Southwest Florida Housing Woes Hurt Area Banks

Area banks are racking up millions of dollars in bad debt, thanks to the softening Southwest Florida housing market.

Five Southwest Florida banks had a combined $57.5 million in outstanding construction and land loans that weren’t being paid, according to records from the Federal Deposit Insurance Corp. for the first quarter of 2007.

That’s a 207 percent increase over the $18.7 million the same banks had a year earlier, records show. Individually, these five — Florida Community Bank, First Florida Bank, First Community Bank of Southwest Florida, Busey Bank and Riverside Bank of the Gulf Coast — had the most real estate debt that’s gone unpaid among locally based banks.

Banking is a major industry in Lee County. As of June 30, 2006, deposits totaled $10.9 billion.

While it’s not a sign of financial trouble, it has caused some banks to take tougher measures when it comes to consumer lending.

At the root of the problem is the topsy-turvy market. The median price of an existing single-family home in Lee County has fallen from an all-time high of $322,300 to $268,000 in March, according to the Florida Association of Realtors.

Meanwhile, the number of homes on the market has quadrupled to about 15,000 as the number of single-family home sales has spiraled down — 636 in March compared with 1,084 in December 2005 when Florida mortgage demand was at a peak.

“It’s part and parcel with the market and the economy that we’re in now,” said John Moran, president of Cape Coral-based Riverside Bank. “A lot of banks are kind of in the same boat as we move through the process.”

Riverside reported $3 million worth of bad loans that weren’t being paid, compared with none in 2006. Still, Moran said, just because a Florida mortgage loan isn’t being paid, that’s not the end of the game.

“We’ve done very well with people who’ve been in non-accrual,” he said. Non-accrual means a loan on which the debtor is no longer paying the bank.

“Anybody who can pay back loans, we’re working with them. It doesn’t make any sense for a bank today to take a hard approach: pay or else,” Moran said.

The spike in Florida home loans not being paid is something that’s popping up in formerly hot real estate markets around the country, said Karen Dorway, president of Boca Raton-based BauerFinancial Inc., which analyzes the banking industry and keeps track of the numbers on specific banks.

“What we’re seeing is that the non-accrual loan rates are returning to previous levels,” she said. “They’ve been very low for the past three years and they’re starting to creep up. At this point they’re not at alarming levels.”

Generally, she said, the increase in bad debt was incurred from “people who were trying to get in on the upswing. People without the expertise or the knowledge were trying to get in and taking out some of these loans with the expectation that ‘I’ll simply sell it for a profit.’ ”

For the most part, she said, these borrowers weren’t the people with bad credit who were targeted by subprime lenders. “These are people with OK credit who don’t have the assets or the expertise.”

One such borrower was John Perry, 75, of St. Louis, Mo., a retired cabinet-making supply company owner.

He and his wife, Alberta, bought four properties — two in Lehigh Acres and two in Cape Coral — when the market was hot two years ago and now find themselves in trouble on all but one of the deals. They bought three of the homes from First Home Builders and the fourth from Paul Homes.

Perry said the lenders “should have definitely given some credence to our financial report — even though we had great credit, we were in the 800s.”

The lenders still should have known the Perrys didn’t have the resources to make Florida home mortgage payments on the houses, he said.

John Perry said First Home (now a division of K Hovnanian Enterprises) has taken back one of the houses, but they’re still in danger of being foreclosed on for the other three.

“We have no means of making the mortgage payments on these properties,” he said. “We’ve gone to the extent of putting our own personal home in St. Louis on the market. If push comes to shove and we have to pay something, I want that flexibility.”

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