Posts Tagged ‘Carolina First’

I Told You So…

April 25, 2008 3 comments

Right now, spread throughout the many banks and credit unions, there are people sitting back and saying “I told you so”. I know that I mentioned to a co-worker or two that these ARMs were going to get a lot of people in trouble. Just because someone tells you that you can afford a $400,000 home doesn’t mean you have to buy it. Over the last couple of years, I heard the term “house rich and cash poor” used quite a bit.

Keeping up with the Jones and having a house worth half a million dollars on paper isn’t always worth the potential consequence. As my wife and I have said to each other, having an appraisal for $500,000 and having someone willing to pay that much are two completely different things. I’m sure these people in Denver and Charleston, SC can attest to that. (side note: Since I married a Jones, are people trying to keep up with us? If so…cool)

Financial institutions that hedged some of their bets on the sub-prime market are really feeling the pain. Right after the news about the collapse of Bear Sterns, I made a joke about “what if this happens to Bank of America”. Well after B of A’s first quarter earnings report, I don’t think it’s funny any more. I enjoy being able to go coast to coast and not pay any ATM fees. Ken Thompson at Wachovia is also feeling added pressure. There is talk about him being asked to step down.

Closer to home, Carolina First took a $201 million paper loss, but a $14 million operating loss in the first quarter. Most of this is because of loans in their Florida operations. Fortunately, their NC and SC areas are holding strong.

The bad part is the banks and credit unions that stayed away from the sub-prime market aren’t exactly safe. Quite a few of them did a lot of business in the home equity market. So if you’re in the same market that is dealing with a depressed real estate market and facing a rising foreclosure rate, what are the odds you’ll collect on that HELOC or second mortgage? If I remember correctly from my Principles in Banking class, second position is a bad place to be in.

I’m not sure how this will all play out, but one thing is for sure; we need to go back to banking basics. Just looking at FICO scores won’t do it. There’s a reason that good bankers also compare debt/income ratio, payment history, job stability, collateral and character. Most of us refer to that as the 5 C’s.