US banks’ profits are observed to drop significantly ever since losses are incurred to pay off losses due to high mortgage rates.
The third quarter of 2007 witnessed an all time low in profits as the US federally insured banks and thrifts fell due to the fact that reserves had to be set aside to pay off the losses from dreadful mortgages which had risen to a 20-year high, as per the quarterly banking industry statistics by the Federal Deposit Insurance Corp. (FDIC), according to the news published by the TheAssociatedPress.
As per FDIC, profits incurred by banking industries came down by 25% in the third quarter. Revenues generated at 315 Florida-based banks came down by 69% in the third quarter ended September 30, 2007 in comparison to the same period in 2006.
The performance of the industry "was hurt by asset-quality problems and volatility in financial markets during the third quarter (2007)," said Sheila Bair, the FDIC's Chairman, in an announcement, adding that indiscipline and the losses incurred due to loans were soaring high in all the categories and not only in residential mortgage loans. Loans in the real estate construction category are also facing problems, as per Orlandosentinel.
Also, the drastic change in the housing market that was pushed by record loan defaults in the sub-prime mortgage sector has affected the profits of the leading banks in America. As per National Association of Realtors, the sales figure of existing homes in the US came down by 8% to only 5.04 Million in September 2007, the highest YOY decline in 16 years.
Industry specialists give a clear indication that the decline would aggravate if a resolution is not discovered fast to the threat caused by the change in pricing of those mortgages whose rate could be adjusted posing risk to potential homebuyers.
As per a research analyst at RNCOS, “The reduction exhibited by the banking industry in America has depressed the moral of bankers significantly. US consumers are facing difficulty to keep up with payments on a wide range of loans. People are reluctant to go to banks for loans. This is the reason why various banks should make adjustments in their loan policies. They should decrease the interest rate so that more people can approach them for loan requirements. Also, the government should offer houses to people at substantial rates so that they can hike their spending.”
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