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Saturday, March 07, 2009

Banking Crisis Perspective

Living in the third largest city in New England I happen to do all of my banking business with a small town bank. Not a mega bank, not even a regional mega bank. It’s a bank where as a customer I can get straight forward answers and know that they don’t play the games that the mega banks do. If I need a loan for a car, the bank will tell me straight up that the car isn’t worth the loan. That tells me that they are looking out for me. If I needed a loan for a house that I could never afford, they would tell me so and apologize for turning me down for the home loan. I didn’t listen to them and went to a mortgage broker that had no standards or criteria other than seeing the fact that thousands of dollars could be made quickly in refinancing my home loan.

This message from the bank president is sound on the future of this small town bank…

Message from the President
A Tough Economy and Webster Five is Standing Strong

For more than a year, the domestic and global financial industries have been under extreme duress due to unsound subprime lending and unregulated markets. As a result, many of the nation’s major financial institutions have frozen lending, have gone out of business, or have required government intervention to rescue them from bankruptcy.

The result of this economic crisis will take time to overcome however there are some important things I would like to share with you about the banking industry in 2009. There are about 8,500 banks in the United States, 70 percent of which are non-traded banks, privately held banks, or mutual banks. The Federal Deposit Insurance Corporation (FDIC), which temporarily increased its insurance to $250,000, has issued a very strong rating to 95 percent of these banks, Webster Five being one of them.

Relative to Webster Five, we envision 2009 as a year of continued growth and performance. With that in mind, we will continue to provide the financial products and outstanding personal service that will help our customers remain financially sound. As a community bank, we understand the challenges in the economy and how they affect our customers and community, so in good times and bad we are the partner you can trust.
- Webster Five

Small banks live by a far different standard than do the stock driven, profit driven, Wall Street banks. They live by realistic rules that never put the institution itself in harms way and they have been doing the same thing for decades. And in doing so, they are not as much in play for disastrous results and foreclosures or facing any form of collapse such as the many banks and mortgage companies across America that are demanding bailouts and handouts from the government. Common sense won the day and these small banks will still be around fifty and seventy five years from now.

As liberal as I am, I was one of the many idiots across our nation that lost his home due to speculator home loan brokers. I take full responsibility for my own stupidity. That was then, and as the book said, this is now. President Obama needs to look at the fact that there is an extreme difference of business ethics between a small town banks lending standards and a mortgage brokers standards. One is community and reality based and the other is profit driven to write as many loans as possible regardless of the consequence. Performance over substance is the rule. No consequences is what has this nation in such an economic dilemma. My little small town bank doesn’t need the increased regulation, the folks lending without ethics need them!

America needs to get its lending houses through regulation in order to be realistic to the markets and peoples needs. One persons loss in foreclosure can be someone else affordable price for a home. We need to make sure that the folks landing their new dream home can afford to make the payments on time and not feed into the fire that is ultimately a home lending crisis that started this whole mess. We do not need part two of the lending crisis to come to bare in three to four years.

Some reports claim that home loans are failing at a ratio of one out of five nationwide. That is a twenty percent ratio that is out of control. Small banks like the one I do business with have a ratio of one or two out of 100. Reality sucks but we need to face the music and know what we can and can not afford in a home. Home ownership isn’t out of your grasp, it just deserves more of a personal commitment from the buyer up front. Nothing is free and the no money down, no interest for five years, no closing cost or cash back at closing is only smoke and mirrors that you will have to face financially when the smoke clears.

Small banks will be okay, mega banks and idiot lenders... I just don't know.


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Blogger Pink Granite said...

Elizabeth Warren speaks about the social contract having been broken.
It sounds as if Webster Five still values that contract!

10:19 PM  

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