that you own. There are many licensed appraisers who are very good at this job so it's up to you when it comes to selection. Whenever an appraiser visits a place for evaluation purposes, he or she needs to determine the value of that property as efficiently as possible. Any necessary upgrades or repairs will be taken into consideration. There can be some deficiencies, but in many cases, a negative evaluation from an appraiser can hit you very hard and result in serious consequences.
The computation of loan-to-value ratios is important to banking and finance organizations. Banks rarely lend money that's equal to the amount needed by borrowers to buy real property or construct a house. Most financial institution prefer to give an amount that's equal to or less than 80% of the property's actual value, which is the agreed selling price between buyer and seller, or the recent market value of the property. Even when the loan is way below the required percentage, lenders prefer to use the lowest value between the property value and the purchase price when calculating home loan ratios.