Florida Mortgage Lenders Prepare to Weather New Challenges

At three-year-old Great Florida Bank, the woes of two commercial real estate borrowers have caused the mortgage lender’s problem Florida home loans to jump.
And BankUnited, one of South Florida biggest thrifts, saw the handwriting on the wall two years ago when it stopped making construction loans for high-end Florida condos.

An analysis of nonperforming loans and those that were 30 to 89 days late at 10 South Florida mortgage lenders during 2006 shows a handful of banks with increases in bad home loans.

But for the most part, analysts and bankers say South Florida institutions remain strong, showing that banks - and regulators - learned a lot about underwriting and protecting against potential losses from the savings and loan debacle of the 1980s.

Generally, Florida mortgage foreclosures only rise significantly with a spike in unemployment, which is currently low in South Florida.

The only Florida bank now facing real troubles is Bradenton’s Credit Bank, which ended up making almost 500 home loans totaling $110 million to customers of a St. Petersburg builder that later went broke, triggering a cascade of loan problems for borrowers and the bank.

But most area banks appear to be much better prepared for any rough waters than banks were in the 1980s when thinly capitalized institutions struggled to keep afloat during a housing market slowdown and economic downturn.

Some banks went under.

Today’s banks “are the survivors of that decade,” said Miami bank analyst Ken Thomas, who regularly scrutinizes bank statistics. “We are looking at really strong, well-capitalized banks.”

In the South Florida housing market, many banks have been reporting very high profits, along with above average capital. Having sufficient reserves set aside is the key to neutralizing loan losses.

But there are a few warning flags on the horizon.

Several local banks have boosted their first-quarter reserves for Florida home loan losses, an indication they may be expecting more delinquent mortgages this year.

At Great Florida Bank, two commercial real estate borrowers that hit problems sent total nonperforming loans to $9.4 million, and mortgage payments overdue 30-89 days surged to $23 million, almost 2 percent of all loans.

Great Florida CFO Gary Lauresh said the market is tougher than it was six months to a year ago. “Just because we are a new bank, we’re not immune to the general market or from one particular borrower,” he said.

Lauresh, however, said Great Florida has some $170 million in capital and another $20.5 million in reserves: “We feel very comfortable that we are well prepared for any event or events that may happen in the future.”

At Ocean Bank, a big Florida mortgage company, loans that are 30-89 days past due surged from about 2 percent of all loans at the end of 2006 to 4.6 percent at the end of the first quarter.

The late Florida home loan category includes borrowers who are just a few days late in sending in a mortgage payment as well as more problematic borrowers - so late loans are signs of stress but not necessarily distress.

“The change in the amount of the past-due category is a reflection of the slowdown in the real estate market in Florida,” said Terry J. Curry, V.P. and chief credit officer of Ocean Bank.

CommerceBank said its first-quarter home loan performance actually improved: non-performing Florida home loans dropped from 0.89 percent of loans to 0.52 percent at the end of the first quarter.

So far, the meltdown in the subprime mortgage market has been limited, for the most part at least, to unregulated Florida mortgage broker and lender groups, which lent to customers with spotty credit records.

That’s because South Florida’s commercial and savings banks have steered clear of subprime lending, although some like BankUnited are heavily into alternative rate mortgages.

But South Florida mortgage firms still could face choppy seas.

“There may be some additional challenges felt in the South Florida area,” said Karen Dorway, president of BauerFinancial in Coral Gables, noting the softening real estate market has caused problems with subprime loans.

SOURCE: Miami Herald