WisBusiness: WBA exec says state’s banks in good shape

By Brian E. Clark
WisBusiness.com

MADISON – The financial world may have the jitters over troubles with the subprime home loan market, but Badger State banks are in good shape, an executive with the Wisconsin Bankers Association (WBA) said recently.

That’s because only a few Wisconsin financial institutions have gotten into the subprime market, said Rose Oswald Poels, senior vice president of the WBA.

“Credit may be tightening elsewhere,” she said. “But we are actually looking for people who want to borrow money. In terms of our state’s banking industry, there is no credit crunch. It’s just the opposite because we have been pretty conservative and for the most part, have not gotten into risky deals.”

Supbrime loans are those typically marketed to people with marginal credit. In recent months, as homeowners have defaulted in increasing numbers, mortgage companies – including California-based Countrywide Financial, the country’s biggest mortgage lender – have been hit with major losses.

Wall Street responded by falling hundreds of points, continuing on the volatile course it has followed all summer.

Also last week, Milwaukee-based MGIC Investment Corp., the nation’s biggest mortgage insurer, said it might lose as much as $1 billion from a subsidiary called C-BASS, a company that buys mortgages in which borrowers have fallen behind on payments.

MGIC shares fell by more than 13 percent last week Friday, dropping to $36.21, well below its 52-week high of $70.10. Only July 18, its shares closed at $55.81.

In Wisconsin, foreclosures increased by 63 percent during the first six months of this year – rising to 5,925 – compared to the same period last year. Still, Wisconsin’s overall foreclosure rate remains below the national average. There was one foreclosure per 422 households in Wisconsin during the first half of 2007, 33rd in the nation.

Oswald Poels said a recent WBA poll showed that said 91 percent of the respondents said they make no or very few subprime loans. She said Wisconsin has 300 banks and thrift institutions.

“On balance, because we don’t do subprime loans because we are so heavily regulated,” she said. “We don’t make drastic decisions that would cause balance sheets to get out of whack . I’d like to think our industry is well run and managed here.”

But the downturn of the subprime housing market is having a negative ripple effect on other sectors of the Wisconsin economy, according to the latest Bankers Economic Index sponsored by the Wisconsin Bankers Association. Even so, Wisconsin bank chief executive officers predict a status quo economy through the end of 2007.

Despite the fact that 91 percent of the 136 respondents to the bank CEO economic survey – known as the Bankers Economic Index – said they did not make any or very few subprime loans, the fall out from the decline of that market is hurting bank customers. The survey was conducted in late July.

Forty-four percent of bankers saw more consumer and business bankruptcies over the last six months, 36 percent reported higher home foreclosures and 44 percent said “past dues” for residential mortgages increased over the same period.

Oswald Poels said she could not predict how the current crisis will shake out.

“I wish I had a crystal ball so I could tell you,” she said.

“I can say, though, that this is a cyclical problem that is worse on the coasts,” she said. “It’s also tied to the economy and people who have lost their jobs and are financially stressed.”

“But Wisconsin is different than some other parts of the country,” she said. “For the most part, we have conservative borrowers and lenders. So we shouldn’t see giant swings, though there will be some fluctuations.”
And her final piece of advice?

“I do hope that people exercise caution at this time and not panic because it’s easy to get caught up in the hype. If people stay calm, talk to professional advisers and not take drastic actions, they will do better.”