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Bank crisis has no local impact

By Staff | Oct 8, 2008

You don’t need to withdraw your money from the bank and hide it in a sock under your bed. Estherville area banks are doing just fine and should weather the financial storm that quite frankly has lenders in other parts of the country reeling.

The subprime mortgage meltdown, resulting in a federal bailout of the banking industry last week, really doesn’t affect Estherville. The main reason is that lenders have been cautious about giving loans to people with shaky credit.

“We’ve been cautious all along,” said Ron Menendez, vice president at Bank Plus in Estherville. Menendez said Bank Plus has not changed its target credit score for making loans – that rate was already high enough to generally ensure that people would repay their loans. “Our credit standards today are exactly what they were six months ago,” Menendez said.

That’s not the case though in other parts of the country.

Menendez said in those areas affected by the credit meltdown high-risk loans were made to people who should never have received the loans. In many cases, people who did receive the loans paid higher upfront fees and interest rates.

“There’s regulations to prevent this,” Menendez said of the lending practices and subsequent credit crisis. “A majority of these loans were not done by community banks.”

Bank Plus is apparently not alone in holding loan applicants to fairly strict credit standards.

“I don’t know of any local banks that are experiencing this problem,” Menendez said. “That is because we have been following the same stringent lending practices all along.”

Menendez keyed into mortgage brokers as a big factor in the problem. People who can’t qualify for loans from traditional sources shopped around for loans that they just could not afford to repay.

Ironically, if regulators and legislators had been held to the same standards as community banks, the risky loans would never have been made, said Menendez.

While some larger banks may have made loans to people with less-than-perfect credit, Menendez said after scooping up the upfront fees they sold the mortgage-backed securities on the secondary market. And, while not all those loans are going to go bad, the current financial climate is such that there are no buyers for those securities.

“We’re going to find that not all loans are going to go bad,” Menendez said.

Menendez said a big reason the federal government approved the financial bailout was to restore consumer confidence and get the credit crunch off dead center. “There’s a loss of confidence where they can put their money,” Menendez explained.

While he’s had customers express concern about the subprime fiasco nationally, NorthStar Bank President Scott Taylor said confidence remains strong in community banks locally.

“They’re aware we’re not as involved in subprime lending,” Taylor said. “We don’t have any subprime lending.”

In fact, customers have more confidence in their local banks after the Federal Deposit Insurance Corporation recently increased its guarantee level on savings from $100,000 to $250,000.

“That helped some folks feel even more confident,” Taylor said.

While Fannie Mae and Freddie Mac requirements have significantly increased the minimum required credit scores, Taylor said loan applicants with good credit scores can still qualify.

As far as overall investor confidence locally is concerned, Taylor said investors are more closely investigating their investments. On the borrowing side, loan demand remains strong, he said.

The net result is not much of a change from the way NorthStar has done business in the past.

“We haven’t seen a lot of change,” Taylor said. “We like to think we were using sound banking practices” in the past, he noted.

“We’re doing very, very well,” Employees Credit Union CEO Mark Peters said. And, with the increased FDIC limit, people have more confidence in the safety of their deposits, he said. “We don’t have any concerns,” Peters said.

Peters did note some concern about a general slowing of the economy. People have also asked about pulling money out of the stock market and putting it into more secure investments. However, that may not always be the best answer for everyone either, he said.

“This may be one of the greatest opportunities to buy in my lifetime,” Peters said.

Robert Darmanin, regional media relations consultant with the Bank of America, released the following statement Tuesday:

“Bank of America strongly supports the efforts by Congress, the Treasury and the president to ensure the continued flow of credit to both large and small businesses and to consumers. Credit availability is essential to the functioning of our economy, and the asset purchase program established in the bill before Congress is urgently needed to restore liquidity to the credit markets. The legislation, in combination with other recent policy actions, will address the current blockages in financial markets that threaten the country’s economic vitality.”

Despite write-downs of bad debt at Bank of America Corporation, the company Monday announced the board of directors declared a regular quarterly cash dividend of $1.75 on the 7 percent Cumulative Redeemable Preferred Stock, Series B. The dividend is payable on Jan. 23, 2009, to shareholders of record as of Jan. 9, 2009.