Sunday, October 25, 2009

Sour mortgages to hit $30B by year's end

Small businesses across America have been found to be groaning from the weight of economic pressures thus putting them in a situation where they are unable to secure more loans from the huge bailout money that the federal government gave to the big banks. In fact, the financial package that cost more than 700 billion in taxpayers' money did not even give a slight dent on the needs of small businesses to quench their hunger for more capital to expand their operations. In short, the federal government's move, whose primordial intention was to pump-prime the economy due to huge housing foreclosures, has become inutile.

Eventually, it had caused so much uproar among the conservatives in Congress and blamed the Obama administration for its failure to study the matter more carefully before making the final move to bailout Wall Street. It could have instigated a move to fatten the capability of the Small Business Administration (SBA) to grant more loans to small businesses rather than gave the bailout money to the big financial firms. What caused more frustrations was when it was learned that Wall Street executives got fat bonuses that run into billions, invoking their autonomy to decide on matters within the realms of their boards' clout.

There is only thing that the government benefitted from the bailout package was the $5 billion in tax breaks that was made available to small businesses. So that President Obama was quoted by the Associated Press to have asked Congress last week to increase the size of some SBA loans. Obama also had announced plans to provide low interest rate loans to small banks provided they lend more money to small businesses.

As this developed, at least 117 financial institutions have either failed or closed operations. While the big banks were enjoying the huge bailout money given to them by the federal government, small banks are just doing the opposite. What was ironical about it was that the big banks were even adamant to lend money to small businesses who needed additional capital to expand or to make their operations afloat. managing editor Linda McGlasson reported that in 2008, some 40 banking institutions failed. These comprised of 25 banks and 15 credit unions. This year, at least 77 banking institutions were either closed or taken by government regulators, including 7 banks this past weekend, she said.

As of Oct. 22, 2009, some 99 banks and 17 credit unions had discontinued operations. Citing a Federal Deposit Insurance Corporation report, she said that the total number of troubled banks doubled to 305 last year. Topping the list of failed banks include Georgia with 16 banks; Illinois, 12 banks; California, 8 banks and 3 credit unions; and Florida, 3 banks. However, the largest failure was BankUnited in Coral Gables, Florida, involving total assets of $12.8 billion. This failure cost FDIC Insurance Fund some $13.553 billion.

Although it is public knowledge that the bank failures or closures were attributed to the economic recession that the United States experienced by the time the new administration tookover the reign of power from then President George W. Bush. But the Bank Info Security pointed to the present economic condition, mortgage foreclosures and other loan defaults as the factors that may have contributed to these failures. Among the 24 states heavily affected by housing foreclosures are Nevada, Arizona, Florida, California, Utah and Georgia.

McGlasson further said that if the soured mortgages are kept up at the same rate, it is likely that the losses could hit $30 billion by year's end. She said that most of the the banks that failed had bad exposures to commercial real estate sector, which is valued at %6.7 trillion, or representing 13% of the U.S. gross domestic product. The figure on estimated losses was based on the financial reports submitted by at least 8,000 banks during the first quarter, she added.

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