Another Florida Mortgage Provider Reports Troubling Rise in Problem Loans

In a clear signal that the Florida housing market is weakening, BankUnited Financial reported a significant spike in problem loans Monday, according to the Miami Herald.

Non-performing assets more than doubled to $45.1 million for the December quarter from the prior fiscal quarter and more than quadrupled from a year earlier, said the Coral Gables-based parent of BankUnited FSB, the largest Florida bank.

BankUnited reported the troubled loans as it posted record net income of $27.4 million for its fiscal first quarter that ended December 31, up 69 percent from $16.2 million a year earlier.

Per-share earnings rose to 71 cents - beating analysts’ consensus estimate by 4 cents and well above the 50 cents a share earned a year ago.

The new results reflected higher assets, a wider profit margin, controlled losses and a strong increase in noninterest income. But worries about a deteriorating Florida home loan portfolio and slower growth spurred investors to sell off shares, driving the stock down 66 cents, or 2.4 percent.

BankUnited has been a major lender in option-ARM loans - adjustable rate mortgages where borrowers decide how much to pay each month, including just interest or even just a portion of interest.

As a result, borrowers can face both a larger balance and a higher interest rate. These Florida mortgage products are considered risky, especially in a worsening real estate market with rising interest rates.

In a report to clients, Raymond James & Associates analyst John A. Pandtle repeated a sell recommendation on BankUnited shares, citing the rising number of bad loans on the horizon and slower loan growth.

Pandtle said while he has long regarded option-ARM loans to be risky “with rising mortgage rates and an overheated housing market, the magnitude of this quarter’s asset quality deterioration is surprising even to us.”

To be sure, BankUnited’s nonperforming assets remain relatively low: 0.33 percent of total assets, compared to 0.16 percent the previous quarter and 0.09 percent a year ago.

In a conference call with analysts, BankUnited Chairman Alfred R. Camner said nonperforming assets could climb to about 0.6-0.8 percent of total assets before long. But he added:

“We don’t look at losses to be significant.”

The bank has been expanding steadily, opening new branches outside its core South Florida market. Its 77 branches are nearly double the 40 BankUnited operated when Ortiz joined the company in 2002.

Ortiz said some of the bank’s Florida mortgage loan delinquencies are tied to Florida’s property insurance crisis, which has made policies hard to get and extremely expensive.

“Delinquencies are starting to creep up as people face property insurance bills that sometimes have doubled,” Ortiz said, noting that the bank is helping customers modify loans to pay for insurance increases.

The rise in troubled Florida mortgage loans also reflects the longer time needed to find buyers for foreclosed properties with so many houses on the market.

BankUnited, which has 56 percent of its residential loans in Florida, set aside $4 million in the latest quarter as a loan-loss provision, compared with $2.3 million a year earlier. Total assets rose 22.7 percent to $13.8 billion from $11.3 billion a year earlier.

The bank said option-ARM loans amounted to 59 percent of its total loan portfolio at the end of last year, up from 51 percent a year earlier. As of December 31, the portfolio of $7 billion option-ARM balances had negative amortization - in which mortgage balances increase over time - of $129.7 million, or 1.9 percent.