I work as a financial consultant for small business. I had an interesting meeting today with one business's bankers. The bank was going to start foreclosure on a real estate mortgage loan. There was little sense in their doing so and we were appalled. The business has not missed a payment, no payment has been late, they have over 50% equity (based on an appraisal less than 1 year old), and they have proven means of continuing to make the payments. Yet the bank says they will initiate foreclosure proceedings in 90 days if we do not find another bank to do the mortgage loan.
Here was the shocker: (below the fold)
The bank says they are being forced to do this by the OCC (Office of the Comptroller of Currency). The OCC (www.occ.gov) regulates our national banks. They told this particular bank that their exposure in commercial real estate was too high and they must reduce it. The bank said that no matter how credit worthy, if a customer has a commercial real estate loan coming due within the next 6 months then the customer must find financing with another bank. It will not be renewed. They said they have no choice and they are being forced to do so by the OCC.
What does this mean to the economy? Well, in my area, it means that they are foreclosing a lot of properties and holding a sheriff's sale to liquidate the loan. This is because other banks are reluctant to write new loans (especially the bigger banks). The local banks are the only alternative and they have limited means and are trying to take care of their long term customers first. So the commercial real estate market here is in jeopardy of tanking in a very short period of time.
So let's return to what the OCC is doing. It seems that their approach is counter-productive to what the government says they are trying to do to rescue the economy. We have poured billions into the banks to stimulate lending, while the OCC is telling banks to reduce their exposure. Does the right hand even know what the left hand is doing? And we are not talking about eliminating "toxic assets". The bankers said they are refusing to loan to their best and most credit worthy customers. They are refusing to renew loans to anyone.
Why doesn't the OCC take a less dramatic approach? They could identify a problem area, such as over-exposure in commercial RE, and require that the percentage be reduced over-time by not writing new loans. They don't have to force the bank to take drastic, anti-economic, measures to meet new criteria within an unrealistic time frame if it's going to have a far-reaching negative impact.
I'm contacting my senator and representative to ask them to review the OCC's current policies. Your help would be appreciated. Thanks.