Bank Foreclosure Properties Expected to Grow Due to Bad Loans

by on Foreclosure Crisis

It would not come as a surprise to industry experts if the number of bank foreclosure properties in Philadelphia, Pennsylvania would increase in the coming months. This is because banks are heavily burdened with bad loans for home construction.

According to market data, problem loans have been mounting in numbers, led by home construction loans. Seriously delinquent loans increased by 3 percent in 15 biggest publicly traded banks in Philadelphia in September. The figures are a significant increase from the 0.89 percentage point the previous year.

The September increase in problem loans added about $1.1 billion debts that banks need to collect through foreclosure, restructuring or other measures. And unless the economy improves which would allow borrowers to recover and pay their debts, banks have no choice but to find ways to collect on these debts.

Meanwhile, taking into consideration the problem of banks with the growing bad loans, the Federal Reserve provided some relief by maintaining a record low federal funds rate of not more than 0.25 percent. This helps banks keep their borrowing costs at a low level and allow them to generate more profits on their new loans, thus reducing the possibility of incurring more bank foreclosure properties.

However, some banks continue to experience problems even if they hold the strongest mortgage loan portfolios. Industry experts said that many banks will think twice before they will boost their reserves because the market is still too vulnerable and unstable.

But some banks are lucky enough not to be sucked into the current mortgage crisis, as in the case of Third Federal Savings Bank. The bank continued to offer the lowest nonperforming asset rate among area banks. Officials said that the bank decided to stick with its conservative lending measures during the peak of the housing market. This helped them avoid the trouble with bad loans that many banks are experiencing right now.

By contrast, the Abington Bancorp Inc. has the highest nonperforming asset rate of 5.03 percent. In 2004, it raised about $71 million from a stock offering. Today, its construction loan portfolio is in a really bad shape, with delinquency rate of 35.2 percent.

The average delinquency rate on home construction loans in New Jersey and Pennsylvania banks rose by 15.5 percent as of end of September. This prompted many industry experts to anticipate more bank foreclosure properties in the region in the coming months.