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US Thrift Earnings Sink, OTS to Announce Loan Mod Proposal

The combined net income of 831 thrifts plunged 84 percent to $704 million in the third quarter, down from $4.29 billion a year earlier, the Office of Thrift Supervision (OTS) reported today.

Third-quarter earnings were also down a staggering 82 percent from the $3.83 billion reported in the second quarter.

“I wasn’t expecting it to be good, and my expectations were realized,” OTS Director John Reich said.

Total loan originations of $185.7 billion, including multifamily and non-residential mortgages, were up 8 percent from the $172.1 billion in the third quarter a year ago, but down 5 percent from $194.6 billion in the second quarter.

The sharp decrease in profits was attributed to increased loan loss provisions, which rose to 0.92 percent of average assets in the third quarter, up from 0.38 percent in the second quarter and 0.22 percent in the same period a year ago.

“Despite the difficult environment, I am encouraged that the managers of OTS-regulated institutions are taking the appropriate steps to provide a cushion for the future,” Reich said.

“Strong capital and higher loan loss allowances will serve thrifts well if housing markets weaken further.”

The OTS plans to release their own loan modification strategy within days, which will compensate servicers with $500 per modified loan, and assist borrowers who are current but facing unaffordable resets.

Reich has criticized FDIC Chairman Sheila Bair’s “one-size-fits-all” approach, which he believes would spook investors.

“I think investors will never return to the market again if they know that at some given point in time the agreement they thought they entered into when they bought those securitizations can be modified by fiat,” he said.

The OTS loan mod proposal would call for a case-by-case determination made by servicers, giving qualified borrowers a 36-month interest rate freeze on their initial teaser rates.

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