Foreclosures Humbling A Dozen Banks This Year

September 22nd, 2008 | Tags: Foreclosure Crisis

So far the foreclosure crisis has humbled a dozen banks this year. The federal regulators closed down Ameribank of West Virginia alleging that this small bank had overextend its loans for the purpose of rehabilitating properties. This is the 12th federally insured bank that has gone under water. Ameribanks had five branches in West Virginia and three in Ohio.

Ameribank located in Northfork, West Virginia, has $115 million in assets and $102 million as deposits as on 30th June 2008. The Federal Deposit Insurance Corporations has been selected to be the received of the bank. The FDIC announced that those deposits that had been insured would be taken over by Pioneer Community Bank, West Virginia and Citizens Savings Bank in Ohio. The branches of Ameribank will open in West Virginia on Monday, as Pioneer Community Bank and the Ohio branches will start functioning from Sunday as Citizens Savings.

“Excessive growth” has been cited for the troubles of Ameribank. In this foreclosure atmosphere it granted construction loans for the refurbishing of properties meant for those whose incomes were low or modest, said Thrift Supervision, the primary regulator of the bank.

The second quarter of this year showed net losses – this being the fourth running quarter of losses and erosion of capital. The bank was in a critical position of being under-capitalized without any practical plans of how to restore the capital to acceptable levels.

In May 2007 Ameribank came to be formally charged for being a troubled body. In October a formal enforcement order came to be issued alleging that it had failed to follow the earlier instructions. The operation will cost FDIC about $42 million.

Most of the foreclosure troubles emanated from loans that had been given for construction and development. Many banks are loaded with this type of lending portfolios according to the findings of FDIC. The small banks are particularly vulnerable.

This year 12 banks have failed as against 3 in 2007. It is apprehended by federal bank officials that more banks are in potential danger of collapsing. In the middle of the foreclosure crisis these fears are not unfounded. The housing slump together with the drop in the real estate is gobbling up banks – big, medium and small.

FDIC is now planning to increase insurance premiums to replenish its depleted reserves. The fund had gone down from $53 billion to $45.2 billion towards the close of 2007. It is below the regulated levels.